MALAYSIA: Planned Subsidy Cut Draws Fire, Seen to Hurt the Poor

• by Anil Netto (penang, malaysia)
• Monday, June 07, 2010
• Inter Press Service

Idris Jala, who leads the government’s Performance and Management Delivery Unit (PEMANDU), puts it in stark terms: Malaysia will go bust in nine years if it does not slash subsidies and cut its government expenditure to curb spiraling debt.

His warning came ahead of Prime Minister Najib Razak’s unveiling of details of his New Economic Model (NEM) in Parliament on Jun. 10, which is when the Tenth Malaysia Plan, a five-year economic blueprint, will be tabled.

The NEM is a market-friendly programme that aims to transform Malaysia into a high-income nation while promoting inclusiveness and targeting aid to the bottom 40 percent of households.

But many Malaysians blame the country's financial woes on the government, with the general response being, if the government really wants to save money on subsidies, it should first plug ‘leakages’ in government expenditure and curb rampant corruption. Billions have been poured into unproductive government projects with little to show, critics charge.

Vocal online news media and web portals have fed the public with a steady diet of how public funds have been squandered and wasted.

'(If) they get rid of the subsidies, (there will be more) money for them to distribute to their goons!'' responded one frustrated Internet user, Bhaskaran, when asked by IPS.

Even race-based affirmative action policies, introduced in 1971 under the then New Economic Policy (NEP) to uplift the economic condition of the ethnic Malays and other indigenous groups, have reportedly spawned a culture of rent seeking and profiteering at public expense.

Bernama, Malaysia’s national news agency, for instance, has reported on the issue of approved permits for imported cars given to well-connected individuals, who allegedly then sell these permits for a quick profit. Former Prime Minister Mahathir Mohamad had been reported as saying that those who sell these permits were traitors to the NEP.

'Certainly remove wasteful subsidies,' said political commentator Abang Benet in a commentary published recently by the social reform group ALIRAN. 'But please ensure that the poor and the most marginalised groups continue receiving subsidies since they need it most. After all, why penalise the poor and the most marginalised for the subsidy excesses of the ruling coalition?'

Malaysia’s debt, Idris warned recently, would rise to 100 percent of gross domestic product by 2019 from the current 54 percent if the government did not cut subsidies. 'We do not want to be another Greece,' he was quoted as saying.

Last month, the International Monetary Fund, the European Union and the European central bank were forced to cobble together a three-year rescue package for Greece after the country’s debt reached unsustainable levels.

PEMANDU set up a ‘Subsidy Rationalisation Lab’ in March to review all forms of subsidies with a view to trimming expenditure and curbing fiscal debt. On May 27 it held an ‘Open Day’ to obtain public feedback on a range of proposals, including plans to gradually remove petrol and gas subsidies, raise highway tolls, hike government hospital fees, and abolish some education subsidies.

During the public consultation, it was revealed that companies received 18 billion Malaysian ringgits (about 5.4 million U.S. dollars) out of total subsidies of 74 billion ringgits (22.2 million dollars) in 2009. In contrast, the poor received only 1.7 billion ringgits (511,813 dollars).

By holding out the prospect that their resource-rich country could go bankrupt by 2019, Idris, who is also a cabinet minister, aimed at convincing Malaysians that shock therapy was necessary. Subsidies would only lead to market distortion, draining the government of funds for more targeted development projects for the people, he said.

'Low-cost houses meant for the poor are being hijacked by the middle-class while cheap fuel meant to make transport more affordable for the poor and low-income (groups) benefits those who drive BMWs and Mercedes-Benzes more,' wrote Azam Aris, the executive director of the ‘Edge’ business weekly, in his column.

But others, like Charles Santiago, an opposition member of parliament, see the removal of subsidies as part of a larger shift toward neoliberal economic policies that favour big business. Such policies include the privatisation of essential services and the gradual trimming of the tax rates for corporations. The planned cuts in social spending and the gradual removal of subsidies even for essential goods and services are also expected to form part of the new economic framework.

'That is the wrong approach towards managing a country where there are lot of poor people and a high disparity in income between the rich and poor,' said Santiago.

But Idris argued that subsidies would be more targeted to the very poor instead of a blanket subsidy for all. 'We will continue to spend to provide subsidies on education such as scholarships, text book assistance, food, etc.,’’ the local media reported him as saying.

But a Chinese-language newspaper, ‘Nanyang Siang Pau’, cited in the English-language ‘The Sun’, predicted that the reduction of subsidies would lead to a 20 percent increase in the living expenses of the average household within three years.

'If you think about it, it is the companies who receive the most in subsidies, which include not just the direct subsidies, but also cheap land, soft loans, bailouts using public funds, and other incentives,' Santiago added.

Faced with a barrage of negative feedback, Prime Minister Najib announced on Tuesday the government had not made a final decision on whether subsidies should be scrapped or cut and it was still carefully studying its next move.

© Inter Press Service (2010) — All Rights ReservedOriginal source: Inter Press Service

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