| Malaysia cuts fuel subsidy |
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| Written by Jed Yoong | ||
| Wednesday, 04 June 2008 | ||
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The half of Kuala Lumpur’s budget that was going to energy support is no longer sustainable
Driven by skyrocketing fuel prices that the government can no longer afford, Malaysia Wednesday dared the possibility of further political trouble for the ruling national coalition at best and civil unrest at worst and slashed hefty fuel subsidies that would have cost RM56 billion this year, about half of the government’s revenue.
To soften the blow and possibly to fend off civil unrest, the government is also passing out cash handouts to owners of motorcycles and cars below a certain engine size – thus replacing subsidies with cash. Most Malaysians own cars with small engines from local carmakers Proton and Perodua. The net effect of the subsidy cut remains to be seen.
Prime Minister Abdullah Ahmad Badawi, already besieged after the National Front, or Barisan Nasional (BN), lost the two-thirds parliamentary majority that it held since independence in 1957, made the unpopular move as crude prices continued to spiral above US$130 per barrel, diverting funds from much-needed development projects.
"It (the fuel subsidy) is five billion ringgit more (than the development budget), we need to look for more money," Badawi told Bernama, the national news agency, on May 10.
"When the prime minister tables the Ninth Malaysia Plan on March 31, and analysts look at the figures, they will find that the biggest amounts are subsidies. So, what is the conclusion? They will see Malaysia adopting a macro fiscal policy that is not prudent, not practicing good governance and not in accordance with a stable financial system. This does not reflect well on our efficiency," Deputy Prime Minister Najib Razak told reporters.
The government hopes to channel the savings into improving public transportation, as it promised many years and elections ago but with little to show. In Kuala Lumpur, despite having a light rail train service and monorail, public transportation is expensive and inconvenient. Worse, intercity travel is still being serviced by old and slow trains, and accident-prone buses.
Record crude prices have also pushed other countries to cut fuel subsidies and price controls. Indonesia has hiked fuel prices by an average of 29 percent, saving about 34.5 trillion rupiah and kicking off a series of street demonstrations. To help the poor who will feel most of the pinch, the Indonesian government will distribute 14.1 trillion rupiah (US$1.52 billion), in cash handouts to about 19 million families. Similarly, after slashing subsidies, Taiwan will distribute US$659 million to middle and low-income families. The latest to raise oil prices is India, whose government announced Wednesday that gasoline and diesel prices will increase by 10 percent.
Analysts have welcomed the end of market-distorting subsidies and controls but also cautioned possible political unrest, especially if price spikes make food too expensive for too many.
"Price caps, government subsidies and bans on food exports can cause other, less obvious, distortions. They reduce the incentive for local producers to increase supply and for consumers to curb demand. This encourages smuggling and hoarding, prolongs the global supply-demand imbalance, and keeps global commodity prices higher for longer. By keeping local energy and food prices artificially low, consumers have no incentive to reduce demand, so the import bill can mushroom," according to the weekly Asia Ex-Japan Economic Monitor for May 30 by the Lehman Brothers investment bank
To curb inflationary pressures, Duncan Wooldridge, an economist at UBS Investment Research, suggests tightening monetary policy -- decreasing money supply by increasing interest rates.
"Loose monetary policy is driving inflation up, in our view. It is not just food and energy prices. The belief that food inflation or energy inflation should continue to be accommodated is misplaced, in our view. There is a difference between food prices or oil prices rising for a few months and rising for a few years," he wrote in a report.
Bank Negara, the central bank, however, has reportedly said that it will not adjust interest rates to curb inflationary pressures and will let an appreciating ringgit do the job instead. So far the ringgit has risen slowly, by 2.4 percent in 2008 to RM3.244/US$1.
Asia has the benefit of robust economies driven by exports while costs increase as fuel subsidies are cut. Things are bleaker for OECD countries like the United States, Japan and some European countries, which includes the biggest economies in the region like United Kingdom, Germany and France. "Several quarters of weak growth lie ahead for most OECD economies. At the same time, headline inflation could remain high for some time to come," according to the OECD Economic Outlook released on June 5.
Most analysts believe that fuel prices will begin to moderate as more supply comes on line and refinery capacity increases and as motorists cut back on car usage. Crude fell to a three week low Wednesday to US$123.15 in London. Consumption in the US fell by 4.7 percent last week year-on-year. Until it does come down, however, Malaysians, whose love affair with their cars has been growing for years, may have to learn to walk 500 meters to the market.
Comments
(18)
Cut fuel subsidy
written by michiko , July 19, 2008
i ask the government to review back the prices of the oil prices in our country. If the government don't do so, they should explain to the rakyat in details how they manage the money. What Datuk Seri Anwar mention during the "debat" that aired a few days ago, there must be corruption in our government.
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I hope my suggestion will be considered... report abuse
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The end is near....
written by Orang Asli , June 15, 2008
Down with UMNO ... Down with UMNO ... LET SOMEONE ELSE RUN MALAYSIA...
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Malaysian can claim the subsidy starting 14th June
written by KCLau , June 12, 2008
Malaysian can start claiming the fuel subsidy at Post Office.
