Page last updated at 10:05 GMT, Friday, 6 June 2008 11:05 UK

No U-turn on Malaysia fuel hike

Fuel pump
Malaysians will face higher prices at the pump

The Malaysian government will not back down on its decision to increase the price of fuel despite growing opposition and protests.

Domestic trade minister, Shahrir Samad, said the decision had been "wise" though he said the government was likely to absorb further increases.

A coalition of opposition parties has called for nationwide rallies to force a government U-turn.

The government recently decided to end decades of heavy fuel subsidies.

The pump price of gasoline rocketed 41% to 2.70 ringgit ($0.87; 0.44) a litre on Thursday. Diesel shot up 63% to 2.58 ringgit per litre.

Strain

The new measures are causing widespread unrest among Malaysians, who are used to the government heavily subsidising fuel and keeping fuel prices among the lowest in Southeast Asia.

Spiralling fuel prices mean the government would have had to shoulder a higher fuel subsidy bill of an estimated 56 billion ringgit.

Despite growing dissent, Mr Samad was adamant the decision was prudent.

"I don't personally think it has been a mistake to raise fuel prices by a substantial amount," he said.

Situations like these are opportunities for political enemies. We are prepared to face the consequences
Shahrir Samad
Malaysian domestic trade minister

"I think it's wise. It is the first time ever we can come to grips with the subsidy system."

But he conceded the government was unlikely to review fuel prices in the short term, saying domestic fuel prices would remain at 2.70 ringgit "for a while".

Under the new system owners of cars with smaller engines will receive a rebate, while truck drivers will be given subsidised diesel to curb any inflationary consequences on the transport sector.

Protest

The fuel decision has caused protest and could prove damaging to Prime Minister Abdullah Ahmed Badawi's government, which is still reeling after shock election losses in March.

The opposition Democratic Action Party has already staged small-scale protests and PROTES, an anti-inflation coalition of opposition parties and non-governmental groups, has called for nationwide rallies to culminate in a mass demonstration in Kuala Lumpur on 12 July.

Mr Shahrir said the government was prepared to face any backlash.

"Situations like these are opportunities for political enemies. We are prepared to face the consequences" he said.

Analysts have warned that Prime Minister Badawi could face renewed calls to quit as the price hike will particularly affect the low-income groups which traditionally form his core support base.

Malaysians will also have to pay higher electricity tariffs - up to 26% more for some consumers - starting next month.

The energy prices are expected to slow Malaysia's economic growth and consumer spending and push inflation to a 10-year high of about 5%, up from the current 3%.




SEE ALSO
Malaysia to let fuel prices rise
03 Jun 08 |  Business
Malaysia fuel ban for foreigners
27 May 08 |  Asia-Pacific

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