Oil price hike – Badawi’s greatest Economic Challenge

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Sep 14 2007
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Human nature has it that once something is given it’s hard to take it back later. So, when the Malaysian government tried to win the hearts of millions of voters by way of subsidies little did the leader realize one day the same tactic will backfires. It was argued that the subsidies were necessary to help the poor especially in the agriculture sector during the initial developing stage. But somehow the subsidy mentality glued and refused to leave the mind of these same people who voted the current government.

To further artificially control the cost of living, fuel subsidy was introduced. It was alright back then when you have more money in the coffer than to spend on nation’s mega-projects, not that the country has zero debts like Singapore. But because of the bullishness in global economy especially in electronic and manufacturing, the spill-over went into stocks investing and property development. Everyone made good money, unemployment was low and the nation thrived.

Mahathir Smarter PMMaybe the former premier Mahathir was lucky to be on the throne during the booming economy. Maybe he was smart after all and has business acumen on how to manage the country’s economy. Maybe he had with him a group of good advisors who gave good quality consultation and advices which made him looks like he was an all rounder great leader, corruption asides. Maybe he knew how to handle the people well and the psychology of slowly taking away something without provoking them. And so the fuel was increased gradually of 1 cent, 2 cents and so on but rarely tens of cents per liter. Inflation was kept on bay as hard as possible. The people didn’t felt much of the pain and you have to give respect to the former premier, who’s still walking and eating well despite his 81-years of age.

When the baton was passed down to current Prime Badawi Raise Fuel PriceMinister Abdullah Badawi, ready or not, he appeared to be ill-equiped with the basic Economy-101. Of course he scored the highest point in gaining more than 90% of the voters’ vote in 2004 election, but that was because he promised the corruption would be the last thing to happen in his administration. Despite the bullish and bearish (1997 recession) economy during Mahathir’s administration, people got tired with the mismanagement and wide spread of corruption and Abdullah Badawi was seen as the savior riding the white horse.

The rest is history – not only Badawi was seen as not keeping his word to wipe out the corruption, being a religious man he was, the premier also seen as the weakest leader ever produced. It could be said that the number of demonstrations staged against him out-numbered his predecessor Mahathir during his short 4-years in power as compare to Mahathir’s 22-years. Minus the huge demonstration against Mahathir during his sacking of his former deputy Anwar, the comparison is more obvious.

Fuel Hike Stupid LeadersAfter Badawi’s infamous highest ever fuel price rises (30 cents per liter) in Feb-2006, political and civil groups organised demonstrations in the streets of the capital Kuala Lumpur to condemn the decision since Malaysia is a net exporter of oil, much to Badawi’s dismay. Abdullah Badawi, who is expected to call elections early next year, saw the inflation spiked spirally thereafter and his popularity drops to the current level of 70%. It was amusing to have leaders who told people to change their lifestyle and become “Smart Consumers” instead. But this is not his biggest challenge.

His biggest challenge could be on how he plans to deal with something which is beyond his control – the rise in fuel prices. As if the oil price is toying around with the prime minister, Badawi today said the Government will honour its promise to the people not to hike fuel prices despite world oil prices soaring to a record high of US$80 per barrel. That’s right, oil prices finished above $80 a barrel for the first time Thursday and gasoline prices rose as refiners reported production problems after Hurricane Humberto hit Texas.

Oil Price $80 a barrelLight, sweet crude for October delivery finished at a record $80.09, up 18 cents on the New York Mercantile Exchange. Hurricane (downgraded to tropical storm) Humberto added to the supply concerns by cutting power to several refineries in the Port Arthur, Texas, with another tropical system a.k.a. Tropical Depression Eight said to be gaining strength in the Atlantic. Tropical Depression Eight could develop into a hurricane and create havoc to the oil and gas infrastructure in Gulf of Mexico.

So, what could be the good news and bad news waiting at the doorstep of the people? The good news – the fuel price remains, for now till the election is over. Even if the magical moment of fuel price suddenly drop to below $60 a barrel overnight, the government will most likely not going to decrease the price as can be seen during some months back when the global oil prices were traded below $60 – citing the government was actually still subsidizing it.

The bad news – the government has no choice but to raise the fuel price, probably after the current fasting month and the Malay’s Hari Raya festival. Nevertheless, having learnt his lesson, Badawi might just have to live (or pretend) with it until his party successfully secured another majority win, even if the oil prices rises to $90 a barrel next month.

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