Indonesian President Saves Country From Crisis Though Rising Fuel Prices

Indonesian President Susilo Bambang Yudhoyono on Monday defended his unpopular fuel price hike as necessary to avoid an economic meltdown similar to the 1997 financial crisis.

Workers and student groups have attacked the government over the average 28.7% rise in the price of subsidized fuel which came into effect on Saturday despite widespread protests.

But Yudhoyono told a forum of regional investors the government had to act to save the budget from collapsing under the weight of runaway subsidy bills linked to soaring global oil prices.

"The decision on Friday to further reduce oil subsidies was the best, necessary and most responsible solution to save our national economy from crumbling and protect our people from harm," he said.

"The alternative would be a possible financial and economic crash similar to that of 1997 and the real loser here would be our own people." Analysts applauded the price rise, saying it was vital to prevent a deficit blowout and demonstrated the government's fiscal responsibility despite the threat of protests leading up to general elections in April.

But critics say it puts an unacceptable burden on the poor who are already struggling to make ends meet after the recent surge in food prices.

The government has been at pains to point out that most of the subsidies end up in the pockets of relatively rich car owners and the money is better spent on social programs and infrastructure.

Even after the latest adjustment to the pricing regime, which saw gasoline prices jump 33.3% to IDR6,000 (65 U.S. cents), Indonesians enjoy some of the lowest fuel costs in Asia.

Indonesia is a member of OPEC but is a net oil importer due to years of declining spending on infrastructure.