Demonstrators, protesting fuel hikes, battled with riot police in front of the presidential palace in La Paz [Reuters]

Bolivian bus drivers have announced an open-ended strike to protest an 83 per cent hike in the price of petrol and a 73 per cent hike in the price of diesel.

Alvaro Garcia, the vice president, decreed the price increases on Sunday by removing subsidies that kept the cost of fuel artificially low for more than a decade.

It was the sharpest price increase since 1991, when prices went up 35 per cent, and follows six years of stable prices.

President Evo Morales defended the meausre, saying previous subsidies were a "drain on the economy".

"That money should stay here and the resources we will obtain from this move will be spent on productive local irrigation projects," Morales said at a ceremony at the presidential palace on Monday.

Faced with the growing criticism, Morales vowed the step would "not hurt anyone."

"The government and the president will never ignore the workers, but we cannot allow the money to continue trickling out through smuggling and corruption," the socialist president told mayors of towns near La Paz.

But Franklin Duran, the head of the Confederation of Drivers, which represents some 175,000 workers urged the government to "go back on this measure."

"We reject the measure taken by the government, and so we declare an indefinite strike" across Bolivia starting on Monday, Duran said.

Natural gas conversion

Private companies operate the buses and mini-buses that provide public transportation in Bolivia under socialist President Evo Morales.

Up to now only the drivers and a union representing city teachers have voiced opposition to the sudden price hikes.

While some taxis and city buses operated early Monday with unregulated higher prices, army trucks were drafted into service to shuttle between the working class neighborhood of El Alto and downtown La Paz.

Exempted from the price increase is natural gas for household use and for vehicles.

The government is encouraging city buses to modify their vehicles to run on natural gas. But at the moment, fewer than three per cent of public transportation vehicles have converted.

Residents rushed to fuel stations before the price increase went into effect at midday Sunday.

Garcia said the price increase was necessary because subsidized fuel was being smuggled across Bolivia's borders to neighboring countries.

Economic stability

Luis Arce, the finance minister, said that prices should stabilise by mid-January.

But economic analyst Gonzalo Chavez, a teacher at Catholic University, said gasoline prices are the benchmark for the entire transport sector, and transportation is a benchmark for dozens of other products.

"We already were finishing the year with inflation rising to six per cent and this is going to drive up inflation even further for the next three to four months," he said.

Alberto Bonadona, a Catholic University economist, said the measure was hitting ordinary Bolivians the hardest.

"Not just transport but food prices are going to be going up. Then there will be pressure for wage hikes," he said.

Source: Agencies