THOUSANDS of protesters rallied in the Indonesian capital and other cities on Tuesday against a government plan to raise subsidised fuel prices by as much as 30 per cent.

Around 1,000 people clogged the main street in Jakarta demanding the government cancel the plans and reduce the cost of food and other commodities which have soared globally.

'We will march to the (presidential) palace to reject the price hike and demand the government reduce food prices. The people's budgets have reached breaking point,' demonstration spokesman Masinton told reporters.

Separately, thousands of students and labourers rallied in Samarinda on Kalimantan island and in the city of Solo in Central Java, state-run news agency Antara reported.

The government has said it is considering a fuel price rise of up to 30 per cent, which would see the cost of gasoline in Southeast Asia's biggest economy climb to 6,000 rupiah (90 cents) from 4,500 rupiah.

President Susilo Bambang Yudhoyono says the government has no choice but to slash fuel subsidies despite the political cost ahead of elections next year, as record world oil prices threaten to blow out the budget deficit.

To compensate the poor his cabinet is planning to transfer more than 1.5 billion dollars in cash handouts to millions of low-income families.

There have been almost daily protests against the plans, most of which have been peaceful, but some fear unrest on the scale of 2005, when the last fuel price hike of 126 per cent triggered mass demonstrations.

Tensions are already high amid the anniversaries of independence from the Dutch as well as the May 21, 1998 end of Suharto presidency, when a fuel price rise sparked a mass protest movement.

Populist politicians have seized on the issue to rally support from the poor even though most of the subsidies go directly into the pockets of relatively wealthy car owners.
The subsidies also outstrip Indonesia's total social spending and capital investment, according to the World Bank. -- AFP



Learning points:

1) type of tax imposed : specific/per unit tax
à in this case, an increase of 1500 rupiahs per litre

2) since demand is relatively price inelastic, the decrease in subsidies (or in another light, increase in taxes) would be borne more by the consumers


<3 MEL!