Widodo's push to hike Indonesia fuel prices suffers setback

JAKARTA - Indonesian president-elect Joko Widodo's drive to fast-track an increase in fuel prices, one of his key election pledges, have stumbled after incumbent Susilo Bambang Yudhoyono said the conditions were not right at the moment to cut subsidies.

Widodo and Yudhoyono held a two-hour, closed door meeting on the resort island of Bali on Wednesday.

Atop Widodo's agenda when he assumes the presidency on Oct. 20 is to address a ballooning fuel subsidy bill that is eating up an already tight budget and threatening investor confidence by widening the current account deficit.

Fuel subsidies cost the government around $20 billion a year, or nearly 20 per cent of its total budget.

Widodo and Yudhoyono had discussed the possibility of introducing a fuel hike as early as September, two sources close to the matter told Reuters last month.

"Last night I specifically requested (Yudhoyono) to narrow the budget deficit by raising fuel prices," Widodo was quoted by Antara news agency as saying. "He conveyed that conditions are not right at the moment to raise (fuel prices)."

Raising fuel prices is a sensitive issue that could potentially unleash mass protests against Widodo's government within weeks of him taking office.

Any hike in fuel prices is likely to hit hardest the nearly 40 per cent of Indonesians who live under or near the poverty line and, according to Widodo's advisers, will be accompanied by a compensation package for the poor.

"I am ready to be unpopular but we should know that as we cut subsidies, those should be channeled towards productive businesses," Widodo told reporters in Jakarta.

Widodo, whose victory in the July poll was given the green light by Indonesia's Constitutional Court last week, says he wants to shift spending on fuel subsidies to areas such as education, health and agriculture.

Yudhoyono said on Wednesday he would "help the next government and the president-elect", adding the meeting was the first of more to come.