Oil price plunge threatens budget
Oil price plunge threatens budget
Moch. N. Kurniawan, The Jakarta Post, Jakarta
The current plunge in oil prices could spell serious trouble
for the country's 2002 state budget due to a significant revenue
shortfall, analysts warned on Monday.
Economist Hendri Saparini of private think-tank Econit said
that if oil prices continued hovering at the current level of
around US$17 per barrel, the state budget deficit could swell to
3 percent of gross domestic product from the projected 2.5
percent of GDP.
She said that there would be a potential loss of around Rp 5
trillion (US$471 million) per year if oil prices fell by only $1
from the 2002 budget assumption of $22 per barrel.
A greater budget deficit would trigger fiscal instability,
which in turn creates new risks to economic growth, which has
been projected by the government at 4 percent next year.
"I'm not optimistic that oil prices can reach the targeted $22
per barrel," Hendri told The Jakarta Post.
Brent crude prices plunged to a 29-month low of $17.02 per
barrel on Monday amid concerns of an oversupply at a time of weak
demand due to the global economic recession. The price was still
at more than $31 per barrel before the Sept. 11 terrorist attacks
on the U.S. which exacerbated the current global economic slump.
There are fears that oil prices will continue to fall as major
non-OPEC countries have resisted demands by the Organization of
Petroleum Exporting Countries (OPEC) to cut output by 500,000
barrels per day (bpd). The oil cartel recently agreed to cut
production by 1.5 million bpd only if the non-OPEC players make a
significant output cut as well.
Indonesia, which is the only OPEC member in Southeast Asia,
relies heavily on oil revenues to finance the state budget.
The government has budgeted for an expected Rp 66.1 trillion
from oil and gas revenues in the 2002 state budget.
An expert from the ministry of energy and mineral resources
previously told the Post that one alternative for the government
to cushion the impact of the oil price plunge was to consider
protectionist measures for the country's oil sales price at $22
per barrel through a hedging mechanism.
But economist Bustanul Arifin of Indef (Institute for
Development of Economics and Finance) said that at the current
price of oil, it would be nearly impossible to achieve the
expected target.
"Who would dare purchase the hedging contract...it's too late.
The government should have done it previously when the prices
were quite high," Bustanul said.
He also stated that despite the very real possibility that the
2002 oil price assumption would not be achieved, for political
reasons, the government would not revise its budget assumption.
He said that the government would prefer to carry over the
loss to the 2003 state budget.
Some analysts believe the slump in oil prices will help
accelerate the economic recovery of developed nations such as the
U.S., which in turn should bode well for the exports of
developing economies like Indonesia.
But Bustanul said that the costs associated with an oil price
plunge outweighed the possible benefits to the Indonesian
economy, adding that the country's export performance would not
necessarily increase due to a host of domestic problems including
security and labor issues.