Budget 'safe, secure': Minister

The Jakarta Post ,  Jakarta   |  Tue, 10/30/2007 4:40 PM  |  Business

Urip Hudiono, The Jakarta Post, Jakarta

The government says the state budget is flexible enough to weather the storm of rising global oil prices.

Finance Minister Sri Mulyani Indrawati said Monday next year's budget allocates Rp 7 trillion (some US$700 million) as a contingency fund in the event the budget assumptions relating to oil prove off the mark, which could push up fuel and power subsidy costs, and eventually the deficit.

""That's (the contingency fund) our cushion if there's a shortage in oil production,"" Sri Mulyani said.

""The cushion for a mismatch in oil prices, meanwhile, is the price itself. We've calculated that (spending and revenues related to oil) will cancel each other out.""

She said Indonesia could also expect more revenue from its exports of natural gas, palm oil, coal and metal commodities -- all of whose prices are on the rise in the global market.

""So the budget is safe and secure in the sense that all of its components can now move along with the current economic situation.""

The government is basing the 2008 budget on an assumed oil production rate of 1.034 million barrels per day -- from 950,000 barrels in this year's budget. The oil price assumption is $60 a barrel, the same as this year.

Crude prices have touched $93 a barrel in New York and $90 in London. Indonesia exports its oil according to the Indonesian Crude Price (ICP), which is based on a basket of Asian region prices and is projected to average $70 a barrel this year.

The government will continue to monitor this year's budget, which has already been revised, and carry over any subsidy or deficit increases into next year.

While Indonesia is still a net energy exporter due to its gas production, it is now a net oil importer, with next year's budget having to bear some Rp 74 trillion in total fuel and power subsidies, less than Rp 88 trillion this year.

Oil and gas revenue for next year is expected at some Rp 144 trillion, from Rp 112 trillion this year.

Power subsidies may be affected by oil prices as many power plants in Indonesia still rely on oil-based fuels for generating electricity.

Despite its stated confidence over budget finances, the government is nevertheless preparing for any eventuality.

Coordinating Minister for the Economy Boediono held a meeting recently to assess rising oil prices.

Attending the meeting were Energy and Mineral Resources Minister Purnomo Yusgiantoro, Bank Indonesia Deputy Governor Hartadi A. Sarwono, State Minister for State Enterprises Sofyan Djalil and the Finance Ministry's Fiscal Policy Agency head Anggito Abimanyu.

Sofyan said the meeting outlined possible worst-case scenarios and other anticipative measures, which could include increasing the dividend payments of state firms to secure total budget revenue.

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