The increase of world oil price due to global economic crisis in 1997 had led to the fiscal risk in Indonesia. Fiscal risks occurred because of subsidized fuel, electricity subsidies, and gas and oil’s DBH especially after Indonesia became a net oil importing country. This was stated by Sri Suharsih, SE, M.Sc., lecturer at the UPN Veteran Yogyakarta Faculty of Economics during her open examination of doctoral program, Monday (18/4) in the Audio Visual Room UGM Faculty of Economics and Business.
Suharsih mentions that the largest fiscal risks faced by Indonesia occurred in 2007. In 2007, world oil price reached 199 U.S. dollars per barrel. When linked to fiscal sustainability, fiscal risks due to increased oil prices could interfere with the achievement of fiscal sustainability.
From the results of tests conducted by Suharsih, it is known that during 1997-2008 there has been structural change in net worth per GDP ratio. These changes was occurred when the monetary crisis hit Indonesia coupled with the fourth phase increase of global oil prices as a result of imbalance between oil supply and demand. "This indicates that starting from 1997 fiscal risks emerged that could jeopardize the achievement of fiscal sustainability," the woman born in Makassar, 19 December 1969 explained.
Suharsih added, in the long term world oil prices will affect the fiscal risks in Indonesia. In addition to world oil prices, Indonesia's fiscal risk over the long term is also influenced by the consumption of petroleum. "The rise in oil prices and fuel consumption positively responded by fiscal risks," said Suharsi.
In her dissertation entitled World Oil Prices and Fiscal Risk potential in Indonesia, Suharsih said that the rise of oil prices has created great opportunity for the occurrence of fiscal risks in Indonesia that could endanger the achievement of fiscal sustainability. "The government should accommodate them by conducting a number of policies related to the provision of fuel subsidies, electricity subsidies, and gas and oil’s DBH fund," she asserts.
Meanwhile, in order to reduce the risks associated with oil prices, Suharsih urges the government to use hedging against the risk of global oil prices increase. In addition, conditions in Indonesia that are vulnerable to changes in exchange rate’s fluctuations require alternative exchange rate policies that give more certainty and stability. "Related to fuel consumption, the government can apply subsidy limit or create a mechanism for the provision of subsidies, so that is not misplaced. In addition, the government should also seek for energy consumption savings or non-oil alternative energy," she concluded.