Indonesia presses on with fuel hike despite popular anger

JAKARTA (AFP) – Indonesia defied popular anger on Tuesday by pressing ahead with its first fuel price hike since 2008, a day after police fought running battles with thousands outside parliament.

Protesters hurling Molotov cocktails clashed with police firing tear gas and water cannons late Monday, as lawmakers approved measures paving the way for a reduction in crippling fuel subsidies in Southeast Asia's top economy.

As police braced for hundreds to converge on parliament for a second day of protests against the expected 30 percent increase in fuel prices, ministers said the government would not back down.

"The fuel price will go up," Finance Minister Chatib Basri insisted, saying it was just a matter of finalising the details before an announcement, which is expected in the coming days.

"The hike is very important because of global economic uncertainty," he added, referring to a sell-off on emerging markets this month that has sent Jakarta stocks and the rupiah plummeting.

Vice President Boediono urged citizens to "stay calm" and not hoard fuel, as reports emerged that people were starting to stockpile subsidised petrol before the price rockets.

Police in West Java and Lampung provinces seized thousands of litres of fuel allegedly bought in anticipation of a price hike and detained several people, while state energy firm Pertamina said sales had increased three to four percent in recent days.

The price of fuel is expected to increase on average 33 percent, with petrol jumping from from 4,500 rupiah ($0.46) a litre to 6,500 rupiah, and diesel from 4,500 rupiah to 5,500.

Following a marathon parliamentary session on Monday, lawmakers agreed on a revised budget that included a package of measures to compensate the millions of poor people likely to be hit hardest.

Poor households will receive $15 a month each for the next four months to offset the impact of the fuel hike, which is expected to cause the cost of everyday goods to go up as they will be more expensive to transport.

President Susilo Bambang Yudhoyono had insisted on the measures before any fuel hike, which will come at a sensitive time as parties gear up for elections in 2014.

Eight thousand people demonstrated across Jakarta during the debate, with thousands outside the national parliament hurling Molotov cocktails, fireworks and bottles at police in riot gear, who fought back with tear gas and water cannons.

Eighty-eight protesters were detained at the Jakarta protest but police said they would be released on Tuesday. One protester received a minor injury, according to police.

At least 14 other people were injured in protests across the country.

Yudhoyono has been seeking to lower the huge subsidies for some time and last year came close. But parliament rejected the measure in the face of huge protests, which were bigger and more violent than this year's.

Concern has been growing among international investors about the failure to cut the subsidies which are blamed for a widening current account deficit, as demand for fuel increases and the government is hit with ever bigger bills.