Malaysia’s Fuel Hikes Fuel Unrest
Malaysia’s fuel subsidy is now at 30 sens per litre, and overnight petrol rose by 41% from RM 1.92 a litre to RM 2.70 a litre. The Abdullah government, shaken by the unflattering results of the general election, is offering a RM 625 cash rebate for owners of cars smaller than 2000 cc. Is this olive branch offset enough to stave off public unrest? The Malaysian populace is not a docile lot and this could be the straw that finally breaks the BN government’s back. Fuel subsidy is a popular but fiscally questionable policy in these times. Abdullah’s critics are smart enough to opportunistically attack him and undermine his rule. Reducing fuel subsidy overnight such that petrol jumps up by almost RM 1 a litre is tough to accept. As the media had widely reported, an increase in fuel price would have a ripple effect on delivery costs and in turn almost all retail including food costs would go up. Separately, home electricity costs are already going up in tandem with the rising crude oil prices. Malaysia is a powder keg unless the government makes a u-turn, or a great propaganda spin.
And if BN doesn’t make a u-turn, inflation in Malaysia is only going to creep into Singapore e.g. food imports – 46% of our vegetables, 37% of our chicken is from Malaysia. This would add pressure upwards on the already rising food costs in Singapore. And if BN doesn’t make a u-turn, would there be riots and how would the unrest affect Singapore? July 12th, the massive demonstration planned in KL, would be a barometer of how bad things are.
The Malaysian government will not back down on its decision to increase the price of fuel despite growing opposition and protests.
Domestic trade minister, Shahrir Samad, said the decision had been “wise” though he said the government was likely to absorb further increases.
A coalition of opposition parties has called for nationwide rallies to force a government U-turn.
The government recently decided to end decades of heavy fuel subsidies.
The pump price of gasoline rocketed 41% to 2.70 ringgit ($0.87; £0.44) a litre on Thursday. Diesel shot up 63% to 2.58 ringgit per litre.
The new measures are causing widespread unrest among Malaysians, who are used to the government heavily subsidising fuel and keeping fuel prices among the lowest in Southeast Asia.
Spiralling fuel prices mean the government would have had to shoulder a higher fuel subsidy bill of an estimated 56 billion ringgit.
Despite growing dissent, Mr Samad was adamant the decision was prudent.
“I don’t personally think it has been a mistake to raise fuel prices by a substantial amount,” he said.
“I think it’s wise. It is the first time ever we can come to grips with the subsidy system.”
But he conceded the government was unlikely to review fuel prices in the short term, saying domestic fuel prices would remain at 2.70 ringgit “for a while”.
Under the new system owners of cars with smaller engines will receive a rebate, while truck drivers will be given subsidised diesel to curb any inflationary consequences on the transport sector.
The fuel decision has caused protest and could prove damaging to Prime Minister Abdullah Ahmed Badawi’s government, which is still reeling after shock election losses in March.
The opposition Democratic Action Party has already staged small-scale protests and PROTES, an anti-inflation coalition of opposition parties and non-governmental groups, has called for nationwide rallies to culminate in a mass demonstration in Kuala Lumpur on 12 July.
Mr Shahrir said the government was prepared to face any backlash.
“Situations like these are opportunities for political enemies. We are prepared to face the consequences” he said.
Analysts have warned that Prime Minister Badawi could face renewed calls to quit as the price hike will particularly affect the low-income groups which traditionally form his core support base.
Malaysians will also have to pay higher electricity tariffs – up to 26% more for some consumers – starting next month.
The energy prices are expected to slow Malaysia’s economic growth and consumer spending and push inflation to a 10-year high of about 5%, up from the current 3%.