World News

FACTBOX - Indonesia's struggle with sensitive fuel subsidies

(Reuters) - Indonesia raised fuel prices by an average 28.7 percent with effect from Saturday to help cut a surging subsidy bill that has hit the government’s 2008 budget.

In recent weeks, government announcements about the plan to lift fuel prices have sparked protests in several parts of the country while raising concerns about the impact on inflation.

Indonesia has some of the lowest fuel prices in Asia, but with parliamentary and presidential elections due in 2009, the government has tried to resist cutting fuel subsidies.

However, as the price of crude oil set new records, the government has come under increasing pressure to address its ballooning subsidy bill and widening budget deficit.

Following are some key events involving fuel subsidies in Indonesia.

MAY 1998 - Under pressure from the IMF to cut subsidies, President Suharto hikes fuel prices by up to 71 percent on May 4.

The move adds to unrest, which is already at fever pitch over sky-rocketing inflation, food shortages and growing calls for Suharto’s ouster.

That combustible mix explodes in Jakarta from May 12-13, when an estimated 1,200 people die in riots in Jakarta. Suharto quits on May 21.

MARCH 2000 - President Abdurrahman Wahid delays a fuel price hike of 12 percent hours before it was due to take effect because of fears of mass unrest.

Clashes between students and police had already taken place. The hike had been part of an agreement with the IMF in exchange for much-needed loans.

OCTOBER 2000 - President Abdurrahman Wahid raises fuel prices by an average 12 percent, triggering protests. He later drops plans for a further 20 percent increase in April 2001 on fears of instability.

JUNE 2001 - In a bid to convince the IMF and markets about his commitment to reform, President Abdurrahman Wahid raises fuel prices by an average 30 percent, triggering days of sporadic violent protests by students and strikes by transport workers.

JANUARY 2003 - President Megawati Sukarnoputri raises fuel prices by an average 22 percent. Two weeks of nationwide protests follow, with clashes between students and police, prompting her to back down and partially roll back the hikes.

MARCH 2005 - President Susilo Bambang Yudhoyono, after a lengthy campaign to prepare the public, raises fuel prices by an average 29 percent. Protests hit a dozen cities but there is little violence and the demonstrations soon fizzle out.

OCTOBER 2005 - The government more than doubles subsidised fuel prices, pushing inflation to around a six-year high and prompting the central bank to jack up its benchmark interest rate to a three-year high.

The plan, which authorities try to cushion with direct cash handouts to millions of poor families, again causes some protests.

SEPT. 14 2007 - Vice President Jusuf Kalla says the government has no plans to increase subsidised fuel prices, despite a surge in global oil prices to more than $80 from around $60-$65 in early 2007.

DEC. 28 2007 - The government drops a plan that would limit how much subsidised fuel private car owners are allowed to buy, amid concern the initiative would boost inflation.

APRIL 2008 - Indonesian officials say the government is considering raising fuel prices to cut ballooning subsidies with global oil prices just below a record of $117 a barrel.

Protests break out in several parts of the country in the following weeks.

MAY 23 2008 - Indonesia announces it will raise fuel prices with effect from first thing May 24, by an average of 28.7 percent. (Reporting by Muhamad Al Azhari; Editing by Sara Webb and Bill Tarrant)