Oil prices and the national budget

Oil prices and the national budget

The oil price assumption of US$24 per barrel in the 2005 state budget draft has been widely criticized, as the world market price of oil has already reached $50 per barrel. The high price of oil on the international market, which could probably stay like that for a long period, is likely to burden the Indonesian economy in the coming months.

The high price stems from the conflict in Iraq, a rise in China's crude oil imports, the high demand for oil in India and a decrease in America's oil supply.

An fuel subsidy increase to Indonesia's state oil and gas company, PT Pertamina, might disturb the economy. With the oil price assumption at $24 per barrel, Pertamina will receive a subsidy of 1 percent of the gross national product.

In this regard, why has the government not changed the assumption in the 2005 state budget draft as it did in the 2004 state budget, where the oil price was set at $36 per barrel?

The government should thus be more active in energy diversification and conservation, increase oil and gas production and encourage energy efficiency.

In the name of energy conservation, the government should consider the possibility of increasing the domestic price of oil to adjust to the skyrocketing world market price of the commodity.

Bisnis Indonesia believes that maintaining the oil price assumption at $24 per barrel was done merely for political reasons prior to the presidential election on Sept. 20. We also believe that whoever is elected as the next president will eventually be forced to increase the domestic price of oil.

Raising the domestic oil price is an unpopular decision, but it is one risk the country's leader needs to face. On the other hand, people should not be spoiled by the low fuel price policy, but be taught about the hardships the country is facing.

-- Bisnis Indonesia, Jakarta