This year's state budget deficit is likely to soar far above

This year's state budget deficit is likely to soar far above
initial forecasts unless immediate measures are taken to contain
surging spending on fuel subsidies amid high global oil prices
and soaring fuel consumption at home, the Minister of Finance
says.

Jusuf Anwar estimated on Monday the deficit could jump to 1.3
percent of the gross domestic product (GDP), or about Rp 35.2
trillion (US$36.2 billion), from projections of 0.8 percent of
GDP, or Rp 20.3 trillion,

"The government's cashflow is still manageable, but it will be
hard in the future to maintain it following the soaring cost of
the fuel subsidy," Jusuf said after meeting President Susilo
Bambang Yudhoyono.

According to Jusuf, the 1.3 percent deficit was calculated
based on the assumption that global oil prices stood at US$60 a
barrel throughout the year, oil output stayed less than 1.125
million barrels a day, and domestic fuel consumption remained
high at 59.6 million kiloliters.

With these assumptions, the Ministry of Finance estimates that
the costs of the fuel subsidies would rise to Rp 123 trillion for
the year.

The 2005 state budget has allocated only Rp 76.5 trillion for
the subsidies, assuming an average annual oil price of US$45 a
barrel, a rupiah-U.S. dollar exchange rate of Rp 9,300 and fuel
consumption at 59.6 million kiloliters.

The government is scheduled to submit its second state budget
revision to the House of Representatives in late August, with the
main agenda likely to be seeking additional funds for fuel
subsidy spending.

Analysts say by carrying the cost of the subsidy the
government is putting at risk the country's fiscal stability and
the economy as a whole.

They fear that the country's currently stable macro-economy
will be severely impacted by the widening deficit, which will
reduce the government's ability to provide funds for social and
economic emergencies and to service its massive debts to foreign
creditors.

A widening deficit also puts confidence in the country's
economy at risk, jeopardizing the already slumping rupiah and
triggering inflationary pressure and higher interest rates -- all
things that can put the brakes on economic growth.

Jusuf said the Ministry of Finance and several economic
analysts were currently working to find effective ways to ease
the deficit problem, including a further review of the fuel
subsidy system.

He however, refused to confirm whether the review would
include a cut in subsidies, as demanded by several economists and
business lobby groups.

"I cannot disclose what kind of measures will be taken; they
are still being discussed. But we will certainly review the
allocation system for the fuel subsidy... I guess you can deduce
what I mean buy that," he said.

The government launched a public energy conservation campaign
last week, which many have criticized as ineffective. Instead,
its critics say, the government should reconsider its fuel
subsidy policy and hike fuel prices again.

According to the finance ministry, the government has already
spent some Rp 46 trillion on fuel subsidy payments to state oil
and gas company PT Pertamina -- more than half of its full-year
allocation.