United States crude oil futures hit past record US$100 per barrel for two consecutive days in a row on Wednesday and Thursday before settling at US$99.18 yesterday on the New York Mercantile Exchange. Oil prices has almost doubled from its low in January 2007 of US$50 per barrel increasing the likelihood of a significant economic slowdown for the global economy.
The United States government has in the last quarter substantially revised downwards their economic growth forecast from 2.5% to 1.8% for 2008 in the light of the global liquidity crisis triggered by subprime loan defaults in the country.
Singapore has similarly revised downwards their growth forecasts for 2008 to a range between 4.5 to 6.5% despite the robust 7.5% and 7.9% GDP growth experienced in 2007 and 2006 respectively.
The Government of Malaysia has on the other hand refused to face up to economic realities for political considerations as the next General Elections is expected within the next 3 months. It has earlier been forecast that the Malaysian economy will grow between 6.0 to 6.5% for 2008. However, in the light of the rising oil prices, the global liquidity crisis and consequently the global economic slowdown, the Second Finance Minister has as recent as 19 December continued to insist that the country will be able to meet its growth targets.
Rising oil prices will affect Malaysia's inflation directly with increased petrol and gas prices, as well as indirectly via increases in cost of other essential goods and services. Just as the Government has maintained its growth targets, it continues to live in a surreal world by declaring that inflation has increased by only 2% for the first 11 months of 2007 and will increase by only 2.5% in 2008.
The man in the street is facing major economic challenges as the prices of all essential goods and serivces including petrol, housing, water, milk powder, flour, rice, cooking oil, fruits and vegetables have increased by more than 10% over the past year.
The government must stop resting on its laurels by believing in its own imaginary world where inflation is benign. Instead of spending unproductive resources in punishing food stalls and petty traders for raising the prices of goods such as teh tarik and roti canai by 10 or 20 sen, the Government must focus on areas where the consumers are hurt the most.
For example, it is imperative that the government renegotiate the contracts with the toll concessionaires as well as the independent power producers which allows them to charge high toll and power rates which guarantees astronomical profits. Revision in toll rates in 2008 will bring RM350 million in profits for the affected concessionaires this year alone. Lebuhraya Damansara Puchong (LDP) which increased their toll rates by 60% last year are guaranteed RM18.8 billion in net profits by the Barisan Nasional government despite the cost of building the highway of only RM1.3 billion.
The Government can also ease the inflation rate in the country by removing the costly protection for loss-making Proton which artificially inflates the prices of transportation paid by ordinary Malaysians and cost millions in the rakyat's tax payers monies in grants and subsidies to the company. Proton made more than RM500 million in losses in the previous financial year ending March 2007.
While the Government may blame the rising prices on factors beyond its control such as rising prices, it must take the blame for failing to raise the real wages of ordinary Malaysians which has remained largely stagnant over the past decade. For example, the starting salary of a typical law graduate in Malaysia has remained largely unchanged over the past 10 years at RM1,800 to RM2,000 per month, in Singapore, starting wages has increased from S$2,000 to as high as S$4,000.
While Singapore has successfully transformed its economy from the doldrums of the Asian Financial Crisis into a knowledge economy driven by high value-added service industry as well as high-end technological and biotechnological manufacturing industry, Malaysia has remained heavily reliant on high commodity prices as well as the construction and property sector to spur economic growth. The former prime minister, Dr Mahathir Mohammad's vision of a progressive, modern and technologically-advanced knowledge economy has all but vanished into thin air.
Thankfully for Malaysia, the oil price rise is a double-edged sword for we remain a net-oil exporter at least for the next few years. Hence it is critical for the Government while taking the necessary steps to restructure our economy, to also look into the plight of the urban low and middle-income earners.
While the rural population benefits from record high commodity prices for example, for oil palm, rubber, coconut and cocoa, the urban middle and lower class benefits little from it while at the same time faces the brunt of inflationary pressures.
Therefore the Government must take the necessary steps to share the gains arising from record high oil prices, which results in record profits for Petronas. The DAP has proposed in its most recent budget for 2008 that employed individuals earning less than RM3,000 per month be granted a Malaysia Bonus of up to RM3,000 to help ease the rising cost of living in the country.
With oil prices expected to rise above US$100 per barrel in the near future, the BN Government must be jolted from its complacency arising from its own misguided economic statistics. It must wake up to the fact that real inflation is probably at near record levels for Malaysia and will inevitably hurt the local economy with dampening demand. It must redouble its efforts to restructure the country into a high-value added knowledge economy instead of just relying on the same old short term domestic pumping activities via the construction and property sectors. Finally, a responsible Government must empathize with the economic hardship faced by the urban poor and share a portion of the nation's wealth with all Malaysians in need, regardless of race or religion.