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.