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Indonesia unveils big fuel prices amid protests { August 2005 } Original Source Link: (May no longer be active)
http://today.reuters.co.uk/news/newsArticle.aspx?type=worldNews&storyID=2005-09-30T225434Z_01_KRA082440_RTRUKOC_0_UK-INDONESIA-FUEL.xml&archived=Falsehttp://today.reuters.co.uk/news/newsArticle.aspx?type=worldNews&storyID=2005-09-30T225434Z_01_KRA082440_RTRUKOC_0_UK-INDONESIA-FUEL.xml&archived=False
Indonesia unveils big fuel prices hikes amid protests
Fri Sep 30, 2005 11:54 PM BST
By Dean Yates and Muklis Ali
JAKARTA (Reuters) - Indonesia drastically hiked fuel prices much higher than expected on Friday despite two days of nation-wide street protests, including clashes between police and scores of students in Jakarta.
President Susilo Bambang Yudhoyono, speaking before the increases were unveiled close to midnight, urged Indonesians to accept a "bitter" policy that he said was vital to rescue Southeast Asia's largest economy.
Earlier, riot police fired tear gas and warning shots into the air as they clashed with students in Jakarta. It was the first sign of real violence among protests that hit numerous cities ahead of the price increases on Thursday and Friday.
Mines and Energy Minister Purnomo Yusgiantoro told reporters the government-set price of gasoline had nearly doubled to 4,500 rupiah (44 U.S. cents) a litre; diesel rose 105 percent to 4,300 rupiah a litre while household kerosene, used for cooking, almost trebled to 2,000 rupiah a litre.
The increases take effect on Saturday.
Financial analysts said one risk was the impact the fuel hikes would have on inflation.
"It's a pretty bold move. I don't think public protests will be long lasting," said Richard Segal, chief strategist at Argo Capital Management, a hedge fund investing in emerging markets.
"Some foreign investors will be bullish about the move but some others will possibly be wary of riots. Inflation will be a negative side effect."
Yudhoyono has said Indonesia needs to cut crippling fuel subsidies and take pressure off the rupiah currency.
But the size of the increase is way above the average of around 50 percent many analysts had expected the normally cautious Yudhoyono to agree to.
"This is not an easy option. It's a bitter choice ... but I have to save the future, save the national economy while trying to tackle the effect of the hike by easing the burden on the poor," Yudhoyono said in a speech at a factory opening.
The small scale -- by Indonesian standards -- of two days of demonstrations so far had buoyed Jakarta's stock market and stabilised the rupiah.
But organisers have said they will stage more protests and the big jump in prices could swell numbers and trigger violence.
Police on the scene of the earlier Jakarta clash said they fired tear gas at students throwing rocks and blocking traffic outside a university. They fired blanks as warning shots.
At least four policemen were hurt in the clash.
Tens of thousands of Indonesians queued at petrol stations across the vast archipelago late into the night seeking cheap gasoline before the hikes took effect. Many pumps ran dry.
LITTLE CHOICE
Yudhoyono has had little choice but to wean impoverished Indonesians off cheap gasoline, priced until now at about 20 U.S. cents a litre, and heavily subsidised kerosene for cooking after a near meltdown of the rupiah late last month.
No one has said they expect protests to bring down Yudhoyono, a respected former general. When he raised fuel prices by 29 percent last March, protests soon fizzled.
A big rise in fuel prices in May 1998 triggered rioting that helped topple former autocrat Suharto, although Indonesia was then in the middle of an economic and political crisis.
To help the poor cope, the government is preparing a cash compensation package to help 15.5 million families, or 62 million people, representing nearly a quarter of the population.
High world oil prices have ratcheted up Indonesia's fuel subsidies, which will eat up nearly a fifth of this year's budget. While Indonesia produces oil, declining output has forced it to sell rupiah for dollars to pay for oil imports, hitting the currency and hurting the economy.
(With reporting by Gde Anugrah Arka, Harry Suhartono, Ade Rina and Achmad Sukarsono and Sabyasachi Mitra in London)
© Reuters 2005. All Rights Reserved.
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