Najib shelves subsidy cuts, as election fever draw closer...

As expected, Prime Minister Najib Razak and his Cabinet deferred proceeding with a slew of subsidy cuts on consumer essentials that would have surely triggered massive public backlash and sour the BN's chances in a snap general election that is now strongly expected to take place within the next few months. The government will maintain petrol, diesel and liquified petroluem gas (LPG) prices for now, said Domestic Trade, Co-operatives and Consumerism Minister Ismail Sabri.

"It will be in July or before October by the latest. The longer Najib delays, the higher the risk of losing Malay support to the opposition mainly because inflation is coming out very much stronger than expected. A lot of people will be very angry with the BN government soon and Najib is trying to be ahead of the price curve on this call," PKR vice president Tian Chua told Malaysia Chronicle.

The 58-year old Najib can technically can delay elections until 2013. But by then, experts warn, the country would be in full-blown recessionary conditions - overtaken by surging oil prices that analysts have predicted could hit US$200 per barrel at the extreme end. However, for net oil-exporter Malaysia's case, the problems are internal and political caused mainly by Najib's lack of will to curb corruption and tighten the belt against crony firms.

His inability to get rid of non-competitive policies and racial favoritism are the next main factors hindering a return of investor confidence in the stretched-out economy. Without painful political and social reforms, analsyst have said Malaysia is doomed to suffer sky-rocketing prices while wages are kept to the lowest as there was little else to attract businesses to locate here.

Election fever is on the way

Indeed, by delaying, Najib would risk going into a vote when the economy was at its worst, and any outcome weaker than the 2008 election would pile further pressure on his Umno presidency and premiership of the country. Nonetheless, on Wednesday, Minister in Prime Minister's Department Nazri Aziz told reporters that the Cabinet had failed to reach agreement not because it was afraid of losing its popularity but because it "it would impact the poor". “We are concerned about the implications, not so much on how it would affect Barisan Nasional’s (BN) popularity but how it would impact the poor,” Malaysian Insider reported him as saying.

The minister also said the subsidies cut would be studied before any final decision and that no time frame had been set. The Cabinet had been expected to raise the prices of petrol, diesel and liquified petroluem gas. Earlier this month, it raised the price of sugar by 20 sen to RM2.30 per kilogram.

No time frame equals bankruptcy

But Nazri's glib explanation was rubbished by economists. "I think Nazri is talking as a politician. There is no such thing as indefinite time frame unless we want to go bankrupt earlier than 2019. Today's announcement without any time frame sends a very bad signal that Malaysia's defict will shoot to a record high because the government will have to borrow money," a senior economist at an Islamic bank told Malaysia Chronicle.

"This will also hit our standing with the international rating companies. We don't think the Najib administration will cut the subsidy on the big fuel companies, the Idependent Power Producers, as an alternative solution, not in the short term anyway."

Malaysia's budget deficit hit a 22-year high of 7 per cent of GDP in 2009 and just days ago, another Minister in the PM's Department Nor Mohamed Yakcop had said the Najib administration was not so concerned about a high deficit. However, Najib himself has previously promised to cut slash borrowings and trim the budget shortfall to 2.8 per cent of gross domestic product by 2015. The government has forcast 2011 deficit to total 5.4 per cent of GDP.

"The government does not hold to the ideology that a deficit means you go to hell and surplus means you go to heaven,” former finance minister Nor Mohamed had told reporters.

Intrigue within Umno

In the past weeks, it has also been clear that Najib's own Umno party was divided over the subsidy cuts. There are basically two camps. The Najib faction wants GE-13 to be as early as possible and do not mind if they win by just a simple majority. They reckon that at the very least, Najib wins a new 5-year mandate which would strengthen his bargaining power in the party and make it easier for him to reject growing demands by Umno warlords for greater sharing of power and the spoils of the game.

The other camp is led by former premier Mahathir Mohamad and Najib's own deputy Muhyiddin Yassin. Both men, who are regarded as leaders of the right-wing conservatives in the party, have warned that failure to secure a two-thirds parliamentary majority would be disastrous for the BN. Their supporters have been accused of leaking gloomy news including the prospect of price hikes in a bid to sour public sentiment and shake Najib from going ahead with early polls. Last week, Muhyiddin raised eyebrows when he revealed the subsidy burden would increase from RM10.32 billion to RM20.58 billion this year, of which approximately RM18 billion goes to fuel-related subsidy. Najib was overseas then.

The moment GE is over, Najib will hike prices

Hot on the heels of the DPM's announcements, several other Umno leaders including Consumer minister Ismail Sabri have asked the people to support the government's move to slash subsidies. Those within Umno who opposed, calling on Najib to look for other ways to finance the additional subsidy caused by soaring world crude include Youth chief Khairy Jamaluddin, ministers in PM's Department Idris Jala and Nor Mohamed.

"They are caught between a rock and a hard place. But they have only themselves to blame because there are other ways to finance the subsidies without burdening the people," PAS treasurer-general Hatta Ramli told Malaysia Chronicle.

"Secondly, it also shows the Najib administration has a very weak hand and has reached a point where they have no choice but to publicly admit they have run out of ideas to resolve an issue that is of vital national importance. It won't be easy to make people forget about the price hikes. In fact, these will be at the back of the people's minds. They will think the moment GE is over, Najib will push up prices."

Hatta also slammed the BN government for allowing corruption to remain rampant, for not tackling wastage and deals that benefited huge crony conglomerates at the expense of the man on the street.

"If they were to cut the subsidies on the Independent Power Producers, or tighten their belts and scrap some of the non-performing projects that are unpopular and do more harm that good, it would be a much better idea. But somehow, they always go to the poorest to finance the activities of the rich and the corrupt."

source:Malaysia Chronicle

Menteri: Tiada kenaikan RON95, diesel, LPG

Prices of RON95, diesel, LPG stay for now

cheers.