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SINGAPORE: Subsidies pose an increasing fiscal burden that emerging
Asian economies should move away from, a former International
Monetary Fund chief said Tuesday.
Rodrigo Rato said subsidies only resulted in
market distortion, and that their beneficiaries included wealthier
segments of society least in need of assistance.
He added that doing away with subsidies would
not be easy because of social and political pressures, but
maintained that keeping prices artificially low was not feasible.
“I know that poses a big challenge in
societies with a huge amount of people that live with very low
incomes but the experience in the world is that subsidies are not
the response to social policies,” Rato said.
He added that subsidies “benefit everybody,
rich and poor, and I think that emerging economies have to
understand, and I think they do, that subsidies have to be
substituted by other, more efficient, social policies.”
China on Friday became the latest Asian nation
to curb energy subsidies by increasing retail petrol and diesel
prices as much as 18 percent, moving to close the gap between
state-set domestic prices and soaring world oil costs.
Faced with ballooning subsidy bills, Malaysia
recently raised fuel prices by 41 percent and Indonesia by around 29
percent, leading thousands to protest in both countries. Taiwan and
India have also raised energy costs.
Some countries such as Indonesia also subsidize
rice for the poor. Its price and that of other staple grains has
soared too.
“High commodity prices pose certainly a threat
to countries as current account deficits increase and subsidies
become very costly fiscally,” Rato said in a public lecture.
Rato is now senior managing director of
investment banking at Lazard, a global financial advisory and asset
management firm. His term as International Monetary Fund managing
director ended in October.
-- AFP
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