In The News

Malaysians Debate New Subsidy Cuts on Fuel, Sugar

July 21, 2010

More Malaysians may soon request one sugar instead of two in their teh tarik and opt for the bus rather than the car for their commute to work. On July 18, 2010, Prime Minister Najib Tun Razak’s announced cuts to subsidies on items such as sugar and fuel. This is the first step in the government’s subsidy rationalization programme that it argues will save the country RM 750 million (over $233 million) this year. Money, they say, that can instead be used as resources for families, communities, and business growth. This comes at a time when the Malaysian economy has strongly rebounded from the global financial crisis with double digit growth and Najib’s administration enjoys a healthy public satisfaction rate of 72 percent.

The headline news on these subsidy cuts has spurred interesting reactions across the country. The banking and finance sector has generally lauded the move, arguing that the reforms would contribute to a reduction in the nation’s budget deficit and prevent a Greece-style meltdown. Meanwhile, political pundits speculate that the subsidy slash could have a negative effect on the vote base of Malaysia’s ruling political party, Barisan Nasional, just ahead of a general election scheduled for sometime before 2013. Opposition leader Anwar Ibrahim criticized the reforms as a burden on poor households who, he says, will feel most the effects of the cost increase of everyday items. However, several non-governmental organizations that normally protest such cuts actually welcomed the move. The president of the Malaysian Medical Association (MMA) Dr. David Quek, pointed out that as diabetes cases in Malaysia have almost doubled since 2000, the reduction in the sugar subsidy by U.S. 8 cents per kilogram could lead to an eventual reduction in sugar consumption and an improvement in overall nutrition. The Federation of Sundry Goods Merchants Associations of Malaysia echoed his sentiment, adding that Malaysia’s sugar prices are still among the lowest in the region – even after the 8 cents increase.

Malaysia’s largest consumer association, FOMCA, claims the petrol price increase of U.S. 0.016 cents per litre should not be a burden for consumers as Malaysians have enjoyed very low rates for petrol and sugar, especially when compared to neighboring countries. In fact, such favorable rates have resulted in lucrative, but illegal, cross-border smuggling of sugar and fuel.

Public support for the subsidy reform will increase if Malaysians see their government putting the extra money to good use, like development of a better public transport system and stronger investments in education and health. At the same time, people are more likely to accept the cuts if they feel “rationalization” is a shared responsibility – to apply not just to the people, but to government officials’ spending, as well. In many minds, the greatest public savings will come from reduced leakage, corruption, and cronyism within the government. Malaysians will be watching to see if the government does its part.

Anthea Mulakala is The Asia Foundation’s Country Representative in Malaysia. She can be reached at amulakala@asiafound.org.

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