Sunday, March 8, 2009

Fuel hike - the gov't did not panic

If you ask the man on the street why he is hurting as prices soar, the blame is likely to rest squarely on the sharp petrol hike two years ago.

The 40 percent increase of petrol prices saw inflation hitting a 27-year high and despite that global oil prices have fallen back to normal, the same cannot be said of prices of food and other essential items.

But if you asked Khairy Jamaluddin, Rembau MP and son-in-law of outgoing Prime Minister Abdullah Ahmad Badawi, the government had no choice but to go for a one-off fuel hike.

"The government had to decide, to make a judgement call whether or not to bite the bullet for one serious round of increasing petrol prices or wait and see what might happen and end up footing subsidy bill of a billion (ringgit), two billion every month."

In this final of a five-part series, Khairy also argued that his recent defence of the Perak sultan did not contradict Umno's all-out attack against the sultans in 1993.

You're in the frontline to defend the (Perak) sultan. It has been argued that Umno was actually the party that had stemmed the powers of the sultans in 1993. Isn't that a contradiction?

Let's get things straight - what we did in 1993 was to ensure that the rulers were not above the law in term of criminal action, for example, if they decide to hurt somebody rigorously, or try to kill somebody, then they can be prosecuted.

Meaning that in criminal acts they are not above the law, and of course, there is a special court that they must go through and of course, not just physical crime and also in terms of criminal breach of trust, and also in terms of commercial laws, they cannot be above the law.

That, I think, is different from discharging their discretionary duty as a monarch. It's very different. That's not criminal in nature. That is for them to use their wisdom and discretion to make that decision, which is enshrined in the constitution, and it's for them to interpret the constitution according to how they see fit with the situation.

So when somebody rejects the decision of the monarch in discharging his duty as a ruler, that's against the cultural morale of the Malay community. That's what ‘derhaka' is, in this case. For as long as we have the constitutional monarchy, you must respect that discretionary power, otherwise, just go, leave it.

Because of where this country came from initially, you must still respect those powers are still accorded to the monarch and they are not completely powerless, they are still very powerful. So the moment you reject that, you reject the entire notion of this constitutional ruler.

But they can be questioned too, it's not that the public cannot question the decision of the sultan.

Yes, but I think you shouldn't do it in a manner that questions his dignity, and I think a lot of what happened did question the dignity of the Perak royal house, the action of the supporters of the opposition in trying to obstruct royal vehicles from entering the palace is shameful and Dato' Seri (ousted MB Mohamad) Nizar (Jamaluddin)'s own action of remaining defiant until today, suggest somebody who has gone against the royal probate, which is a serious matter.

Well, there are issues that happened before, like Terengganu as well as Perlis (after the Marhc 2008 general election).

But in the case of Terengganu, after much consternation and much debate and negotiation, we (Umno) still agreed, we didn't threaten to take the monarch to court or continued with our outburst. You saw that at the end of the day we apologised and we accepted everything so we drew the line. There was a point that was political and there was a point where we drew the line, (if) that's what the monarch wanted, that's what we accept.

So that's the difference between Terengganu and Perak. In Terengganu, we did the same thing but we accepted it, even at the end of the day it might not be initially a political decision, when that was the monarch's probative, we said yeah, it's fine.

But then (DAP parliamentarian) Karpal Singh can argue that thanks to Umno, because of the special court, he has the right to take the sultan to court.

That's a legal matter for the court to decide whether or not they can take the sultan to court on that particular issue. You see, it has not been tested before. What has been tested is that you can take him for criminal breach of trust, can take him for disputing with somebody, but not for his constitutional duties.

But why are people like Khir Toyo so upset when it's a matter for the court to decide?

That you would need to ask him.

Was it a mistake by the government to increase petrol prices so sharply instead of incremental increase?

Of course, hindsight is every politician's luxury that they don't have. At that point of time when oil prices went up to US$140 per barrel and there was no sign of it deflating, I think the government was pushed into a corner, either you do something quick or you...

So the government panicked?

No, the government didn't panic, I think the government had to decide, to make a judgement call whether or not to bite the bullet for one serious round of increasing petrol prices or wait and see what might happen and end up footing subsidy bill of a billion (ringgit), two billion every month.

But you can still opt for incremental increase.

