Asian govts weather protests over oil subsidies as price peaks

Asian govts weather protests over oil subsidies as price peaks

Paris Lord, Agence France-Presse/Bangkok

With global crude oil prices hitting record highs on Thursday, governments across Asia are having to weather political storms after scrapping fuel subsidies or raising prices at the pump to relieve pressure on budgets.

From Pakistan to Vietnam to Indonesia, governments have blamed soaring oil prices -- which rose above US$61 a barrel on Thursday in Asian trade for the first time -- for ballooning import bills, and economists have warned the levels could keep rising.

But in the face of popular protests and opposition dissent, several governments are facing a test of their mettle to enact tough policies, says Robert Broadfoot, managing director of the Hong Kong-based Political and Economic Risk Consultancy.

"The bigger risk is that countries such as Indonesia and the Philippines don't cut the subsidies," Broadfoot said. "The downside is that you could get riots that cause political instability, which is what happened to (former president) Megawati Sukarnoputri (in 2003) and she had to roll back the prices.

"The upside is that it shows decisive leadership, and when President Susilo (Bambang Yudhoyono) carried through in March with his earlier promise to reduce subsidies, that was an important signpost that foreign creditors and investors took to mean more decisive leadership, which got more foreign investment."

Students, workers and public transport operators staged demonstrations across Indonesia in March after Yudhoyono's government raised fuel prices by an average of 29 percent.

Senior economy minister Aburizal Bakrie said the cash-strapped government had to scrap the subsidies because it had already spent around $6.4 billion.

The government promised the poor would be compensated with more direct targeted assistance, with a total of Rp 16.4 trillion ($1.77 billion) being channeled into medical, rice, social and education needs.

Although a member of the Organization of Petroleum Exporting Countries (OPEC) cartel, Indonesia's antiquated and under-funded energy sector cannot meet domestic demand for fuels.

In the Philippines, which has some of Asia's costliest fuel, the government's inability to privatize the national power company and reduce fiscal deficits were major reasons people lacked confidence in the government, Broadfoot said.

Pakistan's government has also faced unrest after last week announcing a five percent rise in petrol prices, taking prices to nearly 50 rupees (85 US cents) a liter.

Politicians and human rights activists staged demonstrations in major cities on Monday, with protesters in Karachi chanting slogans and carrying banners charging that President Pervez Musharraf's government was strangling the poor.

Leader of the right-wing Jamaat-i-Islami party, Liaquat Baloch, told AFP a powerful alliance of six Islamic parties would launch a countrywide movement against rises in oil prices.

"We are holding consultations with other opposition parties to finalize the program," Liaquat said.

In Nepal's capital Kathmandu on June 24, about 300 activists from eight student unions defied a government ban against demonstrations to protest a 12.5 percent hike in cooking gas prices, chanting slogans against the government and alleging corruption in the state-run Nepal Oil Corporation.

In India, results were mixed for two strikes called in late June by the communists, allies of the ruling Congress party in federal government, to protest increases in petrol and diesel prices.

A June 27 strike, held in the eastern commercial city of Kolkata ruled by the communists for more than two decades, received more support than a nationwide strike the following day.

India imports more than 70 percent of its oil needs with the import bill soaring 40 percent for the year ended March to $27.20 billion.

India's federal cabinet on June 20 raised petrol and diesel prices by as much as seven percent to offset higher international oil prices since the last hike in November 2004, but froze prices for kerosene, used widely by poor households for cooking.

No protests marked the Vietnamese government's July 4 cut of subsidies to state-owned fuel importer and distributor, Petrolimex, and increased retail prices for petroleum by approximately 10 percent to 8,400-8,800 dong (53-55 US cents) per liter.

"If we don't adjust the petroleum prices, the compensation will account for two per cent of GDP," the Thanh Nien daily quoted Deputy Minister of Finance Tran Van Ta as saying on Monday.

Despite its sizable oil reserves, Vietnam has no operating refineries and relies on imported petroleum-based products.

Thailand's government scrapped a diesel subsidy from June 1 that had cost it more than $2 billion in its 16 months' life, but to cushion the impact trimmed taxes on diesel. The tax break is set to last 10 months, costing around $347 million.

The high price of fuel imports was also a key factor in soaring trade deficits, the Bank of Thailand said in June, noting April's current account deficit of $1.61 billion was the biggest since before the 1997 financial crisis.

In Malaysia, the government has raised petrol and diesel prices three times since last October, but as prices remain low compared to neighboring nations, criticism has been muted. Also softening the blow is the fact that the agricultural sector is still eligible to buy fuel at lower prices than the pumps.

However, Malaysians are keenly sensitive to the issue and rumors of further price hikes triggered huge queues outside petrol stations last Friday.

Malaysia's price difference with its neighbors means smuggling is rampant, particularly into Thailand, and ships and trucks with contraband loads of fuel are frequently caught.