Jakarta backs down on price hike

There have been daily protests against the price hikes

The Indonesian Government has agreed to postpone part of a package of price rises following almost two weeks of country-wide protests.

Senior Indonesian ministers agreed on Wednesday to delay indefinitely the increase in telephone charges and to review proposed price hikes for electricity and fuel.

The president has been called on to resign

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

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

The decision comes as the World Bank issued a report stressing that economic reform was imperative if Indonesia were to attract much-needed foreign investment.

The decision to postpone the rise in telephone charges was announced late on Wednesday after three senior ministers met parliamentary leaders to discuss the crisis.

On Thursday, protesters again took to the streets demanding further government concessions.

Hundreds of protesters were reported to have gathered in the South Sulawesi provincial capital of Makassar.

"What we want is cancellation of all the hikes, not just telephone tariffs," one protester told the Associated Press news agency.

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.

The 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.

Once again, when clear, strong leadership has been called for, she says, President Megawati has been found wanting.

The World Bank report, which was issued ahead of a key meeting of Indonesia's lenders next week, praised the government for reining in the budget deficit and cutting debt.

It also acknowledged Jakarta's moves to cope with the threat of terrorism in the wake of the Bali bombings in October.

But the report concluded that the country needed to improve its investment climate if it was to lift economic growth.

"Red tape and corruption in key government services, sharp increases in legal minimum wages and uncertainty in labour regulations, excessive taxation by some local governments, a looming power crisis and a weak legal system make Indonesia an unattractive place to invest," the World Bank report said.