Indonesia to Double Gas Prices Despite Protests

JAKARTA, Indonesia – Indonesia (search) announced plans to more than double the average cost of fuel Saturday in a bid to stave off an economic crisis, despite protests by thousands of demonstrators.

Some of the protesters burned tires and threw rocks at riot police who responded by firing tear gas and warning shots into the air. More rallies were expected, and the government deployed thousands of soldiers and police at major intersections, the presidential palace and other strategic locations.

President Susilo Bambang Yudhoyono (search) said the cash-strapped government, which for years has subsidized fuel to let motorists fill up for less than 95 cents per gallon and help protect Indonesia's poorest, could not afford to keep doing so amid spiraling global oil prices.

The government said after a three-hour Cabinet (search) meeting that — as of Saturday — the cost of gasoline will go up 87 percent, the price of diesel fuel will more than double and that of kerosene will nearly triple.

After the increase, gasoline will cost $1.71 per gallon.

The increases will push up the price of everything from rice to fish to cigarettes in the sprawling country, a major oil producer with some 220 million people, half of whom live on less than $2 a day.

The amounts of the price increases were revealed hours after riot police fired tear gas at rock-throwing students who were among thousands demonstrating late Friday.

Security forces chased down more than 100 demonstrators in the center of Jakarta, hitting some with sticks, after the youths set tires ablaze, vandalized a bus and exchanged a volley of rocks with police on a busy street near their campus.

"I realize that this is not a popular policy ... but we have to do it to save the nation's budget and the future of the country," Yudhoyono said, also warning that "anarchy will only deter investment."

Thanks to the subsidies, Indonesia has long enjoyed some of the lowest oil prices in the world.

Nearly a quarter of the government's budget goes to fuel subsidies, with $7.4 billion doled out last year — more than the international community has pledged on rebuilding efforts in countries hit by last year's tsunami.

"I realize that this is not a popular policy, a bitter pill that we have to swallow, but we have to do it to save the nation's budget and the future of the country," Yudhoyono said.

Thousands turned out for demonstrations in at least 17 cities nationwide, but most were peaceful, scattered and small — given the size of the country and its history of massive street rallies.

Aside from the brief clash in Jakarta, where at least three police were injured, little violence was reported.

Despite being Southeast Asia's only member of OPEC, Indonesia has to import oil because of decades of declining investment in exploration and extraction due to corruption and a weak legal system that makes people wary of doing business here.

Most in Indonesia agree that the current level of subsidies are unsustainable.

Still, raising prices is a sensitive issue in Indonesia, where a massive increase in 1998 triggered rioting that helped topple former dictator Suharto. Protests also forced former President Megawati Sukarnoputri to scale back a fuel price increase in 2002.

This is the second time that Yudhoyono, who was elected last year on promises to fight poverty and revive the economy, has pushed up prices. Some said he betrayed those who put him in office.

"I'm disappointed in SBY," said Achmad Syarif, 21, referring to the president by his initials as many Indonesians do. "This is going to place a heavy burden on the people. ... There have to be other ways to solve the economic crisis."

The government hopes that it can balance its budget by capping fuel subsidies at $8.68 billion this year, and at the same time bolster confidence in the stock market and the local currency, the rupiah.

Both have taken a hit in recent weeks amid the economic uncertainty.

Thousands of motorists formed long queues at petrol stations across Indonesia on Friday, rushing to fill their tanks and jerry cans with cheap gas before prices went up.

Some stations were closed, hanging up signs that said "Sorry, we've run out."