Asian governments are falling behind in their battle against record oil prices, risking public protests, higher interest rates and slower growth.
Indian Prime Minister Manmohan Singh and his Malaysian counterpart, Abdullah Ahmad Badawi, relaxed fuel price controls yesterday, joining Indonesia, Taiwan, Pakistan and Sri Lanka in boosting costs for business and consumers. The moves will drive India’s inflation to 8.5 percent, a 13-year high, said Lehman Brothers Holdings. Malaysia’s consumer-price growth may double to more than 7 percent by June, said Goldman Sachs Group.
The country’s central banks may also follow Pakistan in raising rates, as policy makers lose bets that a global slowdown would temper price increases. Higher gasoline, diesel and cooking-gas charges are ``inevitable’’ as India can’t afford to shield its 1.2 billion people forever, Singh said in a televised address. His allies, India’s four communist parties, have scheduled a week of protests starting today.
``The current phase of high energy prices has huge political implications,’’ said N. Bhaskara Rao, chairman of the Centre for Media Studies, a New Delhi-based political policy group. ``Governments simply can’t do anything about it.’’
Abdullah and Singh are risking a political backlash after losing ground in elections in the past year. Abdullah’s coalition lost its two-thirds majority in parliament and ceded control of five states to the opposition in the March 8 general elections.
Topple Government
Opposition leader Anwar Ibrahim, freed from prison in 2004, said May 29 he’ll ``immediately’’ contest a parliamentary seat once he confirms his eligibility, in a bid to topple the government by mid-September.
The Indian National Congress party has had nine electoral setbacks in 11 provincial polls since January 2007. Singh’s parliamentary majority hinges on support from the communists, who pledged to block rail and road routes during the demonstrations.
The main opposition Bharatiya Janata Party says Singh’s government has run out of ideas to tackle the oil crisis.
If an increase in fuel prices ``is inevitable, then the exit of the prime minister and his government is inevitable as well,’’ party spokesman Rajiv Pratap Rudy said.
There is a precedent for higher prices to force out governments in Asia. Indonesia’s attempt to increase fuel costs in 1998 sparked protests that led to the ouster of President Suharto after almost 32 years in power.
Rising Prices
India, which imports 70 percent of its oil, increased prices for gasoline by 11 percent, diesel by 9 percent and cooking gas by 17 percent after oil reached a record $135.09 a barrel in New York on May 22. India previously raised fuel prices in February, the first time since June 2006. Cooking-gas prices had been capped since April 2005.
India also cut customs duties on gasoline and diesel by two thirds to 2.5 percent and scrapped a 5 percent import tax on crude oil to reduce revenue losses at government-run refiners that have reached an unprecedented $1 billion a week, constraining their ability to import oil.
In Malaysia, the price of 97-RON grade gasoline will now be adjusted monthly to track global prices. Tenaga Nasional Bhd., the government-controlled power producer, will be allowed to raise electricity prices in peninsular Malaysia starting July, as it will have to pay higher prices for gas, Abdullah said.
``Because crude-oil prices and commodities at the international market have gone up drastically, the government needed to restructure the subsidy system,’’ he said.
Similar Tactic
Malaysia and India are using the same tactic as some of their neighbors. Indonesia raised fuel prices by an average 29 percent on May 24, the first increase in three years, to cut subsidy costs. Ceylon Petroleum Corp., Sri Lanka’s government oil company, increased fuel prices for the second time this year on May 25 to trim losses. Lanka IOC Ltd., the Sri Lankan unit of India’s biggest refiner, Indian Oil, boosted diesel prices three times and gasoline once this year.
Reserve Bank of India Governor Yaga Venugopal Reddy has called inflation ``totally unacceptable,’’ as it gives little room to spur an economy that’s growing at the slowest pace since 2005.
The bank has held interest rates at 7.75 percent, near a six-year high, since March 2007. It has relied on telling banks to set aside more cash against deposits to tackle inflation; it increased the cash ratio twice in the past two months to the highest level in seven years.
Malaysia has also avoided raising interest rates, relying on price controls and subsidies until now to keep inflation contained. Its central bank has kept borrowing costs unchanged at 3.5 percent since April 2006.
``The countries in Asia, which are dependent on imports, will have to live with the specter of accelerating inflation and slowing economic growth this year,’’ said Kaushik Das, an economist with Mumbai-based Kotak Mahindra Bank Ltd. ``The situation may reverse only if there is a sharp decline in global crude-oil prices.’’
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