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After protests, Indonesia's parliament boosts fuel prices by as much as 44%

By Kathy Quiano-Castro, CNN
June 17, 2013 -- Updated 1809 GMT (0209 HKT)
Indonesian demonstrators rally outside outside parliament in Jakarta on June 17, 2013.
Indonesian demonstrators rally outside outside parliament in Jakarta on June 17, 2013.
STORY HIGHLIGHTS
  • Police fired tear gas and water cannons at thousands outside parliament before the vote
  • The vote was delayed for hours as political parties debated the fuel price increase
  • The subsidies are hefty; cutting them will ease concerns about financial sector, analysts say
  • The increased prices will not affect the public transport sector

Jakarta, Indonesia (CNN) -- After clashes between police and protesters, Indonesia's parliament Monday night voted to revise the national budget and allow an increase of up to 44% in the prices of subsidized gas and diesel fuel.

Earlier Monday, protesters who rejected the increase clashed with police outside the parliament building in Jakarta. Police fired tear gas and water cannons at thousands of them before legislators began voting on the budget revisions.

There were smaller protests in other parts of the country. Violence was reported in Malang in East Java province, Ternate in the Maluku Islands and Jambi province.

The vote was delayed for hours as political parties lobbied, behind closed doors, for and against the fuel price increase. As the final vote was announced, university students, who were seated at the parliament's gallery, locked arms and shouted slogans.

The revised budget will allow gas prices to increase from 4,500 to 6,500 rupiah (46 U.S. cents to 66 U.S. cents) and diesel from 4,500 to 5,000 rupiah. The World Bank has long pushed for a cut in subsidies, which it says benefit mostly rich private car owners, to help ease pressure on the budget. The increased prices will not affect the public transport sector.

Indonesia is an oil-producing country. It became a net oil importer in 2008 and suspended its OPEC membership in 2009. It still enjoys some of the world's lowest fuel prices.

In 2012, Indonesia spent about $20 billion on fuel subsidies. In previous years, more funds were spent on the hefty subsidies than on education and infrastructure development, the World Bank and the International Institute for Sustainable Development have said.

The revised budget includes some 9 trillion rupiah in compensation to the poor to help lessen the initial effect of the increased fuel prices.

President Susilo Bambang Yudhoyono delayed the increase for months and later insisted that parliament make the funds available for a cash handout program that would benefit the country's 15.5 million poorest households.

Monday's violent clashes were reminiscent of similar protests In May 2012, when the president failed to get parliament's approval for a price increase. Fuel price increases are politically sensitive in the world's fourth-most populous nation. In 1998, President Suharto was forced to resign after widespread protests and rioting followed an increase in petrol prices. The last price increase was in 2008.

After months of uncertainty, Yudhoyono said in a news conference last week, "We must unite to protect our economy, we must unite to face our problems, and we must unite when the fuel price increases."

Analysts say that cutting the subsidies will ease investor concerns about Indonesia's financial stability. The country's trade and budget deficits are ballooning, and its currency is one of Asia's worst-performing.

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