JAKARTA, Indonesia – Fuel prices increased up to 44 per cent across Indonesia early Saturday after the government reduced some of the costly subsidies that have kept pump prices in Southeast Asia’s largest economy among the world’s lowest.
Long lines of motorbikes and cars snaked around gas stations for hours late Friday as motorists waited to fill up their tanks with cheaper gas before the increase took effect after midnight. The government had ordered stations to stay open to accommodate the crush.
The subsidies are a significant drain on the country’s budget. The budget approved Monday sets the 2013 fuel subsidy at $20.2 billion — nearly 4 per cent of total economic output. By comparison, the government aims to spend $20 billion on infrastructure in 2013.
The new budget also has more than $900 million in cash handouts to cushion the impact of the fuel price increase on 15.5 million poor families over four months. President Susilo Bambang Yudhoyono had asked lawmakers to ensure the poorest people were not left unprotected.
The increase — the first in five years — will raise the price of gasoline from about 45 cents to 65 cents per litre and diesel fuel from 45 cents to 55 cents.
Co-ordinating Economic Minister Hatta Rajasa said the hike was actually an adjustment as the country has to spend nearly $30 billion on fuel imports, while about 70 per cent of subsidies were merely enjoyed by middle and high classes.
Protests had greeted the planned fuel price increase, mainly on Monday when Parliament was acting on the long-delayed plan.
Economist Aviliani applauded the move, saying the subsidies have put pressure on the country’s trade and current account deficits as well as local currency.
“It will result in inflation and increase of other prices, but on other hand it will make Indonesia more attractive to foreign investors,” said Aviliani, who uses a single name.
The government was using text messages and public bulletins in newspapers to lay out the government’s arguments for the fuel price increases.
The newspaper bulletin notes, for example, that Indonesia’s fuel prices are lower than seven neighbouring Southeast Asian countries and explains that the country has to import fuel to meet skyrocketing demand as more new cars and motorbikes hit the streets.
The government has subsidized fuel for decades in Indonesia, where about half of the 240 million people survive on $2 a day. In 1998, increased prices sparked rioting that helped topple longtime dictator Suharto.
Last year, Parliament rejected a similar plan to raise fuel prices. But Yudhoyono was able to push the deal through this time despite opposition from some parties, with a vote of 338 to 181 supporting the measure, a year before the next presidential election.
Associated Press writer Niniek Karmini contributed to this report.