Jakarta retreats again on price rises

There have been daily protests against the price rises

The Indonesian Government has announced further concessions to try and end two weeks of street protests against fuel and utility price rises.

The government said some fuel price rises, which were introduced on 1 January, would now be reversed.

The domestic oil products (prices) will be reduced effective from midnight

Minister for Economic Affairs Dorodjatun Kuntjoro-Jakti

This follows a decision last Wednesday to delay indefinitely an increase in telephone charges.

The government's latest climb-down will cause concern among Indonesia's foreign lenders.

Many of them are to meet in Bali on Tuesday to discuss this year's lending.

Foreign economists say the price rises are needed to reduce government subsidies and tackle its budget deficit.

Indonesia's Minister for Economic Affairs Dorodjatun Kuntjoro-Jakti said the short-fall in revenues caused by the lowering of prices would be met from a special reserve fund and not by increasing the budget deficit.

At the beginning of the dispute, the government said it had no intention of reversing the price rises, despite the protests.

Bowing to pressure

But the BBC's Jakarta correspondent says it seems that the political pressure has taken its toll.

There have been daily protests since the government increased fuel prices by 22%, electricity by 6% and telephone charges by 15% at the start of the year.

Following the climb-down, most fuel prices will only rise 8%. News reports in Indonesia said the rise in electricity prices would be pared back as well.

The original rises, part of a package of economic reforms approved by the International Monetary Fund, was praised by economists as a necessary step towards balancing Indonesia's budget deficit.

The government had promised millions of dollars in financial aid for the poor to compensate for the price rises.

But that was not enough to soothe demonstrators, and the government clearly feared the political consequences if they went ahead with their plan.

Sharp rises in fuel prices at the height of the financial crisis in May 1998 triggered rioting which contributed to the fall of then-President Suharto.

The BBC's Rachel Harvey says that with elections due next year, some economists fear the government might shy away from unpopular measures and slow the pace of reform.