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More info: http://kclau.com/make-money-tips/fuel-subsidy/ report abuse
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MR
written by KKL , June 10, 2008
A corrupt government deserves to subsidise the people the price of fuel.
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The Grapes of Wrath.
written by smoking dragon , June 09, 2008
"The Wrath of Grapes" has got his name wrong. It should be as I have typed it. He has got the wrong analogy. You don't "subsidise" something you have in you backyard. The durians I grow is cheaper than the same durian I would have bought in UK. If the oil is imported than the government can claim to subsidise it but we are not. The "subsidy" is what the government would have given IF the oil were imported. The government now sees so much money in the pipeline that it wants all of it. So it claims to have given a subsidy when it did not. It is a trick to cheat the people of money. You better get your logic right as well as your pen name.
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Blame the US
written by UAssA , June 08, 2008
The price of crude oil in USD is going up because most oil trading is denominated in SD and the greenback is falling in value. If more oil trades were done in currencies other than the USD, prices would go down and be more stable. So, in a way, we are being made to pay for how the Americans have messed up their economy (super-easy credit, unbacked financial products, expensive illegal wars, etc).
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Petrol Hike
written by kui , June 08, 2008
Is there a gobal shortage of fuel supply? Who actually ditates the inrease of fuel price - OPEC or Fuel consumming countries? Is demand greater than supply? Others others others QQQQ which a layman like me cannot understand. Malaysia govt asking the people to change their life styles, good suggestion but let see the ministers lead by example. Starting with paycut of their fat salary and side incomes (which are unaccountable). As far as I know all Malaysian Ministers are all well loaded and can afford all luxury items in the world. So people like me will alway lose out.
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Higher and Higher Oil Price, Malaysia cuts fuel subsidy, What now?
written by amadas , June 07, 2008
Global demand for Oil has exceeded its supply and consequently Oil prices had risen and will probably move higher and higher in the future short of major discovery of oilfields with significant oil reserves. There has been no major oil field discovery over the past 40 yeras. Moreover the cost of exploiting, recovering and producing Oil& Gas has skyrocketed and will probably increase more and more in the future as exploration goes more and more into deeper waters and/or into less accessible areas.
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The reality is high oil price is here to stay and the world has to cope and live with higher and higher oil price in the future. Blaming the high oil prices on speculation misses the macro view that there is increasing mismatch between Global Demand and Supply of Oil. Malaysians most affected by the recent cut in fuel subsidy are the ordinary poor working people who own kancil/proton sagas or motobikes. These people have also experienced severe and significant loss in disposable incomes brought by the hefty rise in food,commodities and fuel prices. The current BN government had stated that the increase is necessary and Malaysians must take short term pain in order to have long term gain. Yes Malaysians do not mind taking short term pain in order to have longer term gain on proviso that there is a clear cut, visionary economic and social strategy that "Add value to the livelihood of all Malaysians." The grim and stark reality is the current BN government so far is "No Action, Talk Only". report abuse
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All the governments should go after the speculators of oil prices who inflated the oil price
written by frankie , June 07, 2008
It is very clear that the price of the crude oil goes up & up with no end by the "speculators" of crude oil exchange. They keep on sucking the poor people from all over the world, the "gamblers" get richer & richer while the governments & its people get poorer each day. Why the governments don't dare to stop them from speculating !!!
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...
written by TheWrathOfGrapes , June 07, 2008
/// Malaysia is a net EXPORTER of oil. We don't import oil. So how can the government claim to subsidise our petrol? If we import oil, then the government can claim that. Something is fishy here. Are we really IMPORTING oil? ///
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Smoking dragon - you better stop smoking whatever you are smoking - it is clouding your mind. That says you have durians in your backyard. You are not importing durians. Your cost is almost zero. The market price for durians is RM20 per kg. That means you can sell durians at that price. Will you give it away free to strangers or unknown customers? Assuming you decide to buy from the market just to see if those "foreing" durians are better than yours. You bought 10 for RM200. You have "imported" 10 durians. Next, you sold 10 durians at RM1 each (since you don't believe in market price) for a total of RM10. You have "exported" 10 durians. Your net export is zero (export 10 and import 10). But you have lost RM190. You have subsidized your customer RM190. If oil can be sold for US$127 a barrel in the overseas market and it is being sold to you below that price, the difference is the subsidy to you. Get it. Nobody owes you a living. Nobody needs to sell to you if you don't pay market price. I don't know you. So, would you sell me your durians at RM1 per kg since it is free to you and you claim there is no subsidy.  report abuse
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Malaysia cuts fuel subsidy
written by Amadas , June 06, 2008
Cutting the fuel subsidy may be a little too late in view of the hefty increase of commodity prices which had already eaten into "what little is remaining in the disposable income of the ordinary Malaysian rakyat". The government's handling of the cut in fuel subsidy smacks of amateurism and insensitivity as it could very much be handled in a more timely,refined,convincing and professional manner.
