Robert Go, Jakarta – For cabby Sutardjo, the petrol-price increase scheduled for this coming Friday could erode his daily take-home earnings of around 40,000 rupiah (S$6.80) by as much as 20 per cent.

The 11-year veteran driver said: "Things are hard enough. We can't raise taxi fares, because then fewer passengers would ride taxis. Drivers now have to take the loss of income." Carpark attendant Slamet argued similarly that the price hike would hurt them and the rest of Indonesia's working poor: "Prices for everything else will also go up now, so life will get tougher for us."

Late Friday, following marathon negotiation sessions that spanned nearly one week, Indonesia's Parliament and government agreed to slash petrol subsidies to 53.7 trillion rupiah and impose price hikes averaging 30 per cent across the fuel-product range. A litre of premium petrol will go up from 1,150 to 1,450 rupiah, automotive diesel from 600 to 900 rupiah, and kerosene from 350 to 400 rupiah.

Budget Committee chairman Benny Pasaribu of the Indonesian Democratic Party-Struggle (PDI-P) party announced the measure: "We have agreed to the government's proposal of raising fuel prices by a 30-per-cent average." He said Indonesians should conserve fuel to further reduce the amount Jakarta has to spend on subsidies in the future.

Indonesia's fuel subsidy is an issue harped on consistently by the International Monetary Fund, World Bank and other aid agencies, which have long recommended its termination. They argue that Jakarta's subsidy actually benefits the car-using middle class and oil smugglers who, according to some analysts, export oil illegally with the help of corrupt government officials. Bringing Indonesian fuel prices closer to international standards should cut out smugglers' profits and help the country maximise its oil income.

Last October, the government already increased prices by an average of 12 per cent, but cancelled its plan for a 20-per-cent jump two months ago, fearing mass protests at a time of heightened political tension in the capital.

Currently, the subsidy has come under particular pressure due to Indonesia's Budget deficit trouble, which could hit 85 trillion rupiah if the government does not implement drastic measures to control it.

Parliament wanted to cut subsidies down to 41.3 trillion rupiah initially to alleviate pressure on the Budget, but relented on Friday and agreed to a sum closer to the government's projected figure of more than 60 trillion rupiah.

The next battleground for financial planners will be the issue of alleviation programmes aimed at reducing the impact of the fuel-price hikes on the poorest Indonesians.

Analyst Ichsanudin Noorsy warned: "Price hikes will have side effects such as rising inflation and a further reduction of the people's purchasing powers." Sources in various ministries reported that some coupon and direct-cash programmes will be initiated to help the poor deal with the price hikes.

But they declined to elaborate on how much money the government would spend or which installations would oversee the process.

Mr Pramono Anung, PDI-P legislator and a member of the Energy and Natural Resources Commission, said: "This increase can't be avoided. We also need better monitoring of the subsidy programme in general."