Sunday, January 06, 2008

US$100 Per Barrel of Crude Oil

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.


Anonymous said...

its really getting milky. deputy finance minister said US$100 per barrel is good for malaysia since it is a net exporter. and therefore, a review may not include upping of petrol prices on the other hand, PM and DPM are shouting that the country cannot afford the subsidies and therefore petrol prices have to be raised.
so, who is bluffing? i am incline that petrol prices will go up after the election. and so does electricity. so that money can be free up to feed the cronies thru mega white elephant projects.

Anonymous said...

DAP PKR & PAS must present an united front to the rakyat. Let the rakyat see a true united Opposition front and please la, dont be worried about that PAS DAP thing. Be brave and transparent, show to all that DAP & PAS can work together.

If DAP PAS PKR are still fighting over seats allocation and are unable to agree, UMNO-BN will have a massive advantage.

In short, you guys need to unite or else, forget about even denying that 2/3. And you be looking at a trouncing by Chew Mei Fun in PJ.

Anonymous said...

What I don't get is why DAP and opposition has not frame the issue of removal of oil & gas subsidy to govt spending.

The most important fact about reducing oil & gas subsidy is how it changes the govt accounting - it essentially goes from operating cost to discretionary spending i.e., what is known as development funds. In other words, it puts money in the hands of the politicians to do what they want rather than what have been decided before.

Why is the opposition not linking oil & gas subsidy to PKFZ, Altantuya, and crooked bridge, etc. You are linking it to the toll rates but is it hard to make that slightly bigger leap?

Anonymous said...

In Malaysia, just like in Indonesia, food is getting very expensive. But the wages and salaries of the people, especially the Malays, is not keeping up with the increase in prices. Instead of developing the competitive ability of the people, the Government has been using the failed NEP to provide subsidies and dish out money on a plate. Everything is subsidised, even cooking oil, flour, rice, sugar, fuel, etc. The Government has been providing these subsidies so that the people will keep voting for the ruling party. So it has never been to the Government's advantage to make the Malays independent. A Malay who is independent of the Government may not vote for the BN. It is therefore better to keep feeding with subsidies.

So, for the past 50 years, everything has been subsidised. But now with 27 million people in the country of which more than half are Malays, subsidies are getting more expensive. There is also much much more thievery and wastage by the elites in Malaysia. But there is no bottomless well full of money. Everything has its limits. The money will soon run out.

Without the subsidies for cooking oil, sugar, flour and petrol, how are the people, especially the Malays, going to survive? Already university graduates cannot find jobs or compete in the private sector. What happens when the oil money runs out? What happens when (not if, but when) the Government cannot simply spend billions of oil money to sustain its voting base any longer? That is when we may see people sleeping in the streets, just like in Indonesia. If that happens this country will go up in flames. We will all be consumed.

In Indonesia, the Government has not mobilised its hundreds of millions of people (over 250 million Indonesians) with the competitive skills to grow enough food for themselves. Hence food is expensive. They do not even have simple survival skills like coming to work on time, organising themselves to do simple tasks, maintaining good hygiene and cleanliness and so on. They are poorly read and not informed about many things that are going on around the world. Their Government has failed in all these aspects. Hence the average Indonesian remains poor.

The same thing has happened in Malaysia. Our young people, especially the Malays, do not possess basic survival skills. We are not talking about competitive skills but just basic survival skills. The Government is not serious about giving them useful competitive skills either. The Mat Rempits are being glorified by the politicians as saviours of the nation (Mat Cemerlang). Correction : they are drug users, gang rapists, snatch thieves and street fighters.

When an efficient Policewoman called Nooriyah Anvar was appointed Chief of Traffic Police

she went after the Mat Rempits with a vengeance. Does anyone remember her? She confiscated their bikes on the spot. But soon the Mat Rempits called their political muscle and Nooriyah Anvar was kicked out. To date, she holds the record of being the shortest serving Traffic Police Chief in Malaysia. She has been replaced by Senior Asst Comm (II) Datuk Hamza Taib.

