Indonesia withdraws from OPEC

The largest oil producer in Southeast Asia, Indonesia, is pulling out of the Organization of Petroleum Exporting Countries, or OPEC. That's because declining production and investment in the country have made it difficult to meet even its own needs.

Indonesian Minister of Energy and Mineral  Resources, Purnomo Yusgiantoro in Kuta, 17 May  2007. Indonesia will withdraw from the  Organisation of Petroleum Exporting Countries  after years of declining exports, the energy  minister has said even as other producers cash  in on soaring oil prices.(AFP/File/Sonny Tumbelaka)

Indonesian Energy Minister Purnomo Yusgiantoro says it no longer makes sense for Indonesia, the only Southeast Asian member of OPEC, to stay in the cartel.

He said the decision to leave OPEC was made by the Cabinet of Indonesia during budget planning meetings. The cabinet was under pressure to cut fuel subsidies due to soaring global prices.

As a large oil producer in the region, Indonesia has had to import oil to meet the needs of its 235 million people, for years. That's because of aging wells and disappointing exploration efforts.

The move means Indonesia will lose its vote at OPEC -- the 13-member body that uses its vast production capacity to influence global oil prices during times of crisis.

People in the Indonesian capital of Jakarta have mixed reactions.

Jakarta resident, said, "We are an OPEC member and it is still difficult for us to buy oil. Even though we are an oil producing country, we also buy oil from foreign countries."

Another Jakarta resident, said,"I think the decision is not right because OPEC is a gathering of oil exporting countries so at least the price of oil will be decided by many countries. If we pull out from OPEC, we will be alone and will have to set our own prices."

Indonesia has been heavily subsidizing oil to protect the country's poor. But it is facing a budget challenge especially since global oil prices are hovering at 130 US dollars a barrel.

The Energy Minister said the government's long-term policy is to eliminate subsidies altogether. He says they undermine market forces and encourage smuggling to other countries.