Susilo's budget revision plan hailed

Rendi A. Witular, Jakarta

Experts agree on the plan by president-elect Susilo Bambang Yudhoyono to revise the 2005 state budget, citing the urgency to revise the crucial oil price assumption to better reflect current developments in global oil prices.

Adjustments to the oil price are needed for the next government to ensure a more accurate benchmark to set other key assumptions in the state budget; chief among these is the fuel subsidy, as well as revenue from oil and gas and revenue-sharing between central and local governments.

"The current economic situation has changed quite fast, so the revision (of 2005 state budget) is needed.

"I think the most important assumption to be immediately revised is the price of oil," Minister of Finance Boediono told reporters on Sunday.

Boediono was commenting on Susilo's victory speech on Saturday, in which he spelled out an immediate need for his administration to revise the 2005 state budget during his first months in office.

Boediono said that the 2005 state budget was not made to commit the new government to it, but was more as a legal backup to ensure the availability and sustainability of the state's finances during governmental transition.

In the first 2005 state budget draft, the oil price was set at an annual average of US$24 per barrel. Based on that, revenue from oil and gas would be fixed at Rp 47.1 trillion ($5.23 billion) and revenue sharing for regional governments at Rp 31.2 trillion.

The oil price assumption is especially crucial in the calculation of the oil subsidy for next year, which is earmarked at Rp 19 trillion.

Mandiri Securities head of research Kahlil Rowter also agreed that the upcoming administration needed to revise next year's state budget, primarily the oil price assumption, as $24 per barrel was unrealistic. The world oil price closed at over $50 on Friday.

Kahlil said that a realistic oil price assumption would help the government to cut fuel subsidies at a more precise level, and to accurately assume the state budget deficit level, which was earmarked at Rp 16.8 trillion.

"Crude prices have been averaging more than $40 a barrel at present and are projected to remain at that level next year. The most reasonable oil price would be at around $35 a barrel," said Kahlil.

"Changes in the assumption will eventually cause overall changes for state revenues and expenditures," he said.

For every dollar that the world oil price is above the assumption, the impact will be between Rp 100 billion to Rp 150 billion in extra expenditure requirements, according to the Ministry of Finance.

Rocketing oil prices mean that the government has to allocate more of the state budget for fuel subsidies. Even based on an oil price assumption of $36 in the 2004 state budget, fuel subsidies were budgeted at Rp 59.2 trillion, four times higher than the Rp 14.5 trillion projected in the 2005 draft earlier this year.

The central government pays for all of the fuel subsidies, while oil and gas revenues must be shared with regional administrations.

Kahlil, however, was concerned with a possible lingering process for the budget revision, as Susilo could choose a whole new group of people for his economic team. In addition, most members of the House of Representatives' budget commission were new to the process.

"I fear that the revision will take a long time, because they have to start again from scratch. The revision should be concluded before January, since the state budget should be fully implemented next year," said Kahlil, adding that a delay in finishing the revision would cause uncertainties for the business community. Editorial -- Page 6