Sunday, December 28, 2014


As posted by Dr. Mahathir Mohamad at Che Det on December 25, 2014

1. The economy of the world is in a state of turmoil. Not only has the oil price tumbled from USD 110/- to less than USD 60/-, but palm oil price, rubber price, share prices and the exchange rate of the Ringgit have all taken a beating, a severe beating.

2. All these things involve us, Malaysian, 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.

3. Are we!!

4. Inflation is at 3%. Can we believe it would not affect our purchasing power i.e. can we continue to buy all those things we use to buy, all the food, clothing etc.

5. Driving, flying may cost less. But earnings by Petronas will diminish a lot. And the Government used to get billions from Petronas. Will Petronas pay to Government the same amount as when 1 bbl cost USD130/-. Common sense, (not so common a commodity) says it will not. And that must affect the 2015 Government budget which was presented when oil price was at USD110/- per barrel.

6. Palm oil growers and rubber growers especially the latter are not complaining that they are not making money, certainly not the huge profits they use to make. Government has decided to help them with monetary gifts.

7. But when these people are not making money or making less money, the corporate and other taxes they pay must be less. So Government revenue will once again go down. But now Government has to give money to them. How does the Government do this without down-sizing the budget provisions for other Government obligations and needs?

8. Then there are the various impacts on business and the general public.

9. Business may or may not benefit from the fall in petroleum price. Those in the transport industry such as bus companies and airline may benefit.

10. 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.

11. Contractors will find payments delayed or requests for revisions. Some contracts may have to be cancelled.

12. 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.

13. For the general public there must be a lowering of the purchasing power of their incomes when acquiring imported goods or when abroad. However incoming travelers may increase if proper marketing is done.

14. Overall the worst effect will be felt by those who had borrowed in USD or have to pay for purchases made in USD.

15. Clearly the unprecedented fall in oil price and other products for export must be met with revisions in everyone’s budget. The corporations and the Government need to study closely the effect on earnings and cost of doing business. 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.

16. We are 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. 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. The important thing is to know how much is the gain as against the losses.

17. 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.

18. We are a trading nation and changes affecting the world market must affect us one way or another.