As crude oil price hits
record US$100 per barrel, Government must act to reduce inflation, meet
economic challenges and fulfil its social responsibilities
by Tony Pua
States crude oil futures hit past record US$100 per barrel for two
consecutive days in a row on Wednesday and Thursday before settling at
US$99.18 yesterday on the New York Mercantile Exchange. Oil prices have
almost doubled from its low in January 2007 of US$50 per barrel increasing
the likelihood of a significant economic slowdown for the global economy.
The United States government has in the last quarter substantially revised
downwards their economic growth forecast from 2.5% to 1.8% for 2008 in the
light of the global liquidity crisis triggered by sub prime loan defaults
in the country.
Singapore has similarly revised downwards their growth forecasts for 2008
to a range between 4.5 to 6.5% despite the robust 7.5% and 7.9% GDP growth
experienced in 2007 and 2006 respectively.
The Government of Malaysia has on the other hand refused to face up to
economic realities for political considerations as the next General
Elections is expected within the next 3 months. It has earlier been
forecast that the Malaysian economy will grow between 6.0 to 6.5% for
2008. However, in the light of the rising oil prices, the global liquidity
crisis and consequently the global economic slowdown, the Second Finance
Minister has as recent as 19 December continued to insist that the country
will be able to meet its growth targets.
Rising oil prices will affect Malaysia's inflation directly with increased
petrol and gas prices, as well as indirectly via increases in cost of
other essential goods and services. Just as the Government has maintained
its growth targets, it continues to live in a surreal world by declaring
that inflation has increased by only 2% for the first 11 months of 2007
and will increase by only 2.5% in 2008.
The man in the street is facing major economic challenges as the prices of
all essential goods and services including petrol, housing, water, milk
powder, and flour, rice, cooking oil, fruits and vegetables have increased
by more than 10% over the past year.
The government must stop resting on its laurels by believing in its own
imaginary world where inflation is benign. Instead of spending
unproductive resources in punishing food stalls and petty traders for
raising the prices of goods such as teh tarik and roti canai by 10 or 20
sen, the Government must focus on areas where the consumers are hurt the
For example, it is imperative that the government renegotiate the
contracts with the toll concessionaires as well as the independent power
producers which allow them to charge high toll and power rates which
guarantees astronomical profits. Revision in toll rates in 2008 will bring
RM350 million in profits for the affected concessionaires this year alone.
Lebuhraya Damansara Puchong (LDP) which increased their toll rates by 60%
last year are guaranteed RM18.8 billion in net profits by the Barisan
Nasional government despite the cost of building the highway of only RM1.3
The Government can also ease the inflation rate in the country by removing
the costly protection for loss-making Proton which artificially inflates
the prices of transportation paid by ordinary Malaysians and cost millions
in the rakyat's tax payer’s monies in grants and subsidies to the company.
Proton made more than RM500 million in losses in the previous financial
year ending March 2007.
While the Government may blame the rising prices on factors beyond its
control such as rising prices, it must take the blame for failing to raise
the real wages of ordinary Malaysians which has remained largely stagnant
over the past decade. For example, the starting salary of a typical law
graduate in Malaysia has remained largely unchanged over the past 10 years
at RM1,800 to RM2,000 per month, in Singapore, starting wages has
increased from S$2,000 to as high as S$4,000.
While Singapore has successfully transformed its economy from the doldrums
of the Asian Financial Crisis into a knowledge economy driven by high
value-added service industry as well as high-end technological and
biotechnological manufacturing industry, Malaysia has remained heavily
reliant on high commodity prices as well as the construction and property
sector to spur economic growth. The former prime minister, Dr Mahathir
Mohammad's vision of a progressive, modern and technologically-advanced
knowledge economy has all but vanished into thin air.
Thankfully for Malaysia, the oil price rise is a double-edged sword for we
remain a net-oil exporter at least for the next few years. Hence it is
critical for the Government while taking the necessary steps to
restructure our economy, to also look into the plight of the urban low and
While the rural population benefits from record high commodity prices for
example, for oil palm, rubber, coconut and cocoa, the urban middle and
lower class benefits little from it while at the same time faces the brunt
of inflationary pressures.
Therefore the Government must take the necessary steps to share the gains
arising from record high oil prices, which results in record profits for
Petronas. The DAP has proposed in its most recent budget for 2008 that
employed individuals earning less than RM3,000 per month be granted a
Malaysia Bonus of up to RM3,000 to help ease the rising cost of living in
With oil prices expected to rise above US$100 per barrel in the near
future, the BN Government must be jolted from its complacency arising from
its own misguided economic statistics. It must wake up to the fact that
real inflation is probably at near record levels for Malaysia and will
inevitably hurt the local economy with dampening demand. It must redouble
its efforts to restructure the country into a high-value added knowledge
economy instead of just relying on the same old short term domestic
pumping activities via the construction and property sectors. Finally, a
responsible Government must empathize with the economic hardship faced by
the urban poor and share a portion of the nation's wealth with all
Malaysians in need, regardless of race or religion.
Advisor to DAP Secretary-General