ECONOMIST EXPECTS GOVT TO REMOVE SUBSIDIES GRADUALLY

KUALA LUMPUR, May 21 (Bernama) -- While it is inevitable that subsidies have
to be cut further, a bank-based economist believes the government can be counted
upon to remove them gradually so as not to burden the poor and those in the
lower income bracket.

Affin Investment Bank economist, Alan Tan Chew Leong, said he expected the
government to reduce and remove the subsidies at a measured pace so that the
cost of living of the rakyat, especially the poor, would not be impacted
significantly.

"We expect the government to propose offset compensation packages to provide
assistance targeted to help the lower income group from inflationary pressures
or price increases," he told Bernama in an interview.

So far, the government has cut subsidies for fuel and sugar, following the
first subsidy rationalisation programme in mid-July 2010.

There were no changes to the earlier proposal of subsidy cuts for flour and
cooking oil, as well as toll rates, electricity tariffs and gas prices.

Tan said apart from subsidy reduction, the government would also be
committed to cutting back on operating expenditure -- with all ministries
practising fiscal prudence -- as well as exploring alternative sources of
revenue such as implementation of the goods and services tax.

He said the savings from subsidy reduction would be chanelled towards
improving public amenities.

"They include the urban transportation network, rural basic infrastructure
and roads and improving educational facilities for children," he said.

Meanwhile, an analyst said that if power tariffs were to go up as part of
the subsidy rationalisation plan, domestic consumers in the lower income group
would not be affected.

He said it was necessary to rationalise subsidies, including possibly
raising gas prices as the subsidy bill was increasing significantly due to
rising prices of crude oil, gas and coal in the global market.

"Petronas is buying gas and crude oil while Tenaga Nasional Bhd is sourcing
its coal imports to generate electricity from the global market at international
prices which have increased significantly over the past several years," he said.

He said these two entities and the government sell electricity, gas and
petrol to consumers in Malaysia at highly subsidised prices which were even
enjoyed by multinational companies.

"From another perspective, Malaysia is subsidising the cost of products of
other countries.

"This leads to market distortion in terms of pricing which means the economy
is not cost efficient," he said.

As a result, he said, the companies tended to depend on such handouts rather
than adapting and adopting new technologies to keep production costs low and in
the process become more efficient and competitive.

Other analysts said amid increasing economic challenges and rising commodity
prices such as crude oil, gas, coal and palm oil in the global markets which
affects national savings, Malaysia's subsidy programme needed to be reviewed and
rationalised further.