So the Government is not serious about improving the position of the Malays. It serves the Barisan Nasional Government to keep the Malays down and out. Then the Malays can go to the Government for crumbs. This way the ruling elites get to keep the whole loaf to themselves.

Little Bird

Anonymous said...

It is in the interests of UMNO to keep the Malays down, insecure, and ever dependent on UMNO for their survival. This way, the Malays, being fed from womb to grave on UMNO's ideology, will forever be dependant on UMNO, and keep voting them in. This is how UMNO can rule forever. Moreover, the UMNO politicians have ingrained into their masses that they are the "tuans", the master race and should have all the special rights, and the right to discriminate(is this in line with Islam?) and this has made the Malays what they are to-day, hating the other races for being here and occupying their land and taking away their wealth.

Let me say this. If the other non-Malays were to leave suddenly, like what happened in Uganda under Idi Amin, this country will become worse than Indonesia. Islam will no longer be in vogue as people struggle for just 1 meal a day! I am sorry to my Malay brethren for saying this, but this is what UMNO is doing to the Malays, making them believe that they are the "Tuans", and all others should be subservient to the Malays.

As I've said earlier, Malaysia, in 15 to 20 years, will be joining the Club of Doom. But, who cares? UMNO? All the UMNO bigwigs, have already accumulated their ill-gotten millions, and have already purchased their properties in Perth and elsewhere, while UMNO contiues to brainwash the Malays with their "ketuanan" and "May 13" philosophy and ideology.

What is UMNO doing to lift the Malays to compete with the rest of the peoples of the world? By making them graduates of Universities which are no better than secondary schools? By just churning out graduates by the tens of thousands, just to fool the Malays into thinking that they are now among the best in the world? Graduates that private enterprise and multi-national companies do not want. Only the government(read UMNO) is obliged to employ them. Doing what? Spending their time in the canteens, and yakking in the rest rooms.

The Chinese have begun to realize that Malaysia will fail once the oil runs out, and the Malay population have passed the 80% mark. Many, including myself have already begun to plan for the day when the situation begins to deteriorate, and leave. There is nothing we can do about the impending doom. Forget about MCA, MIC, or Gerakan. Can you see our present PM being one with the vision and the political clout to change things. You can answer that question best.

Anonymous said...

You can but just look around at the middle class. Is RM5,000 a month enough for a family of 2 adults and 2 kids? And yet, we have people still earning less than RM1,000 a month trying to feed 5 mouths!! Is this progress? To those who did not experience the days where Hussein Onn ruled, let me say that the Ringgit held its value against the Singapore dollar (on par value most of the time) and that RM5 was very big in 1976. People lived in boring times, but they lived harmoniously amongst each other. There was plenty of understanding, kindness and "muhibbah" amongst the rakyat.

Fast forward to Mahathir and you see a country waking up from its slumber, with him liberalising the country's economy single-handedly. A strongman to boot, but he did as a benign despot, twisting UMNO's rules and the Malaysian Constitution (imagine the uproar if any imam were to suggest the revision of the Quran to suit the times!) countless of times.

We had the resignation of Musa Hitam, the de-registration of UMNO and the sacking of Tun Salleh Abbas. In the meantime, we were fortunately caught up with the boom occurring in the region. Hot money flowed in from the same funds Mahathir indirectly criticised as being ruled by Jews by proxy.

Now that he has left the scene, we have no strongman, no benign despot with ideas on how to push Malaysia forward. We are left with just Badawi.

Start weeping. There are no happy endings, there is no improvement. There isn't because the growing poverty in Malaysia serves BN's purpose.

At some point, Malaysia will be behind Thailand and perhaps just slightly ahead of Indonesia in economic growth. We are and will remain leagues behind wise Singapore.

Dr Boulevard said...

