Indonesia scraps controversial gasoline subsidy

Indonesia's government will scrap its gasoline subsidy from January 1 to free up more funds to boost the slowing economy, a senior minister said Wednesday.

The prices of gasoline and diesel in Southeast Asia's biggest economy will float following the market price and will be reviewed monthly, Chief Economic Minister Sofyan Djalil said.

Djalil said he hoped the move would help accustom Indonesians to price fluctuations after decades of being insulated by hefty fuel subsidies.

In January, the price of gasoline will fall in line with declining global oil prices to 7,600 rupiah (61 cents) a litre, from 8,500 rupiah. Diesel will also be lowered to 7,250 rupiah, from 7,500 rupiah a litre.

The government also fixed its diesel subsidy at 1,000 rupiah a litre for 2015.

"Diesel fuel is still subsidised because it is used for economic activities and the government deems it necessary to subsidise it," Djalil told reporters.

Previous subsidy cuts have sparked violent protests and stone-throwing youths clashed with police in Makassar, a protest hotspot on Sulawesi island, when the new government hiked fuel prices by more than 30 percent in November.

Scrapping fuel subsidies is seen as an urgently needed move to boost an economy that is expanding at its slowest pace in five years, with growth slipping to 5.01 percent on-year in the third quarter.

In the past the payouts had gobbled up 20 percent of the state budget.