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May 22, 2008

Govt almost ready to hike fuel price

Indonesian government’s plans to hike fuel prices by an average of 28.7 percent were "largely final" and the timetable for the rise will be unveiled by the president on Friday, according to the country’s Finance Minister Sri Mulyani Indrawati.

The ministry slide indicated inflation would spike to 11.96 percent in the first month after the price hike, Reuters reported.

In October 2005, the current administration of President Susilo Bambang Yudhoyono more than doubled subsidised fuel prices, pushing inflation to a near six-year high of 18 percent and rocking the automotive, banking and manufacturing sectors.

The finance minister said the timing of the increase would be announced on Friday.

"There will be a cabinet meeting in which the ministers will have to report the state of readiness in distributing the cash compensation," she told a news conference, referring to planned cash handouts that the government has pledged for the poor.

"The facts show that 70 percent of fuel subsidies have been enjoyed by the top 40 percent income group of Indonesian people," she added.

There have been a series of demonstrations since the government confirmed plans last week to lift prices of heavily subsidised fuel by up to 30 percent, although it has vowed to cushion the impact on the poor through cash handouts.

"The increase could add 2.6-3.0 percentage point to the country's 2008 inflation," Anton Gunawan, chief economist at PT Bank Danamon Tbk, said.

Indonesia has forecast 2008 inflation of 6.5 percent in this year's budget.

President Yudhoyono had been reluctant to set more fuel price rises with presidential and parliamentary elections next year, but the government has been backed into a corner as soaring international oil prices have increase subsidies and stretched its budget.

Indonesia, Asia's top diesel and gasoline importer, provides heavy subsidies for fuel that shield consumers from the global price of crude oil, which is nearing $130 a barrel, way above an Indonesian budgetary assumption of $95 a barrel.

The government has allocated 126.8 trillion rupiah ($13.67 billion) for fuel subsidises for this year in its budget, or about 13 percent of total government spending of 989.5 trillion rupiah.

Price hikes are a sensitive issue in Indonesia, where millions live on less than $2 a day and have had to cope with rising prices of rice, cooking oil and now fuel.

President Yudhoyono appealed for calm on Wednesday as thousands marched over rising prices on the 10th anniversary of the downfall of former President Suharto, and some protesters in the capital threw missiles at police.

About 2,000 people marched on the presidential palace, while there were also similar rallies in Medan in North Sumatra and in the country's second-largest city of Surabaya in East Java.

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