Malaysian Government Raised Fuel Price Up 41%

The Malaysian government effectively increased the pump price for petrol to up to 41%. This translate an increament of 78 sen (US$0.24) per litre to RM2.70 (US$0.83) per litre for petrol and RM1 (US$0.31) increase for diesel to RM2.58 (US$0.80) a litre following a cut in the fuel subsidy.

The government said that while Malaysia is a net exporter of petroleum, the country will one day becoming a net importer due to dwindling oil reserves. Increasing the prices by then will caused a lot of problems domestically. Malaysians however aren't amused by the sudden hefty increament orchestred by the goverment.

Opposition parties are planning mass protest in the Malaysian capital city of Kuala Lumpur to voice their dissatisfaction towards the ruling government. Some opposition lawmakers even predict civil unrest if the government do not reverse the price hike.

Economically Motivated Hike?

The Malaysian government maintained that even with such hike, the government is actually still subsidising the fuel price. However, the Domestic Trade and Consumer Affairs Minister said that by August 2008 the subsidy would be lifted and the fuel price would be determined by the market force. The government for now will review the price hike on a monthly basis before eventually letting the market to decide the price come August 2008.

To cushion the hefty price hike, the government introduced a cash rebate system for automobile and motorcycle users. For the onwers of cars with engine displacements 2000cc and below, a rebate of RM625 (US$192) will be given per year while motorcycles under 250cc will get a subsidy of RM150 (US$46) per year. RM625 is roughly calculated to be an equivalent of 800 liters a year, which is roughly 78 sen (US$0.24) per liter. Payment of the subsidy will be made via postal order to be issued when an owner renew the road tax annually. The minister added that this measures are only temporary and will be revised when the whole subsidy be lifted totally in August 2008.

Malaysian Prime Minister Abdullah Badawi said that although the restructuring would result in consumers having to pay more, fuel prices were still lower compared with neighbouring Singapore and Thailand. He add that the Malaysian government would save RM13.7bil (US$4.2bil) through the price hike. From the savings, RM4bil (US$1.29bil) would go to the National Food Supply Guarantee Policy, RM1.5bil (US$460mil) for subsidising cooking oil and RM400mil (US$123mil) to subsidise rice imports to make the price uniform in peninsular Malaysia, Sabah and Sarawak.

In addition the Malaysian government would also spend RM200mil (US$61.4mil) on flour subsidy and RM100mil (US$30.7mil) on bread subsidy. The Prime Minister also add that the hike in fuel prices would cause a projected increase in inflation of around 4% to 5%. This would also have an impact on the country’s gross domestic product (GDP) growth but he was confident that it could be maintained at 5% this year.

Or Politically Motivated Hike?

A few political analysts said this represents a high-stakes gamble or political suicide by embattled Prime Minister Abdullah Badawi to cling on to power. By shocking Malaysians that the government would remove the fuel subsidy completely and with the prospect of rising inflation in August, Abdullah is hoping to divert public attention away from the country's political muddle. He also hopes that his bold initiative will prompt senior party leaders, who are also key ministers in his Cabinet, to set aside their differences and rally behind him to implement the major policy initiative.

The ruling Barisan Nasional (BN) colition in which Abdullah is the president, lost its two-third majority in Parliament, as well as control of five states assemblies, to the Opposition in the 8th March 2008 general election chiefly due to the country's spiralling cost of living and a roll-back in fuel subsidies, which will trigger spikes in food and transport prices, will not help Abdullah shore up his popularity. But some close aides say the premier strongly believes that the country can no longer foot a subsidy bill that could exceed RM50bil (US$15.4bil) this year.

If he could persuade widespread acceptance for the roll-back in subsidies it will provide him with a lifeline he needs to defend his presidency at the party elections later this year. If otherwise, a public rejection of the plan will hasten his exit from power.

"Let Me Pay Market Price for Cars Too"

Certainly majority of the population wouldn't mind paying market price for fuel but the government must make sure that the population can pay market price for cars too. Currently, cars are anything but ‘market price’ in Malaysia. Malaysia have one of the highest car prices in the world due to the government's protective policy for local auto industry and abnormally high import duties on foreign cars. Half of what Malaysians pay for a basic family cars goes directly to tax. The tax component of a car will pay for the extra cost of unsubsidised petrol for the life of the car!

Worse in a country where public transport is abysmal and most people have no other choice but to buy cars. Middle-class families are being pushed to the wall so subsidised fuel helps to offset the high monthly installments that car owners have to fork out monthly to pay for their overtaxed cars. Many owners have to take a nine-year loan just to pay off a basic car.

The government can't do anything about the price of crude oil but they can definitely do something about the high taxes levied on the car prices. The government should also realise the lack of investment in public transport. It is generally understood that this lack of urgency to improve public transport is designed to help the national carmaker Proton to sell more cars.