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)