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JAKARTA - Indonesia hiked the cost of fuel by around 30 percent Saturday in response to soaring global oil prices and a ballooning subsidy bill, leaving hard-pressed households facing even more economic woe.
Long queues formed at petrol stations ahead of the announcement late Friday that prices would rise by an average 28.7 percent from midnight due to record oil costs that have sucked state money out of social programmes.
"Considering the rising global fuel price and the heavy burden of subsidies on the budget, we have decided to raise the fuel price. It is effective at 00:00 May 24," energy minister Purnomo Yusgiantoro said.
Many ordinary Indonesians say higher fuel prices combined with the recent surge in the cost of food will put an intolerable strain on family budgets.
The price hike sparked protests across the sprawling archipelago of 234 million people when it was flagged earlier this month by President Susilo Bambang Yudhoyono.
The ex-general had promised not to raise fuel costs until after elections next year, but with oil prices smashing records above US$130 a barrel this week the government felt it had no choice but slash subsidies.
Indonesian motorists are now paying 33.33 percent more to fill their tanks with premium gasoline at 6,000 rupiah (65 cents) a litre, while diesel fuel for transportation has leapt 27.9 percent to 5,500 rupiah.
Analysts, however, welcomed the rises and said other Asian counties would have to follow suit or watch their subsidies explode along with international oil prices.
"I think this move is positive for Indonesia in terms of its fiscal position," said Royal Bank of Scotland economist Euben Paracuelles in Singapore.
"It looks like that's where most governments are heading right now."
Taiwan's new government has decided to end a freeze on domestic gasoline prices from June, while Malaysia is reportedly looking at making wealthy consumers pay more for fuel under a new two-tier subsidy system.
Even regional giant India is reeling from the oil price onslaught, with the petroleum secretary admitting Friday that a fuel price hike was "inevitable" to bail out state oil firms selling at hugely discounted rates.
To soften the blow for the millions of Indonesians living on less than two dollars a day, Jakarta has outlined plans for direct cash transfers to the poor amounting to 14.1 trillion rupiah (US$1.5 billion).
The government was at pains to point out that even with the price hike Indonesians still enjoyed some of the cheapest fuel in the world.
"The price of fuel in Indonesia is the lowest in the Asia region, even lower than in poor countries such as East Timor, Cambodia and Bangladesh," the economy ministry said in a statement.
Vice President Jusuf Kalla has said the government is not afraid to adjust prices even higher in Southeast Asia's biggest economy if the oil markets continue to climb.
"There's no guarantee (prices will not be raised again). The economic risk should also be spread to those that can afford it," he said hours before the announcement on Friday.
"But again, whatever the policy, it won't hurt the poor and that is a guarantee," he added.
Some protesters have suggested nationalising industries to help fund the fuel subsidies.
Inflation came in at just under nine percent in April and is tipped to reach 12 percent -- or almost double the budget estimate -- in the coming months as the new fuel prices ripple through the broader economy.
The last fuel price rise in Indonesia was a whopping 126 percent in 2005, sparking mass demonstrations but no long-term unrest. - AFP/vm
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