Fuel price increase climbdown as Morales reacts to popular protest

The decision last Sunday to slash fuel subsidies - sending prices soaring by as much as 83 per cent - triggered strikes and protests this week across the natural gas-rich country.

Morales, who had announced wage increases on Wednesday in an apparent attempt to calm protests over the so-called "gasolinazo" measure, said on Friday that he had annulled the fuel hike and wage increase decrees.

"I promised to govern according to the orders of the people. I've listened to my comrades," he said in a televised address.

"This means all the measures are cancelled so there's no reason for ticket prices to go up, or food prices, or for any speculation. Everything goes back to how it was before."

Morales, a close ally of Venezuelan President Hugo Chavez, enjoys solid support among Bolivia's poor indigenous majority. But the rise in fuel price angered his populist base and trade unions led demands for it to be reversed.

Earlier in the week, Morales had defended the price increases as a vital tool to cut fuel imports and spur lagging investment in oil output, but the threat of further protests last Monday may have persuaded him to change course.

The fuel subsidies cost the state about $380 million (243m) each year - equivalent to about 2 per cent of gross domestic product.

Despite persistent power struggles between the lowland east and highland west, Bolivia has enjoyed relative stability since Morales was elected in 2005 as its first indigenous president.

Miners, teachers and peasant farmers often take to the streets to press demands but most still back Morales because of his efforts to redistribute wealth from the gas reserves.

He nationalised the energy industry soon after he took office in 2006, vowing to boost domestic fuel production.

But progress on the project has been incredibly slow and leading foreign companies have been reluctant to increase investments in exploration and refining in the South American nation as a result.