And while Rome burns, Nero is busy enjoying himself on the New spanking, luxurious, custom fitted AIRBUS!

Thanks to all the voters who made this possible! And to those voters, enjoy your grapes of wrath!

NEO said...

About less than 1 year ago, one of my friend was having a dinner in one private "Oil & Gas Club" located at KLCC Twin Tower.

My friend have been told by other "Oil & Gas Men" that our national oil company and BN government had enter into Forward Selling Contracts @ US$45 per barrel of crude oil for a period between 5 to 10 years. During that time, the crude oil is only US$30 per barrel. These forward selling contracts is not disclose in the book of account as the differences between the two prices will be pocketed by certain parties. This is an open secret amoungst the Oil & Gas sector.

If this unvarify sources is true, than our oil reserves will soon be finished prior to year 2011. Perhaps, as soon as year 2009 or maybe year 2008, our country is already a net importer of oil.

Maybe this is the reason why our deputy PM commented as follow: -

"Country will bankrupt if oil subsidies are not removed"


Anonymous said...

I truly do not know how Malaysia can survive in this high inflation period. I visited my parents on Dec in kuching.

A small bowl of Kolo Mee is $2.80 and a bowl of Kuching Laksa is $4. One of my childhood friend works as a teacher aid's salary is $1600. She lives with her other 4 single sisters in a terrace house. I wonder lady like her will ever have the "luxury" to have her own house, let alone other luxury things in life ?

Sunshine Florida.

Anonymous said...

one question:

" 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."

isnt giving poor ppl money bonuses for nothing the perfect recipe for increasing inflation?

furthermore, how this policy increases productivity among workers is beyond me. why would anyone work to earn RM3000 and above if i could just work for RM2999, and get a RM3000 bonus, and get a nett of RM5999 in return for my inefficiency and laziness?

Anonymous said...

Dear Tony
Does it makes sense why we are running out of cooking oil (palm oil). Does the MCA politician VCD has anything to do with it?

warrior2 said...

When you mentioned Singapore, you must mentioned it in the context of FROM what figure to What figure and not on what it achieved in 07 and 08.

Hey, the growth is always subject to review from time to time. Do we need to do it now? Oil price only rose to 100 US recently and not on 17 dec when MOF II made the statement. I dont see whats the big deal when we dont make any review now.

Are we saying we should review evertime oil price rose vice versa? Shouldnt we see how long does the price remain at a particular level before we make any review? How long was it that the price styaed over 100 US?

As usual, DAP must say something, no matter how dumb

zewt said...

it's inevitable...

Anonymous said...

High oil prices, an appreciating Ringgit... sounds like the Dutch disease to me...

Anonymous said...

Dear Tony,

I want to ask for your opinion on the pension scheme. When the oil money of the country runs out, say, after 20 years, will the government still has money pay for the pension of government servants? As a goverment servant, I'm quite worried about this.

Appreciate it if you can shed some light on this.

Thanks for everything you have done to the people and DAP.

Your loyal supporter

Anonymous said...

Much as I'd like to support the opposition, remarks like this remind me of the socialist roots of many of Malaysia's opposition parties. While I would certainly agree that corruption must end in the distribution of Malaysia's oil money and that wasteful subsidies in entities like Proton must be terminated, I would never agree the ridiculous and populist proposal of large scale income redistribution via a simplistic bonus system to all low-income earners. Where are the libertarian opposition parties in Malaysia? Malaysians need to be free both socially and economically.

Anonymous said...

There is no such thing as socially and economically free citizens unless you are thinking anarchy. There must be a balance of equity and enterprise

Anonymous said...

Who said anything about anarchy? If you're worried about corruption, you should aim for a lean and efficient government that stays out of the daily lives of its citizens as much as possible. Creating a new bureaucracy for these handouts would simply create more opportunities for pork barrel politics.

Anonymous said...

Oil is now below USD90/barrel and CPO too is retreating.