Jakarta – The government will proceed with its plan to raise fuel prices in April despite concerns that it could trigger a new wave of social unrest, according to Minister of Manpower and Transmigration Alhilal Hamdi.

"We have decided to proceed with the plan to raise fuel prices in April," he told reporters following a Cabinet meeting chaired by Vice President Megawati Sukarnoputri.

"But we have yet to decide whether the increase will be a straight 20 percent or a gradual increase," he added.

Hamdi said that the final decision would be made at a Cabinet meeting on March 8, after President Abdurrahman returns from an overseas trip.

Cabinet Secretary Marsilam Simandjuntak separately said that the fuel price increase could not be delayed because the plan was already contained in the 2001 state budget, approved by the House of Representatives.

But Marsilam said that the increase would be gradual so as not to create too great a burden for low-income people.

The government has planned to cut the fuel subsidy by raising prices by an average of 20 percent in April this year as part of the overall strategy to eliminate completely the fuel subsidy by 2003. The plan is also part of an agreement reached with the International Monetary Fund, which is providing a multi billion bailout loan for the country.

The gradual elimination of the government fuel subsidy is also in line with the implementation of the Asian Free Trade Area in 2003.

Finance Minister Prijadi Praptosuhardjo said recently that a delay in the fuel price increase would have serious consequences for the 2001 state budget which is already heavily burdened by the huge cost of the country's bank restructuring and recapitalization program.

But raising fuel prices may trigger further social and political unrest in the country already becoming divided as a result of political infighting between Abdurrahman and a group of factions in the parliament.

Some legislators have recently expressed opposition to the fuel price increase plan. The government raised fuel prices by an average of 12 percent in October last year, but that was also delayed from the initial planned increase in April of that year.

The government had to provide some Rp 800 billion in funds last year to help minimize the financial burden of the fuel price hike on some 17.4 million poor families.

The hike in fuel prices in 1998 contributed to the social and political unrest that led to the downfall of the former authoritarian president Soeharto.

Relations between the government and the IMF recently turned bad after the latter delayed in December the disbursement of a US$400 million loan to the country.

The Fund made the delay because of some concerns over the implementation of the country's economic reform program including the delay in the sale of two nationalized banks, fiscal decentralization policy, and the amendment of the central bank law.