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[FinancialAdvisor]

Indonesia raises fuel prices by 126%

Indonesia raises fuel prices by 126%
By Shawn Donnan in Jakarta
Published: October 1 2005 03:00 | Last updated: October 1 2005 03:00

Indonesia's government last night raised key fuel prices by a higher-than-expected average of 126 per cent and announced a plan to bring prices in line with the global market,in moves likely to test the patience of its people for tough reforms.

President Susilo Bambang Yudhoyono's decision to slash fuel subsidies and more than double prices just days before the Islamic holy month of Ramadan marks one of the most daring economic reforms launched by a leader in Jakarta since the 1998 fall of Suharto.

But in raising prices far more than the expected 50 per cent, Mr Yudhoyono's government also risks provoking an angry reaction from a public that for decades has been accustomed to heavily subsidised fuel.

Earlier in the day in Jakarta riot police fired teargas and warning shots into the air as they clashed with students protesting over the impending rise. The protest was the only sign of real violence among a series of demonstrations that hit at least 15 cities across the country.

The fixed price of kerosene, the politically sensitive primary cooking fuel for Indonesia's poor, was raised by more than 185 per cent to Rp2,000 ($0.19, €0.15, £0.11) a litre, effective from today. Petrol rose 87.5 per cent to Rp4,500 a litre while diesel more than doubled to Rp4,300 a litre.

By doing so, government advisers said, Jakarta would slash $2.3bn off a subsidy bill expected to reach $11bn this year.

But, in a decree signed last night, Mr Yudhoyono took a step that would make today's unpopular price increase the last to be decided by an Indonesian president.

Under a new pricing system due to come into effect in January 2006, a committee of seven ministers led by the chief economic minister, currently the former tycoon Aburizal Bakrie, will decide how much to adjust fuel prices every quarter.

The target, government advisers said, is to bring petrol prices in line with market levels by January 2007, with diesel to follow by July 2007 and kerosene, the most heavily subsidised fuel, to be brought to market prices by January 2008. All would float freely once they reach market levels.

Mr Yudhoyono promised after a more modest 29 per cent increase in March that his government would not raise prices again.

Until market turmoil drove the rupiah to four-year lows last month, he was said by senior officials to favour waiting until January next year.

Mr Yudhoyono said: "I realise that this is not a popular policy, a bitter pill that we have to swallow, but we have to do it to save the nation's budget and the future of the country."

To ease the pain of a rise, Jakarta has promised monthly Rp100,000 payments to 15.6m poor families for the rest of this year.

The increase unveiled last night will cause Indonesia's inflation rate to reach as much as 14-15 per cent this year, according to some estimates.


LINK: http://news.ft.com/cms/s/103aebc0-3219-11da-9c7f-00000e2511c8.html

[QuickTrade]

WOW, There goes the oil prices!! It's amazing how analyist said there was little damage or not as expected damage but now week later, they realize its worse then any other storm.. Gess.