Indonesia will move to market prices for gasoline except for some consumers who will be allowed to purchase subsidized fuel using a ‘smart card’ system, outgoing Coordinating Minister for Economic Affairs Boediono said Friday.

He was talking on his last days in the position before taking up the position of governor at the central bank.

After a rise in the fuel price of up to 30% in the next few weeks, the government would further raise the price by stages beginning in September, he said, according to Kompas.

The smart card system would also be introduced around September, he said. The government had no doubts about moving to market pricing for fuel because many other developing countries, including the Philippines, Cambodia and East Timor, were doing so. 

“If fuel prices are not raised, the government’s money will be burned away by the cost of subsidies. It is better that we use these funds for direct payments to the poor,” he said, adding that the cash program, or BLT, would be extended through 2009.

Coordinating Minister for Welfare Aburizal Bakrie told Dow Jones Newswires Friday the fuel rises would be introduced no later than June 1.

National Development Planning Minister Paskah Suzetta said earlier the government would announce the size of the planned increase after May 23 when the government starts disbursing direct cash payment of Rp14 trillion ($1.5 billion), to assist around 19.1 million poor households with higher fuel prices.

The government’s plan to raise fuel prices dominated news reporting in a week when the Central Bureau of Statistics (BPS) announced that gross domestic product had risen by 2.15% for the first quarter and 6.28% on year. That marked the sixth consecutive quarter of on-year growth above 6%.

Domestic demand remained robust despite higher prices of food and energy, BPS said, while exports, which grew 5.7% on quarter and 15.0% on year, also helped propel the economy.

Household consumption, which accounts for 57% of GDP, contracted 0.6% on quarter but rose 5.5% from a year earlier. Government spending fell 30.5% on quarter but increased 3.6% from a year earlier.

BPS also announced that unemployment dropped to 9.43 million by the end of February, down by 10.6% from last year.

"The public service sector and the trade, restaurant and accommodation service sector have absorbed more employment in the past year," BPS deputy chairman for social statistics Arizal Ahnaf told a press conference, The Jakarta Post reported.

Ahnaf said that from the beginning of March 2007 until the end of February, the public service sector absorbed 1.82 million more workers, while the trade sector absorbed 1.26 million more workers.

The number of unemployed people decreased to 9.43 million in February from 10.01 million people a year earlier, BPS reported, and the unemployment rate fell to 9.11% compared to 9.75% a year earlier.

On the Indonesia Stock Exchange, the composite index closed up 19.03 points at 2,468.84, compared to 2,375.03 a week earlier.

Christine Salim, an analyst at Samuel Sekuritas, said there was strong interest in miners and palm oil stocks, while the strong first-quarter GDP data and the drop in the unemployment rate also seemed to have lifted market sentiment.

Growth Rate of Quarterly GDP by sector (%)

Source: Central Bureau of Statistics

Compiled by: Mahendra Siregar and Hari S. Noegroho