Indonesia raises fuel prices by 30% and cuts energy subsidies

JAKARTA－Fuel prices increased by about 30 percent across Indonesia on Saturday after the government reduced some of the costly subsidies that have kept inflation in Southeast Asia's largest economy among the world's lowest.

Indonesians have been fretting for weeks about a looming increase in the price of subsidized Pertalite RON-90 gasoline sold by the state-owned oil and gas company Pertamina. Long lines of motorcycles and cars snaked around gas stations as motorists waited for hours to fill up their tanks with cheaper gas before the increase took effect on Saturday.

The rise, the first in eight years, took the price of gasoline from about 51 cents to 67 cents per liter and diesel fuel from 35 cents to 46 cents.

President Joko Widodo said the decision to increase fuel prices was his last option as the country's energy subsidies had tripled this year to 502 trillion rupiah ($34 billion) from the original budget, triggered by rising global prices of oil and gas.

"The government has tried its best as I really want fuel prices to remain affordable," Widodo said in a televised address announcing the fuel rise. "The government has to make decisions in difficult situations."

He said the flow of subsidies to the public was not well targeted－about 70 percent of subsidies were benefiting middle and upper classes－and the government decided to increase social assistance instead.

Finance Minister Sri Mulyani Indrawati said authorities were monitoring the impact of fuel price rises on inflation and economic growth.

Inflation has been relatively modest, with the shock being mostly absorbed through a budget bolstered by energy subsidies. Inflation hit 4.6 percent last month as Bank Indonesia, the central bank, said it would reassess the inflation outlook in response to the government fuel price policy.

Indrawati said in a separate news conference that the government would provide 150,000 rupiah cash handouts to 20.6 million poor families to cushion the impact of the fuel price increase until the end of the year. The total cost of the handouts will be 12.4 trillion rupiah, which will be reallocated from the budget for energy subsidies.

The government will also spend 9.6 trillion rupiah on salary assistance to about 16 million low-paid workers, and 2.17 trillion rupiah will go to subsidizing transport costs, particularly for motorcycle taxi drivers and fishers, she said.

"We hope this can reduce pressure of rising prices and help reduce poverty."

The government has subsidized fuel for decades in Indonesia, the vast archipelago nation of more than 270 million people.

Agencies Via Xinhua