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NEWS UPDATES Asean Affairs        21  March 2011

Oil prices no threat to Indo budget

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The Indonesian national budget is safe despite rising oil prices, Finance Minister Agus Martowardojo said, giving assurances there will be no fuel price increases this year.

“Even if oil prices hit $100 per barrel, if the rupiah is at Rp 8,800 per dollar, our budget is safe and sound,” Finance Minister Agus Martowardojo said on Saturday.

The average oil price in Indonesia in the past 12 months was $86.35 per barrel, Agus said, higher than the $80 per barrel assumed in the 2011 state budget.

The government forecast the Indonesian Crude Price — its benchmark for crude imports and exports — would average $80 per barrel while the rupiah would average 9,250 to the US dollar. It uses seven assumptions to calculate its budget, including oil prices, inflation, economic growth and the rupiah’s exchange rate against the dollar.

“By the end of this year, the average ICP will be above our assumptions,” Agus said. He said each $1 deviation above the assumption could swell the budget deficit by Rp 800 billion ($91.2 million) as the cost of fuel subsidies increases.

He also said there were concerns over the country’s oil production, which has a target of 970,000 barrels per day. Upstream oil and gas regulator BPMigas has estimated production could be 945,000 bpd to 970,000 bpd, while the Finance Ministry’s more pessimistic projection was 950,000 bpd.

Lower production combined with higher global oil prices creates pressure in the budget as the government still subsidizes fuel. Its fuel subsidy bill is forecast to reach Rp 92.8 trillion this year.

For every 5,000 bpd Indonesia falls short of its oil production target, the budget deficit could swell by up to Rp 900 billion. However, Agus said, for each Rp 100 the currency strengthens against the dollar, the deficit shrinks by Rp 1.7 trillion.

The rupiah traded at Rp 8,765 against the dollar on Friday, stronger than the Rp 9,250 assumed in the state budget.

According to a World Bank report on Wednesday, the richest 10 percent in Indonesia enjoy Rp 135,000 of fuel subsidy per capita, while the poorest 10 percent receive just Rp 23,000 per capita.

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