Saturday, June 7, 2008

KL makes right fuel move

June 7, 2008

THREE days ago petrol in Malaysia cost RM1.92 a litre, a false rate kept low by subsidies. The price is now RM2.70, up 41 per cent, but still cheaper by half than in full-price Singapore. Malaysians have been put on notice they could be paying RM4 by August, when most price supports will have been removed. Diesel is up by 63 per cent and electricity charges will be raised next month. These adjustments dictated by the oil price hovering around US$130 a barrel are easy for the Malaysian government to justify: The savings of RM14 billion will lighten the impossible burden of a RM50 billion fuel subsidy taxpayers will have to bear by the end of the year if prices were unchanged. The country has been running Budget deficits, with the fuel subsidy at 7 per cent of GDP being one of the highest ratios in the world. The comparative ratio in Indonesia, a notorious case of price coddling demanded by street agitation, was to be 3 per cent, considered worrying, until prices were raised by 30 per cent last month. India and Taiwan have also raised regulated prices.

Malaysians accustomed to cheap car travel and marginal businesses sustained by cheap fuel are bound to punish the government of Prime Minister Abdullah Badawi for what to them would seem a badly timed move. For comparison, a simple matter of road toll charges being increased has frequently caused public commotions. What now, when the fuel spike, on top of food price movements, could double the inflation rate to 6 per cent, say economists. And the national oil company Petronas is rolling in riches, with each US dollar increase in price bringing the nation RM250 million more a year. The people have some vengeful nervous energy left over, even after having taught the neglectful Barisan Nasional government a lesson in the recent elections.

But they would be wrong and unjustified to take it out on PM Abdullah or his government. They should, as the Prime Minister has advised, change their habits, like driving less. He has been brave and decisive in cutting the subsidies. These are not only unsustainable to the Treasury but are also wrongly targeted in their aim of helping the poor. A study of fuel subsidies by the International Monetary Fund found that the richest households, not the poorest, gained the most (by 42 per cent against 10 per cent) from their use of big cars and air-conditioning. The comparable gap in Malaysia would be smaller as car ownership is fully democratised in a country with patchy public transport, but it makes sense for the saved ringgit to go into social programmes like health care and education. The government should be supported in its effort of putting public funds to more productive use to help the poor, not for discretionary consumption.

[Comment:The fuel subsidy wrongly benefits the Thais - I hear they drive big tankers over the border to get the cheap fuel - and Singaporeans - who have been enjoying relatively cheap food from M'sia due to the low fuel and transport costs.

It is a courageous and unpopular move by Abdullah Badawi. I wonder if he is choosing to make all the unpopular moves now, take all the blame, and then hand over to Najib so Najib can begin with a clean slate?]

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