UPDATE 1-Indonesia parliament approves fuel subsidy cuts, delays diesel

* Private cars to use non-subsidised fuel in capital from
Jan

* Parliament delays switch for diesel until July

* Govt says move will add to inflation in 2011

(Updates with details)

By Rieka Rahadiana

JAKARTA, Dec 14 (Reuters) - Indonesia's parliament
approved on Tuesday a government plan to stop private cars
using subsidised fuel from January, a move that will add to
inflation and change gasoline buying by Asia's top motor fuel
importer.

The country's parliament argued state energy firm
Pertamina was not ready for the switch yet and delayed its
implementation in the capital Jakarta for gasoline until
mid-January and for diesel until July, before the move is
rolled out across most of the archipelago by 2013.

The government bill, which had aimed to start limiting
cheap fuel use in the Jakarta area from the start of January,
will reduce the burden of costly oil imports on the budget,
but may prove unpopular in a country that has previously seen
huge protests over fuel price hikes.

It is likely to reduce imports of low-octane gasoline from
Asia's regional oil market, but traders say any impact may be
temporary while Pertamina may have to increase imports of
higher quality non-subsidised fuel to cope with the change in
demand.

The move to wean motorists off subsidised fuel is likely
to be welcomed by economists and rating agencies, who worry
that a spike in oil prices CLc1 could force the government
to sharply hike administered fuel prices and destabilise the
economy.

Analysts say the government needs to use the money spent
on subsidies to instead improve infrastructure, which would
help draw further foreign direct investment and improve the
chances of getting a coveted investment grade sovereign rating.

Finance minister Agus Martowardojo, who hopes for
investment grade status for Southeast Asia's biggest economy
by next year to join BRIC nations such as Brazil and China,
told a heated and lengthy debate in parliament that the
postponement will add 7 trillion rupiah ($775.9 million) in
costs to the 2011 budget.

The government said the move in the Jakarta region will
add to average inflation by 0.15 percent, with the rollout to
the rest of Java and Bali adding 0.29 percent, though its
budgeted target for inflation in 2011 was 5.3 percent, steady
with this year.

Economists expect the plan to take inflation over the
central bank's upper target of 6 percent for 2011, reinforcing
market expectations Bank Indonesia will need to hike interest
rates from a record low 6.5 percent in the first half of 2011.

The plan will be rolled out to diesel in Jakarta in July,
to the rest of Java and Bali in July for gasoline and October
for diesel, with Sumatra island following in 2012 and Borneo
and Sulawesi by 2013. Motorbikes and public transport will
still be able to use subsidised fuel.

Analysts say the move could temporarily dampen record car
sales by firms such as Toyota and PT Astra
International . Investors have been betting on firms
exposed to strong domestic demand that is driving the
economy.
($1 = 9022 Indonesian Rupiah)

(Additional reporting by Adriana Nina Kusuma and Olivia
Rondonuwu; Editing by Neil Chatterjee)