Wednesday, June 04, 2008

Holy petrol prices, Batman!!

We've been hearing different stories swirl about us losing the one thing we love the government for, that is, petrol subsidies. Here's the latest skinny on the petrol situation as reported by The Malaysian Insider.

The PM's decision to instantly lift the subsidy is sure to ruffle a few feathers. This new policy could see us paying double the amount we pay to fill up our car tanks. On the up side, motorcyclists and small car owners are expected to receive direct cast handouts to help them cope with the rise of petrol prices. Errr...sure that's not a administrative nightmare and OF COURSE the various government bodies involved will be able to handle it with great ease and efficiency.

Sigh, if our public transportation infrastructure wasn't so crap...!!

High stakes for PM in instant removal of price control on petrol

KUALA LUMPUR, June 4 — Forget about snap elections. Datuk Seri Abdullah Ahmad Badawi will enter risky political territory today when the government announces officially that it will stop subsidising petrol for Malaysians.

Under this plan, motorists could end paying close to RM4 per litre of petrol, nearly double the current pump price. To help lower income Malaysians cope with the higher retail price, the government is planning a raft of goodies including direct cash payments.

But by opting for an instant removal of subsidies instead of a staggered approach favoured by Indonesia and several other countries, Abdullah is tempting fate.

Some government officials have cautioned the prime minister, saying that because Malaysians have enjoyed subsidies for decades, it is viewed by many as an entitlement. Allowing market forces to prevail at the pump could set off a firestorm of protests which could undercut Abdullah’s support in Umno and across the country.

Two years ago, when the global crude oil prices started spiking and government cut its subsidies slightly, resulting in the pump price increasing by 50 sen, the PM’s approval rating took a beating. A survey conducted showed that some 70 percent of Malaysians approved of his leadership, down from nearly 80 percent before the price increase.

Despite hearing this counsel, the PM believes that Malaysians must understand the hard facts: that the country cannot afford the subsidy bill of RM45 billion a year, and that the existing system has distorted Malaysia’s competitiveness and rewards Malaysians who do not need any help. Soon after the general elections Abdullah identified fixing the subsidy system as one of his priorities.

A government official told the Malaysian Insider: "Asking Malaysians to pay the market price is not going to go down well...There is almost a zero chance of the PM even thinking about snap elections now. The Opposition will go to town and show how the government has failed to control the cost of living since the general election."

He reasoned that it will take several months before Malaysians settle down and accept a higher pump price and that is on the basis that the new scheme is implemented well with money flowing to the needy group in timely fashion.

Abdullah has been thinking about the possibility of calling for a snap election should a number of Barisan Nasional MPs cross over to Pakatan Rakyat, putting his government on the brink of collapse.

The view in the PM’s camp is that there is remorse among a swathe of traditional BN supporters who voted for the Opposition on March 8. These voters only meant to send a wake up signal to the coalition and not deny them their two-third majority in Parliament.

Also, the state of instability in the country post Election 2008 will persuade those who want an orderly country and strong government to swing behind BN candidates in a snap election, say Abdullah’s supporters.

All this scenario planning is academic now. In fact, if the scheme is not carried out smoothly or if Malaysians do not buy the government’s rationale for removing the blanket subsidy coverage, Abdullah could face some tough questions during the Umno branch and division meetings.

More so if the removal of subsidies results in cost of living increasing and consumer spending slowing as some economists warn.

"People are expecting a gradual lifting of fuel subsidies, not doing it at one shot. It seems to be extreme," said Gundi Cahyadi, economist with Singapore-based economic think-tank IDEAglobal.

"The impact is going to be negative. For sure, you're going to see inflation shoot higher from August onwards because it will affect prices across the board. Consumer spending and business investment will slow down if this happens," he told the Associated Press.

Inflation hit a 15-month high of 3 per cent in April, and is forecast at 2.5 percent to 3 percent for the full year. The central bank has cut its 2008 economic growth forecast to 5 percent to 6 percent, from 6 percent to 6.5 percent previously.

Manoharan Mottain, economist with AmInvestment Bank, said the removal of price controls would lead to "a lot of unhappiness" because the country's poor transportation system makes many people reliant on their cars.

"A total withdrawal (of fuel subsidy) could lead to chaos. There will be protests. It will choke consumer spending and could lead to dangerous levels of inflation," he warned.

It could also lead to unprecedented anger against a prime minister who only has a tenuous grip on power.

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