The Fuel Price Hike, According To Citizen X

I got this from the Malay Mail's "MailBox" (letters to the editor, page 13) today.
It is from someone who signed him/herself as Citizen X from Kuala Lumpur.

Citizen X asked:
"By the way, whatever happened to the MTEN and shouldn’t they already know all this basic stuff? I remember how quickly they went ‘deep and wide’ in addressing the financial crisis of 1997. Meeting company after company, NGOs, chambers of commerce, etc., before coming out with various policy decisions, some of which were not popular at all.

But those policies helped the country adjust to the crisis in quite an organised manner. It was bad then but bearable. I can’t say the same about the present crisis. I certainly hope at USD130 (RM415) per barrel the government is addressing this as a crisis." ( m o r e)

Citizen X started the letter by remarking that the issue of subsidies is not new but the abnormal fuel price is. Why we have subsidies, why they distort the economy and why we have to gradually eliminate them is really quite academic.

What is not is how we handle subsidies when fuel is USD130 (RM415) per barrel.

Ever since fuel prices accelerated at an unfamiliar pace from 2005 we have been behaving like schoolboys on their first science project, testing hypotheses and making assumptions as if there’s no real or permanent impact on our surroundings. From the manner the last two fuel price increases were announced it is obvious that we have not done sufficient research on this critical subject.

Making announcements at the last minute, promising no increase and yet doing so subsequently, preaching changes in lifestyle to the rakyat is not on. Most still can’t understand how the figures add up especially since we are a net exporter of oil and Petronas is profiting from the higher prices. The latest announcement is so telling of poor PR and lack of planning in that compensatory measures are deemed too minute in relation to the quantum of price hike. And now we hear that there will be further compensatory steps in the coming budget? While the rakyat will certainly be grateful when the government subsequently listens to their woes, is it not better to study the obvious impact and announce these reconciliatory moves together with the fuel hike? That would have eliminated any misconception of the whole exercise.

Why give an opportunity for some people to conclude that you are heartless or that you did not do your homework? Proper explanation and frankness could have actually brought some goodwill to the government.

Citizen X's view is that:

1: We have not done enough to micromanage subsidies. As subsidies are an expensive affair you must have a target group, that is identify who are the poor and pump as much of the ‘savings’ to them when you float prices to world markets. Cash is still the best but foodstamps, rebates, tax reliefs, etc, targeted DIRECT to the poor are still more effective and efficient than the present broad-based approach of maintaining an artificial price level and funding it through the supply chain (don’t tell me no one knows that only a portion of the funds to subsidise through the supply chain actually gets to the consumers?). (m o r e ).

2: Some planners still do not realise that it’s not about prices at the petrol stations but rather about the multiplier effect that fuel has on basic necessities like food, transport and electricity that hurts the poor the most. As such, cash rebates on road tax are definitely not the world’s best method if you are thinking of the poor.

Consumers, poor and rich, are still the most efficient decision-makers when it comes to deciding their priorities in hard times. With additional cash in hand they will naturally decide how to reduce the additional ‘pain’. Their new consumption levels will eventually decide the market price level for all goods.

The law of demand and supply will punish unscrupulous traders as it always does in a free market. (m o r e)

3: The key is not just to be thrifty when domestic prices are high but to pump cash into consumers’ hands to avoid/delay the slowdown since wages are not really growing in tandem.

As much as it’s true that you have to save to avoid a recession, you also need to spend to get out of one.

And the letter ended:

How I wish we could go back to basics to resolve this fuel subsidy issue, that is take greater pains in good times (when growth is good and everyone gets a pay increase) then the bad times wouldn’t be so bad.

But take it bit by bit every year if possible, because it is a long-term and hereditary issue. It’s not just the present government’s problem but that of both the past and the future governments.

Read Citizen X's letter H E R E.

A "side-bar" was also sent. In this one, Citizen X, responded to the Prime Minister's announcement of cost-cutting measures that could save the country RM2 billion annually.

"I am dumb-founded. Is he saying that if the government had been prudent in its spending, the country could have actually saved RM2 billion per year the last few years?

Those billions in wanton spending could have been channeled to the rakyat.

Therefore, it would be safe to assume we could have toll-free highways, LRTs not only in Kuala Lumpur but in Penang and Johor, 5000 new buses for the entire country to improve public road transport system -- all for the betterment of the people.

So the question is why didn’t the government spend less, so that it would have benefited the people more? It is wrong to say also that the government has no money because the fact, as revealed by the PM himself, is that the money was wrongly spent! The increase in fuel prices is probably a blessing in disguise as it has exposed the government’s lack of frugality. Now the government is forced to cut back and spend wisely, unlike during the good, old days.

(Read the side-bar H E R E)