March 6, 2006

Hike II

Posted in Malaysia at 10:42 am by egalitaria

So, 2000 people demonstrated in front of our Petronas Twin Towers last Friday. How characteristic. Placards showing disgust for the government and calling for the PM to step down. I can just see the headlines: Oil price up, PM steps down.

Is the RM0.30 increase in petrol price justified?

The government’s reasons for increasing the price are twofold: One, that it has been heavily subsidising petrol prices for far too long. If the subsidy was removed totally, the price would be RM2.50 per litre, an estimated 25% higher than the current price. Two, that this saves the government a whopping RM4.4 billion, which it can in turn use for government spending.

The wave of globalisation is slowly but surely coming our way, and there is no choice but to pick up sails and ride upon it – or lose out. It means competing on a global level. It means focusing on efficiency. It means that without subsidies, people are forced to think creatively and work harder.

We keep talking about making Malaysia able to compete on a global level, but yet are unwilling to come out of the shadow of protectionist policies.

The second issue is the more complicated one. The savings of RM4.4 billion will surely ensure the government’s higher level of spending for the country, especially as it plans the 9th Malaysia Plan (to be tabled on the 31st March in Parliament). In the economic model, an increased injection of government spending eventually takes on a multiplier effect, with money circulating in the market. This is normally viewed as a good thing.

As is the case with theoretical models, glitches occur. Why people are disgruntled: Bad government usage of public funds. Nothing more than that. Splurging on white elephants. Bailing out failed Government-Linked Companies. Spending on unnecessary Mega-Projects. This is an issue of transparency and effective monitoring.

With or without the RM4.4 billion in hand, the government is still warrant to make bad decisions without a proper accountability system. So although the petrol hike certainly fanned the flame, it points to a bigger picture of dissatisfaction with the government and not an issue in and of itself.

Objectively, therefore, the slash in subsidy might be a good thing. To borrow analyses from economists, “the benefits that come from the removal of subsidies will far outweigh the cost”. Neighbouring countries that did the same last year are showing positive economic signs – currency appreciation and bigger trade surpluses.

Is it justified? I think so.

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2 Comments

  1. Trish said,

    having said that, it is the extreme poor income groups that are going to suffer like crazy. the govt’s responsibility is to look into how the urban poverty groups will cope with the current situation and mad increase in all other consumer prices.

  2. Leon Jackson said,

    I think that people attempting to take to the streets for this issue are really pushing the gov’s tollerance treshold for nothing. Save the protest for important things. Having said that, the poor must be considered and I hope to God that this is a move for the people’s good and will not serve to enrich the elite. But with Badawi’s commitment to anti corruption, I feel more assured.


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