Wednesday, June 4, 2008

Fuel Price hikes will invariably stoke inflation; health care costs included...

The government's sudden decision to offload its usual subsidies for oil and gas, has taken all of us by surprise - in fact, more shock at its extreme and precipitate implementation.

A hefty increase to RM 2.70 per litre for petrol (40.6% hike) and to RM2.58 per litre of diesel (63.3% hike) is totally out-of-whack and quite unexpected for most Malaysians! The graphics from malaysiakini shows just how steep and drastic the increase has been!

Although many of us have been bracing ourselves that fuel subsidies would have to go sooner rather than later, we hadn't counted on the very abrupt and seemingly insensitive manner in which this has been announced and put into immediate effect.

Whatever little goodwill the rakyat has left for the BN-government would surely have evaporated following this tragic blow to consumers nationwide! BN's pledge not to have any more fuel price increases formed an integral part of its election manifesto, which they have now reneged upon so soon after March 2008. More than half who believed in and voted for them, are now feeling sorely shortchanged.

By whatever emotional measures, this step is simply too heartless and too quickly implemented. It rips apart the implicit social contract of concern and responsive government-citizen relationship, just so recently concluded and empowered following the defining elections in March 2008. This government's faux pas will be decried by most if not all angry Malaysians.

It is true that we have been cushioned by the fact that we are a net oil exporter, and thus falsely believed in the security that we should be pampered and protected from market forces. However, it is precisely because we are a net exporter of oil that perhaps we can and should have the privilege of giving something back to our citizens.

We are not alone in this. We don't have to obtusely follow what other neighbouring countries or more developed nations are doing. Letting unfettered free-for-all market forces dictate food or fuel prices is not necessarily the correct tack. We must not be so readily persuaded by stronger economies (or the IMF/World Bank dictates) that subsidies are all bad or taboo.

For decades, Europe and the USA have been having food and farm subsidies to the tune of billions of dollars or euros. It appears that these subsidies continue despite huge fines from free trade or grouping authorities. Because for these countries, the social contract with its core citizens override such free-market concerns, and help bolster the very traditional but all-important fabric of sociocultural connection, purpose and ties.

Importantly, for most OPEC countries, pump prices have almost always been subsidized as of a unique right for being privileged citizens. Cheap fuel then helps power their economies in their own select and inimical manner which underscores traditional economics. See It's only 16 sen per litre in Venezuela

But as Pak Lah has been pained to repeat, the writing has been on the wall for some time now--although we choose to ignore the reality bites.

Perhaps we need to be shocked back into reality. We need to recognise that globally oil pricing mechanisms have failed and are now subject to the whims of unquenchable energy demands (from China, India, etc.) and the hoards of keyed-up speculators fanning the relentless escalation of oil price and oil price futures into stratospheric heights.

Perhaps, the embattled government is trying to deflect its current financial malaise and the economic uncertainties associated with its political gridlock. Whatever the reason, Pak Lah's timing is simply wrong and ill-advised, especially at a time when soaring food prices have been making the poor Malaysian already so antsy and prickly. Encroaching further upon our purse-strings is perhaps a last straw for apathetic tolerance.

It should be remembered that our Malaysian wages are also relatively meagre when compared with the purchasing power parity (PPP) of some of our neighbours, so it is disingenuous to keep comparing with say Singapore, Australia, Europe or elsewhere.

If we are earning in dollar terms as much as these neighbours have been, then the attendant increases in unsubsidised fuel would not have been so big a blow. If say our average per capita annual income is S$26,000, [as is the case with Singapore, its PPP = USD$48,900 (2007 est.)], then what is paying some S$2 per litre (RM 4.70/l), when compared with our Malaysian per capita income [of PPP of USD$14,400 (2007 est.] and now paying upwards of RM 2.70/l for fuel? Singaporeans have nearly 4x the purchasing power parity compared with Malaysians, hence they can more easily afford to pay more when compared to us!

Besides, we are also paying astronomical prices for our automobiles, easily one-third as much again to 3 times more for different makes of imported cars, because of questionable excise duties and other protectionist taxes. Our road taxes are nothing to sniff about also.

Ironically, our national oil company Petronas has the dubious distinction of being one of the most profitable companies in the world with huge mega-billion profits year in, year out - yet, its precious financial and operational data is not for public disclosure but for the PM's eyes only! For an in-depth if somewhat contentious view on this, see Kenaikan Harga Minyak.

Fuel costs increase always mandate further increases in all other socio-economic enterprises. Electricity tariffs are among the first to go up in tandem. Food and transport bills will surely rise as a result, as would most other costs of services.

Hence, the cost of doing business will surely escalate. Thus, it is presumptuous to imagine that our CPI will only increase by some 5% this year! I predict a far more painful number which will affect every Malaysian! See Malaysiakini's article TNB: Power rates to be linked to oil prices

As it is, even before the recent elections, complaints had been mounting on the spiralling costs of food, goods and services, and how run-away inflation had been hurting the ordinary citizen. This would have translated into the huge protest votes against the incumbent government, and which had led to its worst electoral performance in Malaysian history.

Whither now health care costs? It would not be surprising if this will go up even more soon, but not because of hikes in medical professional fees (this has been capped in the much maligned Private Health Care Facilities and Services Regulations, PHFSR 2006!) as much as with other incidentals, hospitalisations, drugs and disposables, staff remuneration, etc.

At the recently concluded MMA AGM, the Council unveiled a final draft report on the new 2008 version of the medical professional Fees Schedule (this was last updated in 2002, six long years ago!) How this new schedule will go down with the public in this era of universal price increases remains to be seen, but it will certainly not be without some scathing consumer disgruntlement!

Moreover, the Minister of Health will have to agree to update the current schedule, as promised earlier in our joint MOU to further improve and remove some faults in the PHFSR 2006. Under this climate of recriminations and unpopular authority, we can only expect Ministerial caution and laggardness.

So, we are even more unsure when or if this would find its way into the new regulatory amendments. Once again doctors would be made to wait and exhibit their goodwill and patience... Our ethically-entrenched altruism, our nobler instincts are once again expected not to unduly impinge upon our patient's better interests, especially under such sensitive times...

Welcome to the new era of Inflation! Goodbye social contract and goodwill! "Everybody must simply learn to tighten their belts, be more thrifty, and live within their own means and capacity. For the rest of those who are struggling--well, just too bad!" to paraphrase some of our piously admonishing and economically-savvy Ministers!

Perhaps Malaysia still Boleh...

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