Q&A: Subsidies should be tailed off slowly
- From: pluto <pluto@xxxxxxxxxxxx>
- Date: Fri, 07 Mar 2008 17:41:17 +0800
Q&A: Subsidies should be tailed off slowly
Malaysia Kini - Kuala Lumpur,Malaysia
Mahathir: I wouldn't be able to say it precisely but we're dealing with
huge figures going up to trillions of dollars and extending to the 12th
Malaysia ...
<http://www.malaysiakini.com/news/79327>
Q&A: Subsidies should be tailed off slowly
Soon Li Tsin | Mar 7, 08 2:12pm
In this final part of a three-part interview with Malaysiakini, former prime
minister Dr Mahathir Mohamad argued that the government should hike oil prices
?a bit more gently so people will not feel it so much?.
Malaysiakini: The government has introduced five economic corridors and are
pumping money into them. Will it work? Is it the right step towards achieving
our Vision 2020 or is it just a matter of fooling the voters?
Mahathir: I wouldn?t be able to say it precisely but we?re dealing with huge
figures going up to trillions of dollars and extending to the 12th Malaysia
Plan. We can?t guarantee (that the projects will continue) even the 10MP and
we?re now in the 9MP, so people would notice that these are big figures and they
might not finish.
I think in that sense the government is also not being very smart. You see,
making promises during elections is easy but later you will find that you will
not be able to deliver. I would rather not make promises. All the things that
were done during the time I was prime minister were not the result of promises.
I never promised to build the Twin Towers, I never even promise to build the
Penang bridge - I just went ahead and built them.
Looking at the Motorola issue, the government is trying to give away RM1 billion
to retain the company in Penang. So people are worried about the dipping of FDIs
(foreign direct investments) in the country. Do you think it is wise for the
government to issue such contract to retain these FDIs in Malaysia?
Well, in such situations, the government will do what it can to retain the
foreign investments so they can offer (such contracts). But whether they can
offer to everybody is a different matter.
The government has argued that the economy is doing well at 6 percent-plus
growth and yet we don?t feel it on the ground. Why is that?
I give you an example. If a man earns RM1 million a year - and he is among 1,000
people - he average earning of these 1,000 people is 1,000 dollars per year.
Whereas actually the 999 will earn nothing at all. That is the problem with
statistics and averages.
I used to tell people in my speeches that a man can drown in a river that its
average depth is two feet. So when we play with averages, we can make things
look good especially when we skew things to make it look good. That is why
although the economic growth is there but it doesn?t translate into jobs for the
people or into better income for the people.
This is a reality but of course the opposition appears not understand that
either (laughs).
Are you saying that this economic growth is different from the one during your
time where you saw more people benefitting from it?
Well, our purpose for industrialisation for example is to create jobs. Actually
that was the purpose to industrialise to create job and therefore we attracted
businesses which are labour-intensive. So people feel it. They can get jobs and
people who get jobs spend money, other people get benefit from.
Let?s take a bank for example. A bank wants to achieve growth. If it lends one
billion dollars to two companies it would have made a huge profit for itself but
that doesn?t translate into profits for a lot of people. The small investors may
feel the banks are neglecting them and in fact this is their complain that the
banks now have reduced in numbers, they deal only with the big projects and as a
result the small man do not get any attention. So the small man is going to feel
unhappy but we publish figures that the banks are making billions of dollars.
If your focus is merely on profitability it may result in people on the ground
not feeling and not getting a portion of the wealth that has been created.
So you think the government has not been creating enough jobs?
Well, that appears to be the problem.
What about the issue about inflation? The government has been saying that
inflation is at 2 per cent but people have felt that it is much higher than
that. You were former finance minister, what do you think?
You see, you cannot escape this inflation because this inflation is largely
generated by factors outside the country. The increase in the price of oil is
real. It increased by almost 300 percent. It is impossible for the government to
meet that by subsidising (it). They can subsidise, but not fully. Perhaps the
government could increase the price of oil a bit more gently so people will not
feel it so much.
The other thing is the exchange rate regime. Instead of controlling the exchange
rate and benefit from the strengthening of the Malaysian ringgit, they allowed
the Malaysian ringgit to float and when it strengthens, you get no benefit
because you cannot use that to control the prices in the country.
Strictly speaking when the ringgit strengthened you pay less ringgit for the
same goods. So therefore, people should actually get 20 percent more income by
the strengthening of the ringgit but the government prefers to float.
So you prefer that the ringgit be pegged?
It should be pegged. China pegs the ringgit. What are we ashamed about? What do
we care about what the IMF (International Monetary Fund) says? We thumb our nose
at the IMF and we still get away with it.
But what about inflation - the rate is definitely more than 2 per cent.
That can only be countered by working on how to increase the income. One is, of
course, the exchange rate which I mentioned just now. The income of the workers
especially must be increased. The unfortunate thing is that while the government
is in full control of the income of civil servants, it is not in full control of
the income of people in the private sector and the ordinary paddy farmers and
things like that. They have to be taken into consideration.
There are ways for doing these things but the focus must be there. If you are
very concerned that people are feeling the inflation then you have to work out
so that the inflation will be there but it does not affect those people because
their income has also increased.
Do you think the 2 percent inflation rate is a reflection of what?s happening or
the Finance Ministry cooking up the numbers?
Well, I cannot say (laughs) but I can say that the man on the street feels it
very much. What they can feel is the rise in price of 12-13 percent and you say
this 2.5 percent so how can that be right? But again the 2.5 percent is an
average but what they are talking is oil price, about food price, so it is not
an average.
