Fuel Hike - Of PM's Economic Sense and Nonsense

Fuel Hike - Of PM's Economic Sense and Nonsense
Mar 08, 06
Dr Dzulkifli Ahmad, PAS Research Centre.

It has been more than 2 years since PM Abdullah ascended to power. Admittedly, he won the election in grace, superseding the performance of his immediate predecessor. But the accolades have disappeared. After much has happened and not happened, patience is fast running out.

Oblivious of his lacklustre showing and still remorseless, he decided to further stress the endurance of this nation. The unanticipated announcement of the 30 sen hike in! petrol, diesel and LPG prices descended like a calamity. No longer amused by the premier’s ineptness of mastering the context of things, the rakyat is understandably enraged and disgusted.

Does the PM have what it takes to turnaround the problems confronting the nation? Is he really willing to bite the bullet, on all the ‘sins of omissions and commissions’ of his immediate predecessor, of which he was a party to it? Given the constraint of space, I may only enumerate briefly.

Granted an already burdened rakyat with the recent overall rise in the cost of living, the timing of the fuel hike could not be worse. The PM need not be told that inflation spiked to 3.7% in August from 3%, when the government raised fuel prices in July 2005.

Research Investment of Financial Institutions, like CIMB, are estimating that Consumer Price Index (CPI) growth is expected to perk up to 4.0% in March. A strong increase is expected in the su! b-group of transport and communication which makes up 21% of the CPI basket.

Any reprimand or threat to business people about to take advantage of the hike, will only fall on deaf ears. The manufacturers or the retailers may be cajoled or suppressed for now, under the enforcement’s watchful eyes. But they will have to eventually pass on the cost to the consumers; both the direct and indirect cost. And who will take the greatest brunt of it? Of course the poor and the lower-income group, as it is across the board.

So the first impact of fuel hike is on inflation and that means a higher cost of living, digging into their pockets deeper. It involves literally everything from teh-tarik, roti-canai, mee-mamak, children’s bus-fare right up to our necessary-evil’s flight-fare. Hypocritical sermon preaching thrifty and prudence in spending and belt-tightening are certainly not for the poor and the lower-incom! e groups. It is only appropriate for the middle and upper-middle class, needless to say of the too-many Cabinet Ministers who are quite notorious, as alleged by responsible people, for making exorbitant claims every time they make a move, all in the name of ‘service to the rakyat’.

Inflation is arguably difficult to control, the source of which is largely due to external inflation either in the form of imported inflation or from the reduction of ringgit’s value as seen in the last financial crisis. In the current context, the threat is from escalating global oil prices. Having upped the prices of fuel from 18.5% to 23% in this latest round of madness, there are hardly any effective avenues to curb price escalation. You seriously wonder the wisdom or more of the lack of it, in choosing such foolishly audacious option, notwithstanding the concomitant interest rate hike (BLR and OPR) that will be put in place by the Central Bank to curb the inflationary pressure. The entire ! cascade of knock-on effects on the economy will be induced including purchasing power and consumption, demand and supply side macro economy, employment etc.

Compared to the saving in July of RM 2.2 billions, the saving due to this increase is estimated to be about RM4.4 billions, assuming the global price of crude oil remains stable. It looks like a lot of revenue lost in subsidy. But that is not the whole truth, as the country is a net exporter of oil and since it owns 100% of the national oil corporation, Petronas, there is always a net benefit, in terms of revenue to the government whenever oil price increases and ringgit strengthens against the dollar, as it is now.

The government’s arguments that the saving will be diverted to development projects namely the public transport system is atrocious. The public saw the rape of billions of ringgit by cronies, in getting the present dismal public transport systems in place, viz; the Putra and Star LRT, The Monorail, Intrakota etc. How much more will be spent and how does the entire rakyat benefit, if it is only in Kuala Lumpur and the Klang Valley?

How do we know of other sinister agendas up their sleeves? Are they intending to turnaround the beleaguered national airline, MAS by injecting RM 2 billions from saving of the fuel hike or of the construction of new lines by Star and Putra LRT now taken over by Syarikat Prasarana Negara Bhd (SPNB), a holding company under MOF Inc. We are reminded that government had taken over from Renong’s Putra asset and debts amounting to RM 4.2 billion in 2002. The Putra LRT, just to remind everyone cost us a whooping RM 5.2 billions stretching for 29 km from Taman Melawati to Kelana Jaya. What’s coming next? God knows!
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How the Petronas’ contribution to the tune of RM500 billion, was spent by the government for the last 30 years is still shrouded in ambiguity. The civil society and indeed the entire rakyat are now demanding that transparency and accountability must prevail in Petronas. Billions of ringgit has been used by the government to bail out cronies and financing mega-projects that are fast turning into white elephants and now a great liability by way of maintaining costs.

Subsidy may or may not be perpetual, as it is arguably causing market distortion in the actual prices of our products. However, the government must place the interest of the nation and the rakyat top most in their priority list. Determining subsidies and taxation are fiscal policy of any government on earth. That is routine. The macro and micro aspect of managing national economy are surely more complicated and daunting than ever before. The rakyat remains at pain to be in grasped with the sense perhaps nonsense, of the current economic policy. Granted that the former massive ‘prime-priming’ effort of h! is predecessor is evidently abhorred, the PM however remains confused with his ways and delays in doing things are sending wrong signals resulting in a flagging economy and lackluster performance including the KL’s Bourse.

Be that as it may, the fact remains that efforts at ‘wealth-creation’ and subsequently at ‘wealth-redistribution’ must also be given a level-playing field, so as to encourage Malaysian industries, corporations and entrepreneurs to be genuinely viable much as it has to be locally and globally competitive. There must be an immediate end to all rent-seeking activities of cronies and cronyism-bordering-corruption. The government is in urgent need of putting good governance and best practice. It will go a long way to save billions of ringgit. It is time that there be less talk and to now walk the talk, Right Honourable PM and DPM!

Let it be known to all and sundry, that while we pride ourselves of reducing hard-chore poverty, as a nation, ! our income disparity between the have and have-nots are amongst the most despicable in the region. The fuel-hike is a sure formula to exacerbate this phenomenon.
Thanks to the voters who put the current regime under PM Abdullah Ahmad Badawi!