Oil Subsidy Or No Subsidy? - Malaysia

In the mid of euphoria about price hike, countries areadjust itself. After all, the across the board subsidies
scurrying to adopt some very unpopular moves, suchhelp more rich people than poor people as the
as abandoning oil subsidies which have been the liveconsumption is skewed in favor of the riches.
blood of many middle and poor groups of population.Oil and gas cannot be treated as assets to a
To make the matter worse, as opposition partiesgovernment as they are used to fuel the
start to exploit and harp on the issue, the livelihood isconsumptions. If more oil and gas are extracted,
complicated by the uncertainties imposed by the subthese assets are dwindling fast, and therefore the
prime, slow export-import and domestic demand.country is becoming poorer. Too much dependence
Political parties, especially the oppositions, have beenon oil to fuel the consumptions will endanger the
arguing themselves to political center stage and havedevelopment when the wells start to dry. Although
been garnering supports during this period. This isthe life cannot be ascertained for sure, the current
because the welfare of the people is diminished dueboom greased by oil subsidies will cause economic
to the cut as many starts to cut down otherbust or economic restructuring in the future. Many
consumptions to compensate the increasing portionindustries, Plastic, Electronic, and etc, depend very
on total income spent on oil and gas.much on the oil and gas subsidies to remain
The two sides of the argument dwelt on currentcompetitive. The exports have helped the country to
welfare and future development. On one side, theearn much of the foreign currencies. This has made
argument is that the current welfare of the people isthe exports competitive in the international market,
adversely affected by the sudden and drastic cut,and made other products not competitive. Although
and on the other side is the increasing subsidies couldthe resource curse is not apparent in the country,
burden future plans on development and economicthe money could be used with much more benefits
growth. Both sides also supported their argumentto the people and at the same time do not sacrifice
with facts and figures. I would like to take a country,the developments.
which recently just cut the subsidies and results in itsBesides the welfare is affected by the fuel rise, the
backlash.manufacturing and construction sectors face an
The people of Malaysia is recently confronted withincreasing pressure to remain competitive in the
cut of subsidy from the price of RM1,92 to RM2,70market. Many contractors who have secured a
per liter at petrol kiosk. As public transportation hasconstruction project, due to increasing costs, have
not been efficient enough to cater to everyday'sabandoned or delayed the completion. Debts
needs of the people, the rise has been majorincreased, production and sales slowed, and
concerns to the people, and the sentiment has beenunemployment increased. Many start to blame the
exploited to a very adverse effect on the currentrecent hike which they have been enjoying for these
government. Many popular and pro-people argumentsmany years. In a recent released decision,
have been put forward and have helped to garnergovernment has agreed to help the small and medium
large followings never seen in Malaysian history sinceindustries, in other words, the oil and gas subsidies will
50 years independence from British.increase. This step further aggravates the situation
At the recent debate between, Mr Anwar Ibrahimas inefficiencies are promoted and subsidized at the
and Malaysia Information Minister, Mr Shambery, Mrexpense of consumers. These aggravations come in
Anwar elaborated in length the need to reduce,two ways; 1) the decision to maintain and increase
gradually, the price of gas and petrol. The first stagethe subsidies mean that inefficient and uncompetitive
of reduction should be in the range of 50 Malaysianindustries will still remain, paid by taxpayers money
cents, in other words, the price can be reduced toand 2) the price hike is not accompanied by the drop
RM2,20 if he helms the government. Although thein price of other goods as the inefficient producers
subsidies, can cost up to 50 billions every year ( if atand manufacturers remained and subsidized.
the current price of RM1,92), Mr Anwar argued theAlthough effort to channel the economic leakages to
reduction of 50 cents required just another 5 billionsubsidize oil and gas is praise worthy, the money
RM. The additional cost, he argued could be sourcedcould be better used in other areas to ensure the
from the many economic leakages which have beenlong term development. As Malaysia is going down hill
rampant in the UMNO led government.in its competitiveness and attractiveness in doing
When we dissect and analyze the argument, one canbusiness, the need for other more productive
see there are two elements, the price hike and theinvestments such as infrastructure, programs to
leakages. Before we deal with each one of them, letimprove the competitiveness of local industries,
us imagine the rarity of water in drought prone areas.education and etc are more beneficial than maintaining
"Economically, the shortage of water is not an issuethe subsidies which could encourage more leakages
in these areas!", as the shortages occurred in luxury(reselling of subsidized oil and gas , smuggling and etc)
goods such as Mercedez Benz, BMW and alsoand promote incompetency in the economy.
diamonds. We do not face shortages of these luxuryThere are many sweeteners can be offered to mass
goods as high price will help allocate the goods in thepopulation especially when the economy and people
market. Similarly, the price of water and oil and gasare in dire straits. Careful investigation and analysis is
could help to allocate the limited resources to thevital before adopting the proposals and promises are
people who need them most if the price is freed torequired.