Govt sees limited oil-hike impact

Govt sees limited oil-hike impact

The Jakarta Post, Jakarta

The government indicated on Wednesday it can still afford to
keep domestic fuel prices at current levels without harming the
state budget despite soaring oil prices in the international
market.

Oil prices rose to fresh record highs of US$44.28 per barrel
in New York and $40.82 in London during the day amid supply
concerns, shattering global financial markets.

But Minister of Finance Boediono asserted that the net impact
of the high oil prices on the state budget was still
"controllable".

"We don't need to worry about its impact on the state budget.
It can still be controlled," Boediono was quoted by Antara as
saying on the sidelines of a seminar on fiscal policy at the
University of Indonesia in Depok, West Java.

Boediono did not provide details on how the state budget would
cope with it, but he said that the government would also do its
utmost to secure the domestic fuel supply.

Since the price of fuel has been a sensitive issue in the
country, Boediono's remarks should not be much of a surprise
especially as the country is now preparing for the runoff of the
presidential election.

Although the country is a member of the Organization of
Petroleum Exporting Countries (OPEC), Indonesia also imports
crude to meet domestic demand amid declining reserves.

The rise in international oil prices will also have a negative
impact on the state budget as the government still subsidizes
several types of fuel particularly those used by the
transportation sector and low-income households. The current
state budget assumes an average oil price of $22 per barrel, but
Minister of Mineral Resources and Energy Purnomo Yusgiantoro said
recently that the average oil price during the past year stood at
around $34 per barrel. This could inflate the fuel subsidy this
year to around Rp 50 trillion ($5.42 billion), more than triple
the Rp 14.5 trillion allocated in the current budget.

The government will present a revised version of the current
state budget to accommodate the oil price change after President
Megawati Soekarnoputri delivers her Independence Day speech on
Aug. 16.

Despite his assurance, Boediono warned there would be a limit
in the ability of the future budget to deal with the subsidy
pressure, saying the next government should respond to any oil
price hike in the future. The remark suggests the new government
will have to up domestic fuel prices next year if the
international oil price increases to avoid a fiscal fiasco.

Some economists have long criticized the costly government
fuel subsidy as it only benefits the rich people with cars and
inefficient companies, and also encourages smugglers to sell
subsidized fuel to neighboring countries.

Elsewhere, the high-flying oil prices proved to have battered
world stock markets. In Tokyo the Nikkei-225 share index lost
1.17 percent to 11,010.02 points, following in the footsteps of
Wall Street a day earlier.

European stock markets followed suit. The British FTSE 100
index dropped 1.04 percent to 4,383.50 points in early afternoon
trading, with the German DAX 30 sliding 1.67 percent to 3,812.49
points.

In Jakarta, the rupiah sharply declined to Rp 9,225 per dollar
on Wednesday, from Rp 9,180 on Tuesday on suspected heavy dollar
purchase by Pertamina to finance the fuel import transactions.

Among the reasons that helped lead to the oil price surge, was
Tuesday's remarks by OPEC president Purnomo Yusgiantoro, who said
that the cartel had run out of on-hand stocks to help boost
global supply which could otherwise ease the prices.

Supply disruptions also pose a threat.

"...The supply chain is tight and there is little room for
disruption -- hence the concerns over troubles at Russian oil
company Yukos," an analyst from Standard Chartered was quoted as
saying by AFP.