* Widodo met Yudhoyono in Bali, more talks planned
* Mishandling could lead to protests after taking office
* State fuel retailer subsidy plan led to panic buying (Recasts with meeting between incoming and outgoing leaders)
By Trisha Sertori and Wilda Asmarini
NUSA DUA, Indonesia, Aug 27 (Reuters) - Indonesia's president-elect Joko Widodo discussed the national budget with the outgoing leader in Bali late on Wednesday, indicating the two administrations will cooperate in tackling massive fuel subsidies before the handover of power in October.
The former OPEC member is struggling to contain ballooning fuel subsidy costs, which have widened the current account deficit and left little room in the budget for Widodo's much needed reforms.
Raising fuel prices is a sensitive issue that could potentially unleash mass protests against the Widodo's government within weeks of him taking office.
Any hike in fuel prices is likely to hit hardest the nearly 40 percent of Indonesians who live under or near the poverty line and, according to Widodo's advisers, will be accompanied by a compensation package for the poor.
Earlier on Wednesday, Indonesia's state-owned Pertamina halted a week-old programme aimed at curtailing the use of subsidised fuel, after its implementation led to panic buying and long queues at petrol stations.
"I asked for (Susilo Bambang Yudhoyono's) thoughts and views about the 2015 budget ... but details will be discussed later by the transition team and current ministers," Widodo said in a statement following a two-hour, closed-door meeting on the resort island.
Yudhoyono said he was "morally obliged to help the next government and the president-elect", adding the meeting was the first of more to come.
Neither Yudhoyono nor Widodo went into further detail.
Widodo and his transition office hope to reach a deal with Yudhoyono's government on tackling fuel subsidies before the new administration takes office.
Any decision on fuel subsidies before Widodo's inauguration on Oct. 20 is not expected to come into effect until November.
Fuel subsidies cost the government around $20 billion a year, or nearly 20 percent of its total budget.
Pertamina, the country's main retailer of subsidised fuel, cut the amount of subsidised diesel and gasoline available at fuel stations starting on Aug. 18 to ensure that it did not surpass its fuel quota for the year.
But the measure backfired as drivers did not use more alternative fuels, and instead queued for hours at petrol stations waiting for the limited subsidised gasoline and diesel. Chief Economics Minister Chairul Tanjung instructed Pertamina on Tuesday to halt its programme.
"There will be no more limits. If Pertamina is over the quota later, we will not be blamed," Hanung Budya, director of marketing and trading for the state oil company, told reporters.
Pertamina said it expected to hit its fuel subsidy quota for diesel around Dec. 5 and gasoline two weeks later.
Suhartoko said the government will likely face an additional 8 trillion rupiah ($685 million) in fuel subsidy costs to cover the extra supply this year.
Indonesian fuel prices are some of the cheapest in the region, currently priced at 6,500 rupiah ($0.56) a litre for gasoline and 5,500 rupiah for diesel. (1 US dollar = 11,680 Indonesian rupiah) (Additional reporting by Fergus Jensen in Jakarta; Writing by Randy Fabi and Kanupriya Kapoor; Editing by Alison Williams)