Facing soaring world oil prices, Malaysia on Wednesday became the latest Asian country to risk the wrath of voters by raising the price of subsidized fuel. Gasoline prices will rise by 40 percent and according to Trade and Consumer Affairs Minister, Shahrir Abdul Samad, further increases are planned for the future.
Fuel subsidies in Malaysia would have amounted to $17 billion this year, four times more than the combined amount the government pays for national defense, education and health care. The moves follow similar price increases in Indonesia and show a growing recognition by governments that they can no longer shelter all their populations from the spike in energy prices.
To cushion the blow for poorer consumers, the Malaysian government plans to offer a yearly cash rebate to owners of small cars and motorcycles. Cars with engines smaller than 2 liters will receive an annual payout of 625 ringgit, or US$200. Motorcycle owners will be given about one-fifth that amount, according to the Malaysian news Web site, Malaysiakini. Petrol prices in Malaysia at some US$0.87 per litre remain one of the lowest in the region.
The decision in Malaysia has political echoes. The Badawi government did not do well in the recent general elections, failing to secure a 2/3 majority and losing 5 out of 13 states to the Opposition. There was also some confusion as earlier announcements suggested that the subsidies would only be cut for foreign cars.
Yet while there is short term economic pain and political dangers, cutting subsidies may benefit the Badawi government in the long run. UMNO leaders held a retreat starting on Thursday to discuss ways to regain ground lost to the Opposition.