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The Indonesian government announced an increase in gasoline and diesel prices late Friday, and the new prices will go into effect from midnight despite protests across the archipelago.
Energy and Mineral Resources Jero Wacik told a press conference the government decided to raise the price of low-octane gasoline by 2,000 rupiah (around $20 cents) to 6,500 rupiah per liter and the price of diesel fuel by 1,000 rupiah to 5,500 rupiah per liter.
"This is a bitter option, but we must take it," President Susilo Bambang Yudhoyono posted on his Twitter account.
In the press conference, Coordinating Minister for the Economy Hatta Rajasa said the fuel price hike may affect the buying power of low-income people, but it was "the last resort" the government can do to save the economy.
The decision to raise fuel prices was made after the House of Representatives approved the 2013 revised budget, under which the government will cut the fuel price subsidy from 209.92 trillion rupiah to 199.85 trillion rupiah this year.
Yudhoyono stressed that if the subsidy is not cut, the state's burden will be heavier.
"The fuel price subsidy is aimed at saving the economy, so the state money can be used to help the poor and build infrastructure," he said.
In return for the fuel subsidy cuts, low-income households will receive compensation that includes cash aid and rice for the poor and assistance for underprivileged schoolchildren.
Under the direct cash aid scheme, each of the 15.5 million low-income households will receive 150,000 rupiah per month for a period of four months, starting immediately when the cuts go into effect.
Long lines of vehicles were seen in all gasoline stations in the capital from Friday afternoon following reports that prices would be hiked from midnight.
In Jakarta alone, police have deployed almost 19,000 officers, with each gas station being guarded by two or three personnel.
Uncertainties over the fuel price hike sent the rupiah to its lowest point since 2009. It was trading at 9,960 to the U.S. dollar Friday, weakening from 9,927 Thursday. Banks, however, were selling the greenback at more than 10,000 rupiah.
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