So we have a situation where the government?s promises are not fully implemented
and the opposition is not fully equipped to question about what?s happening and
the media is fully control by the government. So what choice has a voter got to
make an informed decision?
The more educated voters, I think, can have access to alternative information
but the people in the rural areas only hear what is told to them. Their ability
to make an assessment is very much less.
Nevertheless, what is important is not so much the speeches, the media but the
reality of the price going up. You see, that is something that they feel. So
that will influence them more than all the speeches and all these corridors and
all that. So (even if) there is a corridor, I am not going to get anything. What
I know is that I am paying a higher price for food and fuel.
But the government comes out countering that we are the cheapest in the region
compared to Indonesia and Thailand. The rural folks might be taken by these
comparisons and still think things are cheap.
No, some of them would say ?what do I care what is happening in other countries?
(laughs). This is Malaysia, we are also benefitting from the price of oil rising
up to US$100 (per oil barrel). We are selling more than 350,000 barrels per day.
So the situation is not quite the same as another country which exports one to
two million barrels a day whose population is 200 million. You see, it is not
the same.
I think the average voter will not go so far. What he is going to be concerned
about is what he has to pay out of his pocket. That is what he feels. Some
(people) can be influenced, not all. Some, of course, will say ?Oh, the
government says it is cheaper in Malaysia, let?s vote for the government?. There
will be some who will not be convinced.
Petronas is being made an election issue - you are presumably still Petronas
advisor...
(Laughs) It is a cynical job. I don?t advise on anything. A lot of people come
to me and ask me ?please intercede with Petronas and give me a petrol station?.
My job is to pass on their application to Petronas so I can?t determine
anything.
So you?re the postman?
I am the postman. I?ve been a postman a long time ago.
They don?t consult you on key issues regarding Petronas?
No, they don?t.
We?re going to be a net oil importer in about three years? time. Does that worry
you?
Not in three years? time, eventually yes. If the number of cars going on the
road increase at the present rate then very soon, we will be consuming more oil
than we produce. But that will come in about 10 years? time.
It worries me because of the mentality that it has created through subsidy.
There comes a time that you cannot subsidise, you don?t have enough money. We
have seen other countries that subsidise oil prices and then found themselves in
terrible economic situation because we cannot continue to subsidise, people are
unhappy and the whole economy will be very upset.
But you were the one who brought in subsidies.
I brought in subsidies, yes, but I inherited that from other governments and the
amount of subsidies is very small at that time. The number of vehicles was also
not so big.
So you?re in favour of subsidies being removed altogether?
No, it has to be tailed off slowly. You will increase (prices) but the increase
should be within what you can afford for the future but eventually the subsidies
may have to be stopped altogether because (the government) just don?t have the
money.
A lot of people say that the Petronas money is linked to the implementation of
the New Economic Policy (NEP), using its money for subsidies. If Petronas has no
money and there are no more subsidies, will we have the money to continue with
NEP?
Petronas is a big source of income for the government, beyond that it is for the
government to decide what to do with the money. Petronas actually collects more
money than the whole internal revenue. And then the government will, of course,
have to make use of the money judiciously.
In my time, I went for big projects which have spin-off effects but at that time
the amount of money earned by Petronas was very small. So it is not true that
the NEP is dependent on Petronas. The NEP was financed - or the job
opportunities created were mainly - by growing the economy, and to grow the
economy the government must invest.
Of course, the private sector also invest but the government investment is very
important as I told you that when the government invest, it gets back the money
through taxes and other means. So the government is duty-bound to invest to
create that momentum for the growth of the country. And when the country grows
economically, bumiputeras will have the opportunity. If there is no growth,
there are no opportunities.
But we have heard from the current administration that it inherited the big
budget deficit from your administration - that?s why they have to cut the
deficit by reducing the projects and that?s why the economy has gone down
because there are no big projects.
They said they have a pretty big deficit but do you know how much? We hardly
borrow any money from outside. If we borrow at all, number one, it is to
benchmark our creditworthiness. Number two, the Japanese for example offer you
loans at 0.7 percent, it would be stupid not to take that money. We will keep
our money and invest somewhere and take Japanese money. There was no deficit.
If there had been deficit, do you think all these things would have gone up?
There was no deficit. There was no reason at all to say that the mega-projects
caused the deficit in the government budget. There is a deficit, but deficit
budgeting is very normal in a government. You see, you don?t always have a
surplus budget. You can budget for a certain amount for deficit but the deficit
would not stop the country from (having) the government investing in projects.
Now, of course, they want to invest in mega-projects, the cost is 50 percent
more. The (double tracking) railway, for example, the budgeted amount for six
years was RM14 billion from Johor Bahru to Padang Besar with a spur line coming
into Kuala Lumpur. They stopped that and now they are talking about reviving it.
But from Ipoh to Padang Besar, it cost RM12 billion - 50 percent rise in the
cost. You see, this is not the way to overcome a deficit, that is a way to
increase your deficit (laughs).
But credit-rating agencies won?t be too happy...
No, that?s why we say we benchmark it by asking for loans raised in New York,
for example, and we find that our credit worthiness is very high.
They are rushing asking us, ?please borrow?. I know, they come and see me. But
our policy is not to borrow unless the terms are very favourable. So we are
never lacking in creditworthiness. We are always creditworthy. Anybody, any bank
would want to lend to us. It is we who did not want to borrow. That was the
policy of the government.
Part 1
Mahathir: We need an opposition
Q&A: No gentleman's agreement between us
Part 2
Dr M: Samy stifled Indian voices
Q&A: Indian grouses not with me but Samy
===============================================
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