Najib defers subsidy cuts, boosting expectations GE-13 very near

As expected, Prime Minister Najib Razak and his Cabinet deferred proceeding with a slew of subsidy cuts on consumer essentials that would have surely triggered massive public backlash and sour the BN's chances in a snap general election that is now strongly expected to take place within the next few months.

"It will be in July or before October by the latest. The longer it delays, the higher the risk of losing Malay support to the opposition mainly because inflation is coimg out very much stronger than expected. A lot of people will be very angry with the BN government soon and Najib is trying to be ahead of the price curve on this call," PKR vice president Tian Chua toldMalaysia Chronicle.

The 58-year old Najib can technically can delay elections until 2013. But by then, experts warn, the country would be in full-blown recessionary conditions with prices sky-rocketing while wages remain stagnant.

He would risk going into a vote when the economy was at its worst, and any outcome worse than the 2008 election would pile pressure on his Umno presidency and premiership of the country.

Nonetheless, Minister in PM's Department Nazri told reporters that the Cabinet had failed to reach agreement not because it was afraid of souring popularity but because it "it would impact the poor".

“We are concerned about the implications, not so much on how it would affect Barisan Nasional’s (BN) popularity but how it would impact the poor,” Malaysian Insider reported him as saying.

Nazri also said the subsidies cut would be studied before any final decision and that no time frame had been set.

But his glib explanation was rubbished by economists.

"I think Nazri is talking as a politician and not an economist. There is no such thing as indefinite time frame. It sends a bad signal that Malaysia's defict will shoot to a record high at year end because the government will have to borrow money. We don't think they will cut the subsidy on the big fuel companies, the Idependent Power Producers," a senior economist at an Islamic bank told Malaysia Chronicle.

Malaysia budget deficit hit a record 7.2 per cent of GDP in 2009 and just days ago, another Minister in the PM's Department said that the Najib administration was not so concerned about a high deficit although Najib has promised to cut slash borrowing and balance the budget.

"The government does not hold to the ideology that a deficit means you go to hell and surplus means you go to heaven,” former finance Nor Mohamed Yakcop had told reporters.

Indeed, it was clear that Najib's own party was divided over the subsidy cuts. There are basically two camps. The Najib faction wants GE-13 to be as early as possible and do not mind if they win by just a simple majority.

The other camp is led by former premier Mahathir Mohamad and Najib's deputy Muhyiddin Yassin. Both men have warned that a failure to secure a two-thirds parliamentary majority would be disaster for BN.

Their supporters have been accused of leaking gloomy news including the frightening prospects of price hikes in a bid to sour public sentiment and shake Najib from going ahead with early polls.

Last week, Muhyiddin raised eyebrows when he revealed the subsidy burden would increase from RM10.32 billion to RM20.58 billion this year, of which approximately RM18 billion goes to fuel-related subsidy. Najib was then overseas.

Hot on the heels of the DPM's announcements, several other Umno leaders including Consumer minister Ismail Sabri have asked the people to support the government move to slash subsidies.

Those within Umno who opposed, calling on Najib to look for other ways to finance the additional subsidy lifted by soaring global oil prices include Youth chief Khairy Jamaluddin, ministers in PM's Department Idris Jala and Nor Mohamed.

"