Friday, March 5, 2010
Indonesia Reaffirms Oil-Price Target Despite Recent Surge
Source: Jakarta Globe
Dion Bisara

Finance Minister Sri Mulyani Indrawati said on Friday that the government would stand by its new oil-price assumption of $77 per barrel in the revised 2010 state budget despite the recent rally in oil prices.

"I will not react to a temporary situation. Our focus is the situation throughout this year," Sri Mulyani said.

"Up until now, we see oil prices moving between a range of $70 per barrel and $80 per barrel. Therefore, we think an oil price at $77 per barrel [in the budget assumption] can still cover the risk."

Oil traded above $80 per barrel on Friday, with light, sweet crude for April delivery touching $80.87 at the New York Mercantile Exchange.

Pri Agung Rahmanto, an energy analyst at the Reforminer Institute, said it was unlikely that the oil price spend much time above $90 a barrel this year.

"The ideal oil price assumption should be $75 per barrel, as I predict that the global oil price will fluctuate around $75 to $80 per barrel," he said.

The government has proposed a revision to the 2010 state budget to the House of Representatives, which must approve it. The proposed revised budget assumes an average oil price of $77 per barrel, an average exchange rate of Rp 9,500 per dollar, inflation at 5.7 percent and economic growth at 5.5 percent.

The forecasts for oil production and consumption are left unchanged from the original budget, which assumed an average oil price of $65 per barrel, an exchange rate of Rp 10,000 per dollar, inflation of 5 percent and economic growth of 5.5 percent.

Sri Mulyani said the new assumptions were subject to change as the government would have to discuss them with the House. "The House will determine if the assumptions estimate state revenue accurately," she said.

The differing assumptions will affect the budget deficit, which is now projected to be 2.1 percent of gross domestic product - or Rp 132.2 trillion ($14.3 billion) - up from the original projection of 1.6 percent. The budget deficit could widen by up to Rp 100 billion for each dollar that the oil price rises above the assumption.

If oil production, which in the 2010 revised state budget is predicted to reach 965,000 barrels per day, is missed by 10,000 barrels, it could cause the deficit to expand by up to Rp 3.34 trillion. If oil consumption, set at 36.5 million kiloliters in the revised budget, rises by 0.5 million kiloliters, then the deficit would grow by up to Rp 1.46 trillion.