Sunday, April 23, 2006

A Tale Of Two Policies

I am sometimes baffled at the inconsistencies of our country's leaders and still they do not realise they are screwing up our country time and again. From February 28, the Government took a very unpopular move by increasing petrol prices by a whopping 30 sen per Liter. The aftermath of this price hike was felt even weeks after the announcement was made.

The only consolation from the price hike was the assurance by the Government that there will not be further price hikes in petrol products for the rest of the year and the expected RM4.4 billion savings from petrol subsidies will be channeled to developing the country's atrocious public transportation system. I was seriously skeptical of the plan from the very beginning but supportive that they are finally improving the country's public transportation system. The nagging question was if they are able to efficiently manage the money to fully benefit the rakyat. With the promise of no further price hikes this year to soften the blow of such an unpopular move, how will the Government be able to handle any significant increase in world crude oil prices when they have to cough up more money to pay for petrol subsidies? Less than two months down the road, the whole plan is seriously falling apart.

A month after the petrol price increase, the Government unveiled the much awaited National Automotive Policy. Car prices were reduced (or increased in the cases of MPVs) to reflect the new tax and tariff structure. This move was in preparation for compliance with ASEAN free trade agreements. This we have no choice but to accept but what I cannot accept is the call by the Deputy Prime Minister for car prices to be reduced further as if in an attempt to win some support from the rakyat especially after the damaging petrol price increase. I can understand the Government trying to show sympathy to the rakyat by lobbying for cars to be more affordable for the rakyat but is this right? Shouldn't they be encouraging the use of public transportation instead of private vehicle ownership? On one hand the Government is trying to reduce the amount of petrol subsidy to be paid. On the other hand, we have here the Deputy Prime Minister demanding for car prices to be reduced further which will eventually cause a higher petrol subsidy bill when more cars hit the roads! Is the Government moving in opposite directions here?

I realised immediately that there was no way Malaysians will be able to enjoy the reduced car prices for long even if the Deputy Prime Minister kept lobbying for cheaper cars as financial institutions will surely increase their hire purchase loans especially when the Base Lending Rate (BLR) has been climbing steadily for the past few months. Sure enough, a week after coming up with that postulation, reports of the higher hire purchase loans made it to the mainstream newspapers. Will the Deputy Prime Minister again demand for further reductions in car prices after this development? I seriously wonder if they do think of all possibilities first before they start talking and make a fool of themselves.

Recently, global crude oil prices shot up to a historic high of US75.15 per barrel and looks to head even higher after the stand-off between US and Iran on the latter's nuclear ambitions. The situation was not helped with the Iranian President being vocal that current oil prices are still below its real value. I do not foresee oil prices to fall to previous levels when it was just a third of what it is now. In fact, I can see it climbing even higher to US100 per barrel or higher! How is it then that the advisers to our country's leaders do not have the foresight of seeing such a situation developing?

With oil prices at current levels, 25% higher than when the Government made that infamous announcement less than two months ago, the Government finds itself in an awkward situation. RM3.5 billion from the expected savings of RM4.4 billion from petrol subsidies have been wiped out due to the rise in global oil prices. Please remember that we still have at least eight long months to go before the Government will be able to increase petrol prices again and during that period of time, global oil prices is likely to creep higher. Where will the Government find the funds to pay for the increased petrol subsidies? What about funds to develop the public transportation system? Where will they come from now that the expected savings have now been used up to pay for petrol subsidies, the very area which we were looking to save from?

The Government asks us not to worry as they have a few avenues to raise the money for paying both the increasing petrol subsidy bill and public transportation development projects. Is the Government talking about utilising public funds meant for infrastructure development? If so, they have decided on the wrong move. There are some ways I can think of that the Government can come up with the money without having to depend on public funds meant for development since they have ruled out a further increase in petrol prices for the rest of the year. The rising ringgit seems to me to be one of the best ways to tackle rising global oil prices which is quoted in US dollars. Another would be to get Petronas to contribute more in royalties or taxes since they are in a position to profit from any increase in global oil price. In fact, Petronas is a cash-rich company and this shouldn't pose a problem at all, especially when the word on the street is that its employees are receiving three to six months bonuses (if not more)! Issuing Government bonds is also feasible but will it be able to attract sufficient interest? Of course the Government can take up a loan but that is very undesirable and totally in contrast of the Government's efforts in recent years.

No doubt the Government has many ways to tackle this problem they find themselves in but it's worrying that they weren't able to foresee such a thing happening in the first place. Sometimes I wish our country's leaders is able to foresee things the way I can or at least have capable and qualified people around them to come up with solid advices. Maybe then, just maybe they will be able to lead our country better. Maybe then, just maybe they will not contradict themselves so much. Maybe then, just maybe we will be able to live in a better Malaysia.

(pictures from Shagadelica and WTRG Economics)

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