Indonesia set for fuel cost rise

Indonesians have enjoyed some of Asia's cheapest fuel costs

Indonesia is to raise nationwide fuel prices from 1 October, President Susilo Bambang Yudhoyono has announced.

The controversial decision comes as the country moves to cut fuel subsidies in response to the soaring cost of oil.

President Yudhoyono said his government would go ahead with the fuel price rise, but did not say by how much.

Earlier this month, Indonesia said it would give cash to millions of its poorest people to help them cope with imminent fuel price rises.

Some 60 million Indonesians, living in 15.5 million households, will receive the 300,000 rupiah ($30; £16) subsidy over three months.

Ministers are keen to cushion the blow for the poor, after previous rises helped topple the government in 1998.

Deficit worries

We are planning to increase the fuel prices on 1 October after we have made some preparations Indonesian President Susilo Bambang Yudhoyono

Fuel subsidies currently account for a quarter of Indonesia's budget, and many of the country's poorest people use kerosene for cooking.

However, the country has been forced to sell its rupiah currency to buy dollars in order to pay for increasingly expensive oil imports - raising fears that the budget deficit might spiral out of control.

Indonesia's parliament earlier this week agreed to cap the country's spending on fuel subsidies to 89.2 trillion rupiah for 2005.

"We are planning to increase the fuel prices on 1 October after we have made some preparations," President Yudhoyono said.

His announcement came despite calls from a number of high-powered Indonesian officials, including former presidents Megawati Sukarnoputri and Abdurrahman Wahid, to hold back from raising fuel prices.

While Indonesians enjoy some of the cheapest fuel costs in Asia, tampering with the price is a politically sensitive move for any government.

Price hikes introduced by President Suharto in 1998, combined with soaring inflation and food shortages, eventually led to riots in the capital Jakarta and the toppling of his long-standing government.