16 September 2019 (closed)
USD/IDR (13,950) -102.00 -0.73%
EUR/IDR (15,437) -34.88 -0.23%
Jakarta Composite Index (6,219.44) -115.41 -1.82%
In the past week, the global crude oil price has increased considerably due to geopolitical tensions in Iraq which can disturb oil supplies from the Middle East. Up to the end of 2014, provided that no exceptional developments occur, the oil price is expected to range between USD $105-110 per barrel. Meanwhile, the Indonesian government announced that, despite the higher oil price putting pressure on the government’s budget balance, it will not increase prices of subsidized fuels this year.
On Monday (16/06), the crude West Texas Intermediate (WTI) on the New York Mercantile Exchange (July delivery) rose USD $0.63 to USD $107.53 per barrel, while the Brent crude futures (August delivery) rose USD $0.82 to USD $113.28 per barrel. These price increases occurred due to concerns about future oil supplies amid advances of Sunni militants in northern Iraq.
Being a net oil importer and allocating large funds to fuel subsidy expenditure, Indonesia’s finances are seriously affected by a higher global oil price and/or rupiah exchange rate depreciation. In the state budget of 2014, the government assumed the crude oil price at USD $105 per barrel and domestic subsidized fuel consumption at 48 million kiloliters. As such, for every USD $1 per barrel price increase, fuel subsidies swell by IDR 3.8 trillion (USD $322 million).
Indonesian Coordinating Minister for Economic Affairs Chairul Tanjung said that the proposed revised 2014 state budget (RAPBN-P 2014) does not include higher subsidized fuel prices. However, he did stress that this does not mean that the government will not try to reduce consumption of subsidized fuels. In the RAPBN-P 2014, the government proposes to raise the allocation for fuel subsidies from IDR 210.7 trillion (USD $17.9 billion) to IDR 246.5 trillion (USD $20.9 billion). This step will be financed by cutting spending of ministries/agencies by IDR 43 trillion (USD $3.6 billion).