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The current status of the existing public transport system in Malaysia leaves very much to be desired and consequently it does really encourage the communting public to use it as it does not really offer public convenience nor reduce communiting time...much to the rakyat's anguish and chagrin. By August 2008 the fuel price per litre in Malaysia will roughly be in tandem with the fuel price per litre in the USA. However there is a distinct difference here though ....car prices in USA is much lower compared to the unrealistic high car prices in Malaysia. GDP per capita in Malaysia is much much lower(about 5 times lower) compared to the USA. Conclusion: The ordinary Malaysian car owners by far are much worse off compared to the US car owners. To lessen the rakyat's burden the Malaysian government has to seriously consider lowering import duties soon on cars which ultimately will result in lower car prices in Malaysia comparable to the car prices in USA. This has not happen as yet. report abuse
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Money, money, money
written by Overseas Tiger , June 05, 2008
Actually Malaysian oil are of a higher grade and quality and fetches a higher price on the world market, but by diverting it for domestic use we are indirectly subsidising domestic consumption on top of official government subsidy. The other issue regards refinery capacity and technology in Malaysia. The situation could improve alot more if more of Malaysia's oil are refined here to add value prior to export rather than shipping them out in its crude form. Unfortunately, I think its perhaps just too late to redirect the subsidy saving to public transportation schemes when Mahathir's and Badawi's government spent all those past years dickering on pork barrel politics on public transport schemes and flittering away tax payers' money to enrich themselves and their cronies on half-assed, poorly planned, half executed unfinished plans. Now the chickens will come home to roost.
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Reality bites !
written by TL , June 05, 2008
I actually do not mind using the public transportation if we have a good one in place. It is very common for people live in Singapore, Hong Kong or China to commute daily with the metro train. Malaysian is considered a very lucky lot where almost everyone with legal age own a car.
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I wonder if the government can really make good use from the saving to invest in LRT and monorail. People residing in KL may opt to use the LRT or buses elsewhere we don't have any choice at all. There is no LRT or monorail network in other states and the bus service level is one of the worst in this region. I believe the monorail project in Penang is gone now since Penangite voted the opposition party. report abuse
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What subsidy?
written by smoking dragon , June 05, 2008
Malaysia is a net EXPORTER of oil. We don't import oil. So how can the government claim to subsidise our petrol? If we import oil, then the government can claim that. Something is fishy here. Are we really IMPORTING oil?
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SUICIDAL DECISION
written by MALAYSIAN101 , June 05, 2008
SINCE THE GENERAL ELECTION IT IS KNOWN THAT MR. PM'S ADVISORS ARE NOT IN TUNE WITH THE PEOPLE'S NEEDS AND THIS IS ANOTHER REFLECTION OF IT. THE CONSEQUENCE OF A 41% FUEL INCREASE WILL BRING FURTHER PRICE HIGHTH ON OTHER ESSENTIALS. THIS WILL LEAD TO DEMONSTRATIONS AND SUICIDAL FOR THE RULING PARTY. CHANGES WILL HAPPEN SOON! WHY CAN'T THIS GOVERNMENT MAKE PROPER POLICIES! JUST READING WHAT THE ANNOUNCEMENT WILL TURN ANY FDI AWAY!
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Biofuel
written by Ayu , June 05, 2008
Malaysia should encourage Proton to produce cars that run on straight palm oil.
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The 2nd Tsunami!
written by Yeahwho , June 04, 2008
The sudden announcement of the petrol hike of 78 sen by the PM after the Cabinet meeting have caught many Malaysian by surprise.It contradicted with the earlier statement by the Domestic Trade and Consumer Minister, Datuk Shahrir that the actual implementation will only take place in August. The reaction from the ground was filled with anger and disappointment.Majority of Malaysian drive to work because we do not have an efficient public transport system like Singapore to rely on. This increase will definitely cut deep into the pockets of the ordinary Rakyat.
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Prime Minister Abdullah Ahmad Badawi is taking a major political risk in removing subsidies on petrol. "It is not an attempt to be popular, we have to think in the best interests of the people," he said. With the instability of the current BN government and the dependency of the East Malaysian party for support, the above political risk taken by the Pak Lah administration might have adverse repercussion. report abuse
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$$ should be spent on reducing poverty via improving literacy, improving agricultural sustainability, telecoms, utility and rail infrastructure rural areas- so people do not need so much to commute and can live independently, sustainably and happily in their current locations; this reduction in urban migration would reduce jams, pollution, urban sprawl/ slums and extremist influence on rural folk, ultimately providing a better environment livelihood for all.
$ wasted on such subsidies will only result in scarcity and neglect in times of need as Malaysia has shown: 'The mystery of Malaysia's tsunami aid': http://news.bbc.co.uk/2/hi/asi...100030.stm . The humanitarian suffering that follows will only result in more civilian dissatisfaction, religious radicalism and political instability.
If necessary, such subsidies should be better directed: e.g. to rural farmers, through the provision of organic fertilizers, free internet connectivity and good rail connectivity to markets, rural medical facilities.
Penny wise pound foolish, these stupid 3rd rated policies are going to DROWN the nation and SINK this world. These policies had better change before the world has to start drinking salty water. The local people have their part to play in voting upright, forward thinking politicians who can work towards the good of ALL.
More atricles: http://just-my-observation.blo...bel/Global warming