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JAKARTA: Torn between protecting the poor and saving their budgets,
governments across Asia are being forced to slash fuel subsidies as
world oil prices smash through $130 a barrel.
Indonesia, Malaysia and Taiwan have decided to
wield the axe on multibillion-dollar subsidies despite fears of
unrest as inflation spikes and the region’s poor pay more for fuel
on top of the surge in food costs.
Even regional giant India, which until last week
was happy to see state oil companies lose millions of dollars a day
selling discounted fuel, said Friday that a price hike was
inevitable.
But while most price-setters could see the
writing on the wall, China again dismissed rumors that it would
change its central pricing system as it focused on containing
inflation ahead of the Beijing Olympics.
“In Asia generally, those countries that
subsidize oil will be under pressure to remove their subsidies while
those that don’t will be under pressure to do something for
low-income earners,” Royal Bank of Scotland economist Euben
Paracuelles told Agence France-Presse from Singapore.
The crude price boom means that Asian consumers
are in for a shock as cash-strapped governments loosen price
controls to rein in deficits and free funds for spending on health,
education and infrastructure.
For countries such as Indonesia, an OPEC member
which has historically enjoyed some of the lowest fuel prices in the
world, it means the days of ultra-cheap petrol may soon be over.
OPEC is the Organization of Petroleum Exporting Countries.
Jakarta hiked the subsidized gasoline price by
33.3 percent to about 6,000 rupiah ($0.65) a liter on Saturday
despite widespread opposition ahead of general elections in April.
That may be welcome news for anyone who has
choked on Jakarta’s lead-filled air recently, but the move sparked
immediate and sometimes violent protests by students and hard-line
Muslim groups.
Analysts however said Jakarta deserved praise
for its decision to cut its fuel subsidies as they mounted to an
estimated $14 billion, or 3 percent of gross domestic product (GDP),
with the soaring oil price.
To sweeten the pill the administration is
providing direct cash transfers to millions of poor families, but
even so, the price hike is an electoral gamble.
“The government is taking a big step despite
the elections next year and that shows the confidence that they have
in terms of being able to handle the fallout,” Paracuelles said.
“It looks like that’s where most governments
are heading right now.”
As oil touched $135 a barrel on Friday,
countries which analysts had criticized for failing to adjust to the
new oil price reality were starting to change course.
“The situation is getting to be alarming. We
need to stem the rot in the beginning,” Indian Petroleum Secretary
M.S. Srinivasan said Friday, adding that a “price hike is
inevitable.”
The problem of oil prices is particularly acute
for India as it imports 70 percent of its crude needs. Rising oil
prices, coupled with the global credit crunch have sent the Indian
rupee into a tailspin and hit economic growth.
Malaysia also appears to be changing its stance
on subsidies—approaching $15 billion or a massive 7 percent of
GDP—despite setbacks to the government in March elections.
Kuala Lumpur is now reportedly considering a
two-tier pricing system to make the rich pay more and cap the
subsidy bill at more acceptable levels.
And in Taiwan, the new government of President
Ma Ying-jeou moved quickly last week to end a freeze on domestic
gasoline prices from June. Power prices will also rise from July
accordingly, officials said.
Meanwhile China, whose insatiable appetite for
oil is helping to drive crude prices higher, has made it clear fuel
costs will remain well below market rates even as its energy needs
surge ahead of the Olympics.
China increased retail fuel prices by around 10
percent late last year but the government continues to throw
billions of dollars in subsidies at state-owned oil and gas company
Sinopec.
Analysts said higher prices in countries such as
Indonesia would ease demand for crude but only India and China could
take the sting out of the oil markets.
“We would be wary of picking the latest
announcements [in Indonesia, Malaysia and Taiwan] as the turning
point for oil prices,” London-based research house Capital
Economics said in a statement.
-- AFP
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