Indonesia raising fuel prices an average 33 percent despite protests

JAKARTA, Indonesia — Indonesia announced a fuel price increase of up to 44 percent late Friday, reducing the costly subsidies that have kept pump prices in Southeast Asia's largest economy among the world's lowest.

Long lines of motorbikes and cars snaked around gas stations as motorists waited to fill up their tanks with cheaper gas before the increase takes effect after midnight.

The subsidies are a significant drain on the country's budget. The budget approved Monday sets the 2013 fuel subsidy at $20.2 billion — nearly 4 percent of total economic output.

By comparison, the government aims to spend $20 billion on infrastructure in 2013.

The new budget also has more than $900 million in cash handouts to cushion the impact of the fuel price increase on 15.5 million poor families over four months. President Susilo Bambang Yudhoyono asked lawmakers to approve a plan that would ensure the country's poorest people were not left unprotected.

"The prices are applicable simultaneously across Indonesia," Mines and Energy Minister Jero Wacik said in announcing the increase.

The increase — the first in five years — will raise the price of gasoline from about 45 cents to 65 cents per liter and diesel fuel from 45 cents to 55 cents.

"This is a very difficult choice and the last alternative to be taken by the government," Rajasa said before the announcement.

Thousands of students and workers took to the streets across the country up to Friday protesting the plan to sharply raise fuel prices. Some held protests Friday night in the capital Jakarta and some other cities.

Policemen were deployed to guard fuel stations across the country, where cars and motorbikes lined up Friday evening to buy fuel under the old prices. The government has ordered all stations to be open around the clock.

Aviliani, a noted economist, applauded the move, saying the subsidies have put pressure on the country's trade and current account deficits as well as local currency.

"It will result in inflation and increase of other prices, but on other hand it will make Indonesia more attractive to foreign investors," said Aviliani, who uses a single name.

To try to minimize protests, 10 mobile phone companies plan to text about 240 million cellular users to explain why fuel prices are being increased, said Gatot S. Dewabroto, the spokesman at the Ministry of Communication and Information.

He quoted one message as saying: "Fuel subsidies are not well targeted. They are being enjoyed by the rich and have created injustice."

A public information bulletin will be published in newspapers laying out the government's arguments, said Dewabroto. It notes, for example, that Indonesia's fuel prices are lower than seven neighboring Southeast Asian countries and explains that the country once was able to produce enough oil to satisfy domestic consumers but now must import fuel to meet skyrocketing demand as millions of news cars and motorbikes hit the streets each year.

The government has subsidized fuel for decades in Indonesia, where about half of the 240 million people survive on $2 a day. In 1998, increased prices sparked rioting that helped topple longtime dictator Suharto.

Last year, Parliament rejected a similar plan to raise fuel prices. But Yudhoyono was able to push the deal through this time despite opposition from some parties, with a vote of 338 to 181 supporting the measure, a year before the next presidential election.