The recent petrol price hike will have serious repercussions on the 'electability' of the Barisan Nasional in the next general elections. The hike has been viewed as ill-timed, but there are suspicions that the hike was to re-allocate scarce resources to other more urgent and politically important "ventures" of Umno.
That fuel prices in Malaysia are artificially low is not under debate. Former premier Dr Mahathir Mahathir used the artificially-suppressed low fuel prices to buy votes in the previous elections, and low fuel prices in turn encouraged private vehicle ownership. Proton and the holders of APs under the Mahathir regime (continuing unabated under the Pak Lah regime) were the main beneficiaries of this subsidised fuel price policy.
Low fuel prices also meant that electricity prices could remain low, and the main beneficiaries of this were mainly the independent power producers (IPPs), particularly the gas-fired power stations, which could trumpet that the IPP tariffs were very low. Of course, the main beneficiaries of such IPPs were essentially Mahathir cronies like Ananda Krishnan, Francis Yeoh and Syed Mokhtar.
As with all market distortions, low fuel prices encouraged the creation of a black market, and encouraged smuggling to areas where the commodity could fetch higher prices. There were leaks everywhere - from the borders with Thailand, Singapore, and Indonesia - where diesel and other forms of fuel oil were smuggled out of the country.
Deputy Prime Minister Najib Razak has defended the government action to reduce the fuel subsidies. He came across as callous and arrogant. He said that the government would save around RM4.4 billion which would go towards improving public transport. Unfortunately, Najib is no economist. The multiplier effect of the fuel price "savings" by the government would run into several multiples of RM4.4 billion in its effect on the economy. Now everyone from taxi associations to chicken farmers to vegetable farmers would demand their share of price increases.
The fuel price increase was also announced within days of Malaysia Airlines unveiling its turnaround plan, which asked the government for support of up to RM2 billion for the current year. It also did not help when Pak Lah also went on record as saying that the government will support MAS, which means that the RM2 billion asked for would be given. So when Najib said that the "savings" would be used to improve public transportation, was that a tongue-in-cheek comment that somehow included MAS as "public transportation"? Who indeed would be monitoring where this "savings" would go to ?
Malaysia grew at the rate of around 5 percent last year. However this growth is not what it seems to be, for it has bypassed the man on the street. The growth was due to high crude oil prices and to high commodity prices like crude palm oil and timber. These were mainly extracted through the use of foreign labour, where the earnings were repatriated. These commodities were also almost entirely exported which meant that they did not go through the value chain in the country which could benefit more people. The average man on the street did not see the impact of this growth, whereas the fuel price hike will now eat into his disposal income directly and indirectly through price increases in goods and services.
In the weeks to come, as more and more categories of goods and services for domestic consumption become more expensive, the anger amongst the population will inevitably rise. This is no way to try to win the next general election.