Indonesian president eyes fuel price hike in May

Indonesian President Susilo Bambang Yudhoyono said Tuesday he hopes to lower fuel subsidies that are a risk to Southeast Asia's top economy as soon as May, in a new bid to tackle the flashpoint issue.

Yudhoyono gave the clearest sign yet the government wants to hike the price of petrol, which is one of the cheapest in Asia, but cautioned it would only happen once parliament approved compensation for those likely to be affected.

He stopped short of unveiling the first price hike in five years, as some had expected, as his Democratic Party treads carefully after corruption scandals that have dented its popularity ahead of elections due in 2014.

"Fuel subsidies are not healthy and present a risk for the economy," he said of the payouts that gobble up a huge chunk of the state budget and have been blamed for widening the current account deficit.

They "need to be reduced by raising the fuel price in stages," he told an audience of local leaders gathered in Jakarta from across Indonesia.

He said the government would hike prices once parliament approved a revised state budget in May that included compensation for those affected, with such measures as providing subsidised rice and scholarships for studying.

"We hope parliament has a sense of crisis, urgency and responsibility and will approve the budget as soon as possible," he added.

Fuel subsidies have been a flashpoint issue in Indonesia for years, and recent attempts to hike prices have failed in the face of nationwide protests.

Unions have pledged to stage demonstrations on Wednesday against the planned hike, which could swell traditional Labour Day protests.

After the president's speech, Energy Minister Jero Wacik said the government now planned to hike prices of petrol for all vehicles to a level not above 6,500 rupiah ($0.67). Currently, it costs $0.46 a litre.

A previous plan to hike prices for just private cars has been dropped following criticism it would be hard to enforce.

A hike has concerned not just the increasing number of motorists in Indonesia, but also the wider public who fear it will push up inflation.

olr-sr/ao