Gas rush as price increases loom

JAKARTA, (AP):Fuel prices increased up to 44 per cent across Indonesia early yesterday 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 last Monday sets the 2013 fuel subsidy at $20.2 billion - nearly four 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 gasolene from about 45 cents to 65 cents per litre and diesel fuel from 45 cents to 55 cents.

Coordinating 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 last 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.