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Indonesia's Widodo seeks to fix economy with fuel price hike

[JAKARTA] Indonesian President Joko Widodo unveiled a hefty increase in the price of subsidised fuel Monday, taking a bold, first step towards fixing the tattered finances of Southeast Asia's top economy.

Government fuel subsidies are a thorny issue in Indonesia, with economists long calling for the payouts that gobble up a huge chunk of the state budget to be reduced but large sections of the public are staunchly against any increase.

Previous cuts - including a large one last year - have sparked violent protests and before Monday's announcement, stone-throwing youths briefly clashed with security forces in one traditional protest hotspot, but most parts of the country were calm.

Mr Joko, who took office last month, pledged on the campaign trail to reduce the subsidies, and investors have been watching closely to see if the reform-minded leader will stick to his plan to cut the payouts and divert the money to his bold reform agenda.

The move is seen as urgently needed to boost an economy that is growing at its slowest pace for five years.

Late Monday Mr Joko, known as Jokowi, announced that the price of petrol would rise 2,000 rupiah (16 US cents) to 8,500 a litre, a 30 per cent rise, while diesel will raise 2,000 rupiah to 7,500 a litre, a 35 per cent increase.

"I decided that the new fuel price will be effective from midnight," he said.

Mr Joko, Indonesia's first leader from outside the military and political elites and the former governor of Jakarta, has said he wants to divert the billions of dollars saved to overhauling infrastructure and improving healthcare and education.

Before the announcement, several hundred protesters demonstrated in the city of Makassar, a traditional protest hotspot, on central Sulawesi island, hurling stones at security forces, and there was a small protest in Surabaya city, on Java, AFP reporters said.

However, the demonstrations were small compared to the mass protests that have accompanied past fuel price hikes.

The country's growth has been slowing from recent highs of more than six per cent, dropping to 5.01 per cent on-year in the third quarter.