Indonesia expected to approve fuel hike

Indonesia expected to cut fuel subsidy, hiking price by more than 30 percent amid protests

Associated Press

JAKARTA, Indonesia (AP) -- Indonesia's parliament was expected to approve a budget Monday that will slash government fuel subsidies, a move that will save billions of dollars but has sparked protests by those opposing higher gasoline prices.

The measure, which would hike gasoline prices an average of 33 percent, also includes around $900 million for cash handouts to help cushion the effects on the country's 15.5 million families who live in poverty.

Street protests erupted in major cities and clashes with police were reported. More than 18,000 police and soldiers were deployed to secure the capital, Jakarta. Thousands of police also guarded gas stations across the country.

Outside the parliament complex Monday, more than a thousand students burned tires near the main gate. Elsewhere, protesters attempted to block access to an airport and a main toll road. In Gorontalo, in northern Sulawesi, police used tear gas to break up a demonstration, while in Bengkulu on Sumatra island and Yogyakarta in Central Java, they clashed after protesters burned pictures of President Susilo Bambang Yudhoyono. At least 14 people were injured nationwide.

In 2011, the subsidy cost close to $20 billion, the same amount the government aims to spend on infrastructure in 2013. But the issue is highly sensitive — a fuel price hike in 1998 triggered rioting that helped topple former dictator Suharto. Last year, the parliament rejected a similar plan to raise fuel prices.

Even though the next presidential election is just a year away, Yudhoyono is determined to move forward with the plan, said presidential spokesman Julian Aldrin Pasha.

"The government will announce the fuel price hike soon after the budget is approved by the House," he said.

Over the weekend, only four political parties expressed their opposition to the plan. But they fall far short of the number of votes needed to stop the plan's passage in the House of Representatives.

The proposed plan will raise the price of gasoline from around 50 cents to 65 cents per liter and diesel fuel from 50 cents to 55 cents in the nation of 240 million. The subsidies have kept pump prices in Southeast Asia's largest economy among the cheapest in the region, but experts warn it is weakening the economy.

"If fuel prices are not raised, there will always be threats to Indonesia's fiscal strength, especially threats to the exchange rate, consumption and price of crude oil," said economic analyst Said Didu. "All three are difficult for the government to control."

Indonesia is the region's largest oil producer, but it has been forced to import due to decades of declining exploration and extraction while the demand for fuel has skyrocket as a million new cars and 8 million new motorbikes hit the streets every year, according to the Central Statistics Agency.

The government has set the 2013 fuel subsidy at $20.2 billion — nearly 4 percent of total economic output — in the revised budget at the proposed higher price as part of its effort to avoid a budget blowout. It said without the hike, the subsidies would jump to about $29.7 billion this year.

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Associated Press writer Ali Kotarumalos contributed to this report from Jakarta, Indonesia.

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