The Indonesian government has approved the withdrawal of subsidies on fuel for private cars, but will roll out the change slowly over the next three years. Saying the state-owned energy firm Pertamina was not ready for such a change, parliament agreed to begin in Jakarta, cutting subsidies on gasoline from January 2011 and diesel from July, before moving on to the rest of the country.

The move is likely to temporarily increase inflation above the target rate of 6% and reduce low-octane gasoline imports to the region, as well as relieve pressure on Indonesia’s national budget. There is also the possibility of a public backlash similar to those when fuel prices rose in the past. Analysts and economists welcomed the news, however, saying it would free up government money for infrastructure improvement, vital to Indonesia’s quest for more foreign investment and an investment-grade rating.

Even delaying the complete withdrawal of subsidies to 2013 will cost the government an added Rp7 trillion (US$775.9 million). Motorbikes and public transport are not affected by the change.

source & article: Reuters via Yahoo! India