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May 27, 2008

INDONESIA/FUEL PRICE HIKE
Finance ministry: fuel price hike is firmly legitimate

The Finance Ministry's treasury director on Monday said the government would be able to answer to the House of Representatives if it used its interpellation or inquiry rights in response to the fuel price hike.

"In regards to the House's plan to cast its interpellation and inquiry rights, we have a firm legal base to increase the fuel price, so we can explain. Objecting and approving it is a different matter," Ahmad said.

The House of Representatives is able to exercise their rights, he said, but the government would be able to provide explanation for the fuel price hike.

"They could use their rights because we are a free country. We will answer them in line with 2008 state budget Law. We were not thoughtless when we increased the price."

Ahmad said article 14 of the Law allows the government to take any necessary steps to secure the implementation of the revised state budget.

"That was the agreement reached between the House of Representatives and the government. It was a joint product. Surely we will consult them if there is another development," he said.

Previously, some House of Representative members threatened to cast their interpellation and inquiry rights on the government's decision to increase the fuel price.

Meanwhile, Hundreds of Indonesian students and police clashed on Monday in protests against a state fuel price hike, as President Susilo Bambang Yudhoyono defended the move, saying it would avert an economic meltdown, reported Reuters.

Students threw rocks and fuel bombs at riot police outside the Indonesian Christian University in east Jakarta, prompting the officers to charge back using batons. No one was injured in the clash, a Reuters witness said.

Indonesia raised fuel prices by almost 30 percent on Saturday, setting off angry protests in a country where millions are already feeling the brunt of the rising cost of food.

"The Friday decision to further reduce oil subsidies was the best, necessary and responsible solution to save our national economy from crumbling and protect our people from harm," Yudhoyono said at an investment forum on Monday.

"The alternative would be a possible financial and economic crash similar to that of 1997, and the real loser here would be our own people," he said.


Yudhoyono said his government had no choice but to raise fuel prices to avoid a crisis similar to the 1997-1998 economic meltdown that crippled the southeast Asian country.

Some analysts said the fuel price hike was unlikely to trigger social unrest.

"Compared to the one in 2005, the latest increase is moderate," said political analyst Fachry Ali, referring to a rise of more than 100 percent in fuel prices in October 2005. "Nothing happened then, so it will be alright now."

Price increases have always been a sensitive issue in Indonesia where millions live on less than $2 a day. A fuel price increase was one of the reasons for massive protests that led to the downfall of former President Suharto in 1998.

Even after the average 28.7 percent increase, Indonesia has some of the lowest fuel prices in Asia.

Soaring global oil prices have forced Indonesia to spend billions of dollars on fuel subsidies, which the government said mainly benefit the wealthy rather than the poor.

On Saturday, the government began giving cash handouts as part of a $1.5 billion scheme intended to cushion the blow for poor families affected by the price increases. The scheme was designed to pass on some of the savings on fuel subsidies to about 19 million poor families.




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