Oil Price Increase In Malaysia

Below is an article taken from www.chedet.com, written by the former Prime Minister of Malaysia Tun Dr. Mahathir Mohamad, on the oil price increase that has been announced the the Malaysian government on 11th June 2008, effective 4 hours after the announcement been made.

The price of crude oil has increased by 400 percent in the last three years. It follows that the price of products must increase, sooner or later. In other countries petrol prices had already increased. In the United Kingdom one litre of petrol sells for more than one pound sterling or RM7. In the United States it is about RM5.That the price in neighbouring countries has gone up is shown by the rush to fill up by Thai and to a lesser extent Singapore vehicles.
The Government has now announced an increase in petrol price by 78 sen to RM2.70 per litre, an increase of more than 40 per cent. I may be mistaken but there seems to be less vehicles on the road today. But obviously that is not all that will happen. All other consumer goods, services and luxury goods would increase in price.The cost of living must go up. Put another way there will be inflation and the standard of living will go down.
Obviously our increase in petrol price is far less than in the United Kingdom or the United States. But our per capita income is about one-third of theirs. In purchasing power terms our increase is more than in the UK or the US.The increase hurts but the pain is greater not just because of the increase percentage-wise is higher than in developed countries but because of the manner the increase is made.

A few days ago the Government decided to ban sale of petrol to foreign cars. It flipped. Now foreign cars can buy again. Flopped.Knowing that in a few days it was going to raise the price and foreigners would be allowed to buy, why cannot the Government just wait instead of banning and unbanning.But be that as it may what could the Government have done to lessen the burden on the people that results from the increase in petrol price.

In the first place the Government should not have floated the Ringgit. A floating rate creates uncertainties and we cannot gain anything from the strengthened Ringgit. Certainly the people have not experienced any increase in their purchasing power because of the appreciation in the exchange rate between the US Dollar and the Ringgit.Actually the Ringgit has increased by about 80 sen (from RM3.80 to RM3.08 to 1 US Dollar) per US Dollar, i.e. by more than 20 per cent. Had the Government retained the fixed rate system and increased the value of the Ringgit, say 10 per cent at a time, the cost of imports, in Ringgit terms can be monitored and reduced by 10 per cent. At 20 per cent appreciation the cost of imports should decrease by 20 per cent. But we know the prices of imported goods or services have not decreased at all. This means we are paying 20 per cent higher for our imports including the raw material and components for our industries.

Since oil prices are fixed in US Dollar, the increase in US Dollar prices of oil should also be mitigated by 20 per cent in Malaysian Ringgit.But the Government wants to please the International Monetary Fund and the World Bank and decided to float the Ringgit. As a result the strengthening of the Ringgit merely increased our cost of exports without giving our people the benefit of lower cost of imports.

This is not wisdom after the event. I had actually told a Government Minister not to float the Ringgit three years ago. But of course I am not an expert, certainly I know little about the international financial regimes.I believe the people expect the increase of petrol price. But what they are angry about is the quantum and the suddenness. The Prime Minister was hinting at August but suddenly it came two months earlier, just after the ban on sale of petrol to foreigners.

If the increase had been more gradual, the people would not feel it so much. But of course this means that the Government would have to subsidise, though to a decreasing extent.Can the Government subsidise? I am the “adviser” to Petronas but I know very little about it beyond what is published in its accounts. What I do know may not be very accurate but should be sufficient for me to draw certain conclusions.

Roughly Malaysia produces 650,000 barrels of crude per day. We consume 400,000 barrels leaving 250,000 barrels to be exported.Three years ago the selling price of crude was about USD30 per barrel. Today it is USD130 – an increase of USD100. There is hardly any increase in the production cost so that the extra USD100 can be considered as pure profit.Our 250,000 barrels of export should earn us 250,000 x 100 x 365 x 3 = RM27,375,000,000 (twenty seven billion Ringgit) But Petronas made a profit of well over RM70 billion, all of which belong to the Government.

