Indonesia to wait until after October to raise fuel prices

Indonesia will wait until at least after October to raise fuel prices, President Susilo Bambang Yudhoyono said on Wednesday, despite a prolonged fall in the rupiah due to soaring world oil prices which has hurt investor confidence.

The global price rise has prompted the government to snap up dollars to pay for oil imports and put pressure on the budget due to expensive fuel subsidies.

"If everything goes smoothly, after October we can implement the rise in fuel prices," President Susilo Bambang Yudhoyono said in a lengthy address to the nation broadcast on television.

"We finally decided, that no matter how, the price of fuel should be raised... linked with a reduction of subsidies, not an elimination of the subsidies," he said.

"We will decide and implement the fuel price increase when we are convinced that the deficit reduction is logical, not threatening fiscal (stability) and the budget, and when we havemade sure that aid and compensation for the poor" has been planned.

The subsidies could "threaten our fiscal sustainability and the macro-economic stability which we have worked hard to maintain so far," he warned.

"The solution we are looking for is not merely to get a stable exchange rate... but I and the government also have an interest in our economy continuing to grow in the future," he said.

The announcement is likely to disappoint analysts. Many of them hoped that the government would take decisive action by naming the date and size of a cut in the subsidies, which are politically sensitive in Indonesia.

"It is a bit disappointing," said Claudio Piron, currency analyst at J.P. Morgan in Singapore.

"It is admirable that he is trying to help the poor and make this as socially acceptable as possible, but the measures come into place in September/October. Ramadan is in November, so looking at it on paper, the earliest you've got is December."

"The fact that Indonesia wants to raise fuel prices is good, but we have to look at the detail, to see the impact on the government budget," said Sebastian Barbe, currency strategist at Calyon in Paris.

"We also have to see how the population reacts to the measures."

Susilo faces potential unrest on the streets by breaching his pledge that fuel price increases in March would be the last this year. An attempt to increase fuel prices in 1998 contributed to protests that triggered the ouster of former dictator Soeharto.In 2003, street protests forced Megawati Soekarnoputri's government to backtrack on plans to raise prices. (*)