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Asian governments forced to act as crude oil prices soar

Asian governments forced to act as crude oil prices soar

Torn between protecting the poor and saving their budgets, governments across Asia are being forced to slash fuel subsidies as world oil prices settle over $130 a barrel.

Indonesia, Malaysia and Taiwan have decided to wield the axe on multibillion-dollar subsidies despite fears of unrest as inflation spikes and the region's poor pay more for fuel on top of the surge in food costs.

Even regional giant India, which until recently was happy to see state oil companies lose millions of dollars a day selling discounted fuel, has said a price hike is inevitable.

But while most price-setters could see the writing on the wall, China has dismissed rumors that it would change its central pricing system as it focuses on containing inflation ahead of the Beijing Olympics.

"In Asia generally, those countries that subsidize oil will be under pressure to remove their subsidies while those that don't will be under pressure to do something for low-income earners," said Euben Paracuelles, a Singapore-based economist for the Royal Bank of Scotland.

For countries such as Indonesia, an OPEC member which has historically enjoyed some of the lowest fuel prices in the world, the crude price boom  means the days of ultra-cheap petrol may soon be over.

Jakarta hiked the subsidized gasoline price by 33.3 percent to about 6,000 rupiah (65 cents) a litre on May 24, sparking immediate and sometimes violent protests by students and hardline Muslim groups.

Analysts however said Jakarta deserved praise for its decision to cut its fuel subsidies as they mounted to an estimated $14 billion, or three percent of gross domestic product.

"It looks like that's where most governments are heading right now," Paracuelles said.

Malaysia also appears to be changing its stance on subsidies - approaching $15 billion or a massive seven percent of GDP - and is now considering a two-tier pricing system to make the rich pay more and cap the subsidy bill at more acceptable levels.

And in Taiwan, the new government of President Ma Ying-jeou has moved quickly to end a freeze on domestic gasoline prices from June. Power prices will also rise from July accordingly, officials said.

China, however, has made it clear fuel costs will remain well below market rates even as its energy needs surge ahead of the Olympics.

Analysts say higher prices in countries such as Indonesia would ease demand for crude, but only action by giants India and China could take the sting out of the oil markets. 


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