Indonesia economic crises doubles fuel prices

Indonesia will more than double the average cost of fuel today to try to stave off an economic crisis, the economy minister said, despite protests by thousands of people, some of whom burned tires and threw rocks at police.

Security forces responded to yesterday’s demonstrations by firing tear gas at more than 100 rioting students, then chasing them down and hitting some of them with sticks.

President Susilo Bambang Yudhoyono said the cash-strapped government of this major oil producer, which for years has subsidised fuel to let motorists fill up for less than 24 US cents per litre, could not afford to keep doing so amid spiralling global energy prices.

Nearly a quarter of the government’s budget goes to fuel subsidies, with 7.4 billion dollars doled out last year.

At the same time, other sectors, such as health and education, are sorely underfunded.

The government said after a three-hour Cabinet meeting that – as of Saturday - the cost of petrol will go up 87% – to 44 US cents per litre. It said the price of diesel fuel will more than double and the cost of kerosene will nearly triple.

That will push up the price of everything from rice to fish to cigarettes in the sprawling country of 220 million people, half of whom live on less than two dollars a day.

“I realize that this is not a popular policy … but we have to do it to save the nation’s budget and the future of the country,” Yudhoyono said as university students set tires ablaze, vandalised a bus and exchanged a volley of rocks with police on a busy street in the capital.

He called on everyone to remain calm, saying “anarchy will only deter investment.”

Despite the brief flare-up in Jakarta, most rallies were peaceful, scattered and relatively small – given the size of the country and its history of massive street rallies.

But more demonstrations were expected, and the government deployed thousands of soldiers and police at major intersections, the presidential palace and other strategic locations.

Indonesia is Southeast Asia’s only member of OPEC, but it has to import oil because of decades of declining investment in exploration and extraction due to corruption and a weak legal system that makes people wary of doing business here.

Most in Indonesia agree that the current level of fuel subsidies are unsustainable, especially with the price of world oil hovering at $65.

Raising prices is a sensitive issue in Indonesia, where a big increase in 1998 triggered rioting that helped topple former dictator Suharto. Protests also forced former President Megawati Sukarnoputri to scale back a fuel price increase in 2002.

The government hopes to balance its budget by capping the subsidies at $8.68bn (€7.15bn) this year, while bolstering confidence in the stock market and the local currency, the rupiah, both of which have taken a hit recently amid the economic uncertainty.

Seeking to cushion the blow to the poor, the government has offered 15 million poor families a lump-sum compensation payment of $29 (€24).