Friday, June 06, 2008

Oil Price

The Government has now announced an increase in petrol price by 78 sen to RM2.70 per litre, an increase of more than 40 per cent.

I may be mistaken but there seems to be less vehicles on the road today. But obviously that is not all that will happen.

All other consumer goods, services and luxury goods would increase in price.

The cost of living must go up.

Put another way there will be inflation and the standard of living will go down.

Obviously our increase in petrol price is far less than in the United Kingdom or the United States.

But our per capita income is about one-third of theirs. In purchasing power terms our increase is more than in the UK or the US.

The increase hurts but the pain is greater not just because of the increase percentage-wise is higher than in developed countries but because of the manner the increase is made.

read more @ http://www.chedet.com/2008/06/oil-price.html (Our Former Prime Minister's Blog)

In another news..



Dr M: Gradual subsidy reduction better
Syed Jaymal Zahiid Jun 5, 08 4:54pm

The government, given the amount of profit made by the national petroleum company (Petronas), can actually afford to maintain the fuel subsidy, said Dr Mahathir Mohamad.

The former prime minister who is also advisor to Petronas said in his blog posting today that a gradual subsidy reduction would have been a better option considering the burden of the increase that people have to cope with.

“Roughly Malaysia produces 650,000 barrels of crude per day. We consume 400,000 barrels leaving 250,000 barrels to be exported. Our 250,000 barrels of export should earn us RM27 billion.

“But Petronas made a profit of well over RM70 billion, all of which belong to the government. I feel sure that maintaining the subsidy and gradually decreasing it would not hurt government finances,” wrote Mahathir.Following the increase, he reasoned that all other consumer goods, services and luxury goods would increase in price as well.

This will be followed by the increase in the cost of living, then increased inflation and the drop of people’s standard of living.

“The increase hurts but the pain is greater not just because of the increase percentage-wise is higher than in developed countries but because of the manner the increase is made,” said Mahathir.

Floating ringgit a bad decision
Mahathir also said that the government’s decision to float the ringgit was a bad one as the subsequent rise of fuel price by the government has placed the people in a more rough position.

“In the first place the government should not have floated the ringgit. A floating rate creates uncertainties and we cannot gain anything from the strengthened ringgit. “Certainly the people have not experienced any increase in their purchasing power because of the appreciation in the exchange rate between the US dollar and the ringgit,” he said.

Explaining further, Mahathir said had the government retained the fixed rate system and increased the value of the ringgit presumably at 10 per cent at a time, the cost of imports, in ringgit terms can be monitored and reduced by 10 per cent. This will lead to a 20 per cent decrease in the cost of imports.

“But we know the prices of imported goods or services have not decreased at all. This means we are paying 20 per cent higher for our imports including the raw material and components for our industries,” he added.

Govt bowing to IMF and World Bank
The government, Mahathir claimed, instead wanted to please the International Monetary Fund and the World Bank by floating the ringgit and as a result had merely increase the cost of exports without giving the people the benefit of lower cost of imports.

“This is not wisdom after the event. I had actually told a minister not to float the ringgit three years ago. But of course I am not an expert, certainly I know little about the international financial regimes,” he said in his usual trademark sarcasm.

The world, Mahathir said, is currently facing economic turmoil due to the depreciation of the US dollar, the sub-prime loan crisis, rising oil and raw material prices and food shortages.

“Malaysia will not escape these problems. I wonder if the government is prepared to face it,” he wrote.

He however said there must be ways to mitigate the problems so that the people will not bare the entire burden following the steep rise of fuel price.“I am sure the government will not just pass all these problems to the people as the review of oil prices every month seems to suggest,” Mahathir added.

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