Government Stands By State Budget, Ignores Cries to Raise Oil Price Figure

photo: WN / nurkamiah

The government emphasized on Friday that it would not revise the oil price assumption in the state budget this year, saying the rising prices caused by the turmoil in Egypt are “temporary.”  Brent crude rose above the $100 per barrel mark amid continuing upheaval in Egypt, while the state budget assumes oil prices at $80 per barrel.

“I believe the situation in Egypt is temporary,” Coordinating Minister for the Economy Hatta Rajasa said. “Egypt is not an oil exporter, and therefore the impact will not be that big.”

Egypt is not an oil-producing country, but the Suez Canal plays an important role in global oil distribution. The canal and the Sumed Pipeline transport more than 2 million barrels of oil per day, about 2 percent of global demand.
“The Suez Canal will not be affected. Although it is a sovereign territory, it has waters that are used internationally,” Hatta said.

While he said a spike in oil prices would not result in more fuel subsidies, he conceded it would push inflation even higher. The government allocated Rp 95.9 trillion ($10.6 billion) for fuel subsidies in its 2011 budget, up from Rp 88.9 trillion last year. Suez Canal

Kurtubi, an independent oil and mining analyst, said the government should revise its oil price assumption to better reflect the global situation.

“Oil prices will continue to increase in the coming months for two reasons: the supply-and-demand mechanism and global geopolitics,” he said. “The oil price assumption of $80 a barrel is too low and is not realistic anymore.”

He said the government should raise its price assumption to $90 per barrel or $95 per barrel to reflect possible increases.

“The rise in revenue from oil and gas will be way higher than the increase in spending for fuel subsidies. The budget will not be affected. It is safe,” Kurtubi said.

The government uses oil prices, the rupiah exchange rate against the US dollar, economic growth, inflation rates, oil production and three-month Bank Indonesia bills in its calcula tions.



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