State budget to peg oil price at US$35

Leony Aurora and Urip Hudiono, The Jakarta Post, Jakarta

The government will keep the oil price assumption of US$35 per barrel for its 2005 state budget revision draft although the global oil prices have surged to more than $50 a barrel.

With the decision, the government has eased public worries of another rise in domestic fuel prices, which were increased on March 1 by an average of 29 percent.

"The oil price assumption of $35 per barrel was decided in the presidential regulation," Coordinating Minister for the Economy Aburizal Bakrie told reporters on Monday.

He said the government has prepared a scheme to expand the state budget's deficit if, over the course of the year, the global oil prices finally average between $40 and $45 per barrel. "We will raise the budget's deficit numbers, but not the oil price assumption or increase fuel prices."

However, Aburizal said the option to change the oil price assumption would still be open if it were deemed necessary during the state budget discussion between the government and the House of Representatives.

The government submitted the state budget revision draft to the House last Thursday -- raising the oil price assumption to $35 a barrel from the previous $24, and the rupiah exchange rate to Rp 8,900 per dollar from Rp 8,600. The budget deficit, meanwhile, was maintained at 0.8 percent of gross domestic product (GDP) following a $2.6 billion debt moratorium from the Paris Club group of creditor nations.

With the $35 a barrel assumption, the government will be able to save Rp 20.3 trillion from the subsidy cut, allocating Rp 17.8 trillion for assistance programs to help the poor, who will likely be most affected by the fuel price hike.

Legislators said earlier that the government's oil price assumption and rupiah exchange rate would be unrealistic due to the current conditions.

Crude oil for May delivery traded at $54.30 a barrel in the New York Mercantile Exchange on Monday, while the rupiah continued slipping to Rp 9,438 per dollar on Monday.

Meanwhile, Minister of Energy and Mineral Resources Purnomo Yusgiantoro said the $35 per barrel assumption would still be reasonable as the Indonesian Crude Price remained on the level of $43 to $44 per barrel.

"The (oil) price we see now is stated at the New York (Mercantile) exchange. It is the price of the West Texas Intermediate," he said.

The assumption was also in line with the range set recently by the Organization of Petroleum Exporting Countries (OPEC) at between $32 and $38 per barrel. OPEC raised the range from $22 to $28 it set in 2000, correcting it in accordance with the inflation and exchange rate.

"The problems (with global oil prices) now are beyond the supply and demand balance," said Purnomo, pointing at speculation about disturbances in supply as the culprit behind soaring crude oil prices.

He was optimistic that prices would slide down in the following three months as demand eased with the coming of Spring in European countries and the United States.

"OPEC has increased its output by 500,000 barrel per day (bpd) and is ready to add 500,000 bpd more," he said. The additional output would be disbursed if the heads of member countries agreed that it was needed to help slash the soaring oil prices.