Former Prime Minister stops short of blaming Putrajaya but knocks attempts to maintain confidence.
KUALA LUMPUR: Former Prime Minister Mahathir Mohamad points out in his latest blog posting that the unprecedented fall in oil price and other products for export must be met with revisions in everyone’s budget but doesn’t say how.
“However, incoming travelers may increase if proper marketing is done.”
The corporations and the Government need to study closely the effect on earnings and cost of doing business, he added. “The economy of the world is in a state of turmoil.”
He was referring to the fact that the oil price tumbled from USD 110/- to less than USD 60/-, while the palm oil price, rubber price, share prices and the exchange rate of the ringgit have all taken a beating, a severe beating.
He notes that all these things “involve Malaysia and Malaysians, our commodities and our money. But we are assured and reassured that we would not be affected. We will continue to grow at the projected rate.”
Simply assuming that we are immune to the massive and widespread decline in the prices of almost all the raw materials and goods we produce for consumption and export does not reflect the depth of our understanding of the problems we face, he warned.
“We are a trading nation and changes affecting the world market must affect us one way or another.”
Overall, he continued, the worst effect will be felt by those who had borrowed in USD or have to pay for purchases made in USD. “For the general public there must be a lowering of the purchasing power of their incomes when acquiring imported goods or when abroad.”
“Those involved in the oil and gas industries will suffer. They had invested at the time when oil prices were high, hoping to repay loans from the proceeds of the sale of products. With low product price they will need to sell more in a weak market to acquire funds to repay loans.”
It’s a double whammy, he concedes.
The depreciation of the ringgit will affect the repayments of loans taken in USD.
On the other hand, imported raw materials and components would cost more, neutralizing the gain from the cost of production. “There may be a demand for wage increases and revision of rates as the ringgit devalues. Inflation will be the result,” he said.
“The important thing is to know how much is the gain as against the losses.”
He thinks that it would not be too far wrong to assume that any gain from lower oil price will be negated by lowered earnings from Petronas oil and gas. “It is the same with gains in other sectors, as they will always be accompanied by losses.”
“They cannot be lulled by the gains from lower cost of oil alone. Loss of income and higher costs of imports must be taken into account.”
He points out that Malaysia is a small producer of oil, said to be 650,000 barrels a day. “We are also a great consumer of oil since our use of motor vehicles is the highest in ASEAN in terms of per capita ownership,” he said.
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