25.2.08

Subsidising Fuel-Anwar's Weapon of Choice?

So Anwar Ibrahim chooses to make clear to the masses that he cares about them-that should PKR form government, the price of fuel will go down. Is it feasible, irresponsible, responsible, populist, or something else altogether?

For those not in the know the price of fuel in Malaysia is fixed and subsidised by the federal government. Malaysia is both an importer and exporter of oil with the flagship PETRONAS being the government-linked company (GLC) that holds most oil concessions. The increase in world oil prices has seen the Malaysian government progressively reduce the subsidy, arguing that maintaining the subsidy will ultimately bankrupt its financial resources-a fine argument economically. The government also argues that the opposition's promise to increase the subsidy is both economically irresponsible and unsustainable. Anwar begs to differ.

Anwar makes the point that during his tenure as Finance Minister (1991-98) the price of oil was RM1.10 in Peninsular Malaysia, and when he raised it by 3c the public's unease saw him backtrack. He says it is possible to reduce the price of fuel in Malaysia for the following reasons:

*Malaysia is an oil exporting country hence we need not be pressured by world prices. Comparing our fuel price to Singapore is misleading as Singapore has no access to domestic fuel. Instead, we should compare our prices to other oil producing nations.

*We can bastardise PETRONAS-he says that when he was FM, PETRONAS was making RM25bil in profit, and it is now making RM80bil. Just remove some of that, thank you very much, to subsidise the price of fuel.

He makes both good and poor points, befitting his populist rhetoric. The question is can Anwar have his own cake and eat it too? First, from an Economics point-of-view, subsidising a product is inefficient as we consume too much of it, so in this case we probably use to much fuel, and too little non-petroleum sources of energy. On the other hand, international relations theory can argue that efficiency should not be the end all of a nation but the welfare of its citizens should be maximised. But is subsidising fuel really maximising the welfare of the people? The rich can afford to pay more, so should the price be the same for all Malaysians? Would a price-dicrimination system not be a better outcome, both in terms of welfare and efficiency?

After all, comparing our prices to other oil-exporting countries renders his argument inconclusive. The Middle Eastern nations subsidise fuel even more, it is true, but they are also using the money to build infrastructure and are investing
in the future. Our oil-revenue is less; should we blow it all on a subsidy? As well, countries like Norway actually have among the highest fuel prices in the world despite having huge reserves-this is important, as they are using the revenue to invest in the country's future. Anwar needs to think about this.

If Anwar got his way, he will dip into PETRONAS' funds (as the present government does anyway for its own irresponsible purposes) and use it to subsidise the price of fuel further. Is this irresponsible? In the sense that PETRONAS' largesse could be bastardised for more productive purposes (building hospitals, schools etc) yes it is irresponsible. From a populist stand-point however, it is perfectly rational as it builds his power base while making the people think that the government can deal with issues like globalisation that the present-day government argues it cannot do much about. It creates calm, and some degree of certainty, and puts confidence back in the nation-state in the eyes of the people. And at the end of the day, lower fuel reduces the cost of living, and helps everyone, but especially the poor. This should never be discounted, even if it is just short-term relief.

I don't for one second believe Anwar actually believes that this is the right thing to do, but in the system we live in, it seems that changes can really only be brought about from the seat of power. If that means bribing voters in order to get power then so be it. Anwar is neither the first nor the last politician to attempt such a move. In Australai's recent election, both parties tried hard to bribe and counter-bribe voters to the extent that the present government is doing all it can to fight inflation while introducing $30bil in tax-cuts come 1 July. But if the price of getting into power means doing some silly things, then so be it-after all, more pertinent and fundamental changes can be made while disbursing the necessary bribes to the public.

Anwar likes -to portray himself as the 'special one'; the Jose Mourinho of politics. He is a democrat, a socialist, a tolerant Islamist, all roled into one-pity he forgets to mention that he is also a hypocrite (witness his very significant role in cheating the Sabah electorate in 1994). He speaks good things-all politicians do, but be wary, for he cares only about power. The reason he speaks in small ceramahs across Malaysia rather than from the pulpit of the Prime Minister's office is that he was too impatient to wait his turn. He mis-calculated, took on Mahathir and lost.

Anwar was poorly treated, and we should all fight to clear his name once and for all, but until he himself publicly tells us what he was doing as part of Mahathir's cabal for 17 years when statements about democracy were somehow absent leaves a hole in his feelgood story. Only one thing has been consistent throughout, and that has been his undying urge to hold sway across the country. Even at the cost of making irresponsible decisions about the price of fuel, for the fuel that drives him is not oil, but power....

Nevertheless, I may be too cycnical-perhaps he does care about the citizens of the country; perhaps he does believe that increasing the subsidy is the right thing to do, but then the billions he takes from PETRONAS to burn fuel takes away the billions that he could use for schools and hospitals. Perhaps that is the argument he should be making, but he knows now what it takes to get to power, and I for one do not blame him. If I were walking in his shoes, I'd like to think I would be more principled, but I think in the cold, hard reality of politics, I'll be at a ceramah too, preaching the benefits of increasing fuel subsidies...

6 comments:

  1. vinnie10:03 pm

    how bout subsidy for household with only 1 car, that way u make sure low-middle income ppl get the most benefit. i wouldn't know how to implement it though, how about on tax returns?

    well, if all the politicians in malaysia would care a lil bit less about the money that goes into their own pocket, subsidies as well as future development can be achieved at the same time. it's a known fact that every politicians are corrupted at least to the least extend but dont forget about the people altogether

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  2. vinnie10:15 pm

    http://news.bbc.co.uk/sport2/hi/football/7259406.stm

    interesting view...wana blog it? would the strong pressure from fans be a factor of clubs looking for a quick solution than a long term plan?

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  3. The question if we want to forego efficiency is how best to distribute the subsidy-on tax returns, I'd say no because tax avoidance is clearly evident in malaysia plus the tax base is quite low so some who do not pay taxes are still capable of paying more for fuel (say you earn RM2000 a month and live with your folks).

    There's no clear answer on this-any suggestion has a counter-suggestion. Perhaps there has to be a clear subsidy for public transport, fishermen, trucks and other industries where fuel is absolutely essential. If you choose to drive a car, you pay full price-but surely people drive because public transport is so useless anyway?

    On the football-yes, of course Houllier is right-for once! Bruno Cheyrou my arse...

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  4. vinnie3:40 am

    have you watched mahathir's confession? or was he being sarcastic?

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  5. no, but of course he was being sarcastic-he's not nyanyuk, that's for sure!

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  6. Sriram12:05 pm

    Renuka(http://www.uq.edu.au/economics/index.html?page=76773) in her book mentions that output growth in Malaysia is mostly due to input(capital accumulation) rather than due to efficiency gains(TE-technical efficiency)or technological progress(TP).

    Can anyone explain why is it so in the case of Malaysia ?

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