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Indonesian Cabinet to Halt Some Fuel Price Increases - 2003-01-20

The Indonesian cabinet said it will rescind some price hikes in fuel and electricity after facing weeks of angry street protests. The move is likely to please public opinion, but may be less popular with international aid donors, who have long been pushing for the structural reforms to the Indonesian economy.

The decision to raise fuel and electricity prices on New Year's Day sparked a series of anti-government demonstrations across the Indonesian archipelago, and on Monday the government partially caved in to public pressure.

The cabinet said it would reverse the hikes in the price of diesel oil and kerosene for industrial use. The move goes some way to appease the concerns of the protesters, who were worried that higher fuel costs would also increase the price of public transportation, and that businesses would have to lay off workers to recoup their growing energy expenses.

But the cabinet said that the price of gasoline and kerosene for domestic use would continue to be heavily subsidized but would not be cut.

Even during the temporary price hikes, Indonesia still has some of the cheapest fuel in the world. Monday's downward adjustments mean domestic kerosene costs eight cents a liter, industrial diesel 18 cents a liter, and gasoline only 20 cents a liter.

The 22 percent rise in fuel prices imposed on New Year's Day was part of a program mandated by the International Monetary Fund to reduce debts and balance the budget. The energy subsidies cost Indonesia $1.5 billion a year.

Last week, government ministers also canceled plans to raise telephone rates.

International aid donors are due to meet on the island of Bali Tuesday to discuss Indonesia, and Monday's decision is not likely to please the International Monetary Fund or other major sources of assistance.

The government has inherited a heavy legacy of debts and corruption from decades of rule under former president, Suharto, who was forced from office during massive demonstrations against similar price hikes imposed in 1998.