Oil price windfall might save state revenue targets

Oil price windfall might save state revenue targets

JAKARTA (JP): The government is unlikely to face difficulties
in achieving revenue targets in the current April-December state
budget if the bullish outlook in the world's oil prices continues
in the second semester of this year.

Director for exploration and production at the Ministry of
Mines and Energy Kardaya Warnika estimates state revenues from
oil and gas exports will reach at least Rp 65 trillion (about
US$7.2 billion at the current exchange rate) if the average price
of the country's oil exports continues at the current level of
US$26 per barrel.

"With a price of $26 per barrel, the government will receive
additional revenues of about Rp 22 trillion from oil and gas
exports above current budget forecasts," he told The Jakarta Post
early this week.

The government expects to receive Rp 43 trillion from oil and
gas exports during this transitional nine-month fiscal year, but
at the same time it will also spend about Rp 22.46 trillion for
fuel subsidies. This forecast is based on an assumed oil price of
$20 per barrel.

With the price scenario of $26 per barrel, the fuel subsidy is
expected to increase to Rp 29.12 trillion if the government
maintains fuel prices in the domestic market at current levels.

Although the government will pay more for fuel subsidies, the
oil and gas windfall will still contribute additional revenues of
about Rp 15.4 trillion for the state budget or more than double
the government's revenue target from its privatization program.

Kardaya is upbeat the oil price will remain high this year due
to continued bullish demand from industrialized countries.

"We can estimate that the average price of $26 per barrel will
continue," he said.

Prices of crude have remained high since late 1999 after a
sharp fall in 1998 that saw prices plunge to $9 per barrel.

The June decision of the Organization of Petroleum Exporting
Countries (OPEC) to hike production by 700,000 barrels per day
has failed to lower oil prices to the organization's maximum
price target of $28 per barrel.

Earlier this week the organization announced a plan to raise
production by another 500,000 barrels per day but the price
remained high at $29 per barrel.

Some analysts believe that higher revenues from oil and gas
exports will save the budget even if revenues from other sources
such as taxes, proceeds from privatization and sales of assets
held by the Indonesian Bank Restructuring Agency (IBRA) are not
achieved.

In the 2000 state budget, the government expects to realize Rp
6.5 trillion from the privatization of 10 state firms.

However, to date the government has not sold any of those
companies.

Unlike previous budget years, the current state budget runs
for nine months, from April through December.

Analysts have warned that a sluggish market would make sales
of the state firms at their expected value difficult. Pressure to
privatize has also come from the International Monetary Fund
(IMF).

In addition to the privatization program, the government
expects the Indonesian Bank Restructuring Agency (IBRA) to
contribute Rp 18.9 trillion to the state budget.

IBRA controls assets amounting to some Rp 600 trillion,
comprised largely of bad loans acquired from the country's ailing
banks.

But thus far IBRA has recorded revenues of only Rp 4.4
trillion.

The current budget is relying on tax revenues for 65 percent
of the total budget of Rp 152.9 trillion, or Rp 97.8 trillion.

The budget itself, however, runs on a deficit of Rp 44.1
trillion. The government expects to cover the deficit mostly from
foreign loans.

ECONIT Economist Arif Arryman urged the government to spend
the oil and gas windfall to stimulate the economy rather than to
cover the deficit.

He said that the IMF, which has stipulated that any surplus
from the oil and gas sector be used for paying down the deficit,
should understand that Indonesia needs to stimulate the economy
to cope with its acute unemployment problem. (bkm/hen)