Indonesia increases subsidized fuel prices by 30% to save economy

Indonesia has decided to increase fuel prices by more than 30% in an attempt to save the economy more than $8 billion in 2015.

Prices were raised by 2,000 rupiah ($0.16) per litre, with gasoline now costing 8,500 rupiah and diesel 7,500 rupiah.

The subsidized fuel prices in Indonesia are among the cheapest in the world.

The unpopular move sparked small protests and long queues at petrol stations in the capital, Jakarta.

Previous price increases have sparked violent protests and reports said young people had clashed with police at a demonstration hotspot before the announcement on November 17.

New President Joko Widodo, who took office in October, said the increase would bolster government finances and help with the nation’s trade imbalance.

“The country has needed a budget for infrastructure, healthcare and education but instead spent it on subsidizing fuel,” Joko Widodo told reporters on November 17.

Indonesia’s $23 billion fuel subsidy bill is the main reason behind its budget deficit. It is also behind the nation’s trade imbalance as Indonesia imports much of its fuel.

The economy also grew at the slowest pace in five years in the third quarter at 5.01%, compared to a year ago.

The rise in fuel prices could push up inflation to 7.3% this year and the impact would last until next year, the government said.

Inflation jumped to nearly 10% in mid-2013 after fuel prices were increased.

Economists said the country’s central bank, Bank Indonesia, might need to increase interest rates this month to cope with the rising inflation.

Bank Indonesia has not changed the benchmark rate since November 2013.