Not really because every month it was a difference of one, two billion, that was the subsidy bill at that time, so incremental increase would have cost us a lot of money. So I think the government made a judgement call - to say we should bite bullet once and for all and push it up.

Of course, we expected knock-on effect on items, food items and essential items. The problem is, (prices) are not going down. There are two reasons for this.

One, of course, is profiteering, but you can't identify exactly where the profiteering occurs because this part of the chain is so fragmented that you don't know where the price increase actually is happening, whether its retail or transport, everyone is saying that it's somewhere else. Or whether or not it's completely fragmented - this guy raises a bit, that guy raise a bit... and it is completely impossible for the government to impose fair prices across the supply chain.

Secondly, the other reason might be that it's not really profiteering but unethical business practices, where there are a lot items that are controlled, price-controlled items, but many people especially the rural areas find it difficult to find these price-controlled items - price-controlled rice, price-controlled flour - where it's either not available or sold in the black market, and they actually just put up those that are not premium brands and not price-controlled. That is another reason.

A third factor is a more unpopular theory, but it's a possible theory - that prices has been generally suppressed for a long time. I think a lot of businesses look to readjust prices once and for all. If you believe in that third theory, then it would mean, of course, the prices won't come down, because it is just the realistic level of business price in the goods.

The government was caught in the sense that once you allow for the increase in petrol prices, this would definitely happen. And many other sectors are agitating for increases, for example buses are agitating for increment in fares. So this is something that we have to come to terms with.

The problem in all of this is that wages have not kept pace with inflation, and because of that people's real income are going down. And when that happens, of course, there's a lot of dissatisfaction.

So, if there was one, not mistake, but deficiency in economic management, not just over the last four years but over the last few decades or so, is not being able to look at this ticking bomb of suppressed prices.

The fact that wages were not rising in a manner that was reflective of this latent suppressed price that is bound at some point of time to go up. Now the problem that you have is that you have complete inflation across commodity, across assets but what happens now is that it's very difficult to raise wages as well so you have a situation where, once the one-off price increase happens, it's very difficult to raise wages and people are stuck in the situation like they are today.

(Former finance minister) Tengku Razaleigh (Hamzah) said that the stimulus package has been ineffective and another one is coming out this month. So do you believe that stimulus packages are the way to counter this sort of problems? Or should there be a national-level welfare programme which Ku Li has suggested?

Well, this is a tough one. Welfare is necessary at this point of time, because you have to give handouts, and of course handouts is very contentious policy tool because it generates very little return and generate very little multiplier (effect) but handouts are necessary to cushion the impact on many people. But there is no other way apart from spending your way out of this crisis and the government must stimulate the economy.

It is what type of stimulus package that you need at this point of time - some people argue that you need big infrastructure projects to get the economy going because the construction sector has a huge multiplier effect.

To me, yes, you need some of that (welfare programme), but if you are talking about the real economy, you'll need to stimulate spending for the real people. Stimulating spending means trying to get more income in their pockets and to do that, you can either reduce the taxation burden on them, which means they have more disposable income in their pockets.

You can help with certain things like housing loans, whether or not the government can try to provide incentives or take over part of the housing loans for a certain period of time. This has been done before, to increase the disposable incom. With the new stimulus package, it is not so much concentrated on infrastructure projects which still might have some leakages, elements of pork barreling.

But actually (it's better) to provide business loans for people to go in and stimulate the economy - I strongly believe that there is nothing better to stimulate the economy in long term than entrepreneurship.

Government projects can only take you so far, but through entrepreneurship that's what creates value in the future, that's what increases income in the future, that's what generates value in the economy, and that's what helps people in the long run cope with the inflationary where you create value in the economy.

So you have to try and get money to businesses, to small businesses especially, to generate this investment in spending.

On the other hand, apart from welfare and straightforward handouts, you have to come out with certain innovative safety net type of policy. For example, I've been selling the idea of unemployment insurance as something that will provide people comfort, because we haven't really felt the full brunt of this global recession yet.

I was reading the Economist this morning about manufacturing collapsing completely and that is a big engine of our economy because when that happens, a lot of jobs are going to go.

So when you don't have mobility being created in economy, no jobs being created, unemployment insurance becomes very important to tie people to the next year or so.

Source : Malaysiakini


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