By all accounts the Government is flushed with money.But besides petrol the prices of palm oil, rubber and tin have also increased by about 400 per cent. Plantation companies and banks now earn as much as RM3 billion in profits each. Taxes paid by them must have also increased greatly.I feel sure that maintaining the subsidy and gradually decreasing it would not hurt the Government finances.In the medium term ways and means must be found to reduce wasteful consumption and increase income. We may not be able to fix the minimum wage at a high level but certainly we can improve the minimum wage.Actually our wages are high compared to some of our neighbours. The investors who come here are attracted not by cheap labour but by other factors, among which is the attitude of the Government towards the business community and the investors in particular.

From what I hear business friendliness is wanting in the present Government – so much so that even Malaysians are investing in other countries. There are rumblings about political affiliations influencing decisions. Generally Government politicians are said to be arrogant.

Malaysia is short of manpower. The labour intensive industries are not benefiting Malaysians. Foreign workers are remitting huge sums of money home.The industrial policy must change so that high tech is promoted in order to give Malaysians higher wages to cope with rising costs of living.The world is facing economic turmoil due to the depreciation of the US Dollar, the sub-prime loan crisis, rising oil and raw material prices, food shortages and the continued activities of the greedy hedge funds. The possibility of a US recession is real. In a way the US is already in recession. The world economy will be dragged down by it.

Malaysia will be affected by all these problems. I wonder whether the Government is prepared for this. We cannot avoid all the negative effects but there must be ways to mitigate against them and to lessen the burden that must be borne by all Malaysians. I am sure the Government will not just pass all these problems to the people as the review of oil prices every month seem to suggest.

 

 

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Now, this is my comment on the above issue. To me, the 78cent per litre of petrol increase overnight is rather absurd. The price increase is burning hole in the citizen’s pocket, and will without a doubt be a burden to people who are now already struggling to to earn their living in Malaysia. The cost of food and other daily essentials will skyrocket as well sooner or later. I doubt it’s avoidable.

The recent oil price increase will caused indefinite havoc in Malaysian economy, not to mention the standard of living will be lower as the people will have to make do with less. People are already trying to acommodatethe economic changes since the new prime minister came to power back in 2003, and yet, the ruling government have the cheek to tell people to change their lifestyle and be thriffy.

As far as I’m concern, my family and I are already living a frugal life, and spend strictly according to our needs, and I’m more than sure most families in Malaysia has adopted frugal living as well. Instead of telling us, the citizens to be thriffy, why not you VIP and VVIPs adopt our way of living? I still can see our Prime Minister and the cabinet ministers feasting on god knows what kind of food on the table on numerous occasion. Hey, people, that’s from ur tax! How dare you ask us to be thriffy when we already having 1-2 dishes with a bowl of rice per meal while you enjoy a full course meal fit for royalty. Instead of telling us the citizens to change our lifestyle,people in the current government are the ones who should be doing that. No more big feasts, and definitely no more presidential suits and first class air ticket for outstation business trips.

What’s more, the governtment suggest us to use public transport instead of personal transport. Some of us can accept this suggestion, as it’s true that public transport is alot cheaper than personal transport. Public transport is cheaper, and yet, it’s not suitable for everyone. It doesn’t go to all places in Malaysia and sad to say, it has the efficiency of a senile old man.  Buses are slow, and sad to say, sometimes it’s not safe too. how many busses has been involved in freak accidents due to the driver’s reckless riving? I shudder to see the statistic. LRT and trains don’t actually offer the comfort of travelling. It’s merely convenient, but as convenient as it is, it doesn’t go all around Malaysia, as I mentioned earlier. Using public transport, is easier said than done to most of the citizens.

What can we exactly do to brace the impact of the current economic state? Well, it’s almost nothing we can do except bear with it and whine, whine whine. The goventment did mention that the oil price will be reviewed monthly in accordance of the market price. What does this supposed to mean? I daresay that the government are slowly taking away the oil subsidy given to the citizens.

At any rate, the oil price may hit RM5 per litre soon enough. By then, people who are in poor and middle economic class will eat a meal a day as they can no longer afford the luxury of eating 3 main meals daily. We, the citizens are being hit like punching bags by the current state of economy and yet the government are telling us that it is not us who suffers most. I doubt the goventment is poor. After all, citizens pay numerous kind of tax yearly to the government.

 
 
 
 

 

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About cleffairy

Recently having fascination with ancient history.
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