Prices Take A Hike

I won't have enough time to do a complete post on the issue of oil price hike at this point of time. I'll be issuing a statement on it soon enough. But in a gist, I believe that the fuel price hike is economically unavoidable, and persistence in existing low fuel prices will have major detrimental impact on the country's economy in the medium and longer term. The question isn't so much the hike, but what the government does with the savings.

I've written from various angles the issue (subsidies, oil and gas) on this site previously. You can read them here:

• Diminishing Oil Revenue
• Shahrir Samad taking bold steps forward?
• US$100 per barrel of crude oil
• Reduction in Gas Subsidies
• DAP Economic Policies

I've added here below excerpts from a post by Shin Liang, who is waiting to pursue his PhD overseas in 3 months time, which I thought was interesting food for thought.

I think almost all blogs in Malaysia will be about the increase in petrol price today. But I think my stand on this issue will be different from the rest, because I'm in favor of the price increase!

Yes, all the arguments against the price hike has its merit. And as a consumer myself, I can feel the pain too. But from a country point of view, it was necessary.

For long, our country's economy has relied on exports of raw material. In particular, oil export has proven to be a lucrative business. However, our dwindling oil reserves means that we can continue to enjoy this business for only another 10 years (or so). This means we need to plan ahead and 10 years is pretty short from a country's economy point of view.

For every cent of subsidy in petrol price, we are in fact taking away funds that could be use to prepare our country for the years after our oil reserves are depleted. The profit obtained from the price hike should be invested in building infrastructure, transportation and help building more research centers and improve our university such that we are still competitive when our oil reserves are gone.

The ratio of income per capita and the petrol price is Malaysia is obviously unreasonable and the price hike will definitely have a short term impact. But to improve this ratio, the govt. have to either reduce/maintain the price or to improve the income per capita. As of the current situation, it'd be difficult to improve the income per capita without having to resort to the increase in petrol price. Hence, this price hike is a necessary short term pain for a long term gain.

[...]

This petrol price hike could be a good thing for Malaysians, really. But if and only if the profits from this increase in price is put into good use. And knowing our govt., this should be our grave concern. Out of the 70 cents increase, how much of it will go to corruption and how much will go to developing our nation? Unfortunately, without transparency, we can only hope.

If the funds are used to build another twin towers, then please "kill me". I'd rather if the govt. use the funds to build infrastructures that could promote economic activities, to build things that will be catalyst to economic growth. For example, improving our transportation system, communication system, research centers etc.

Feel free to give or share your 2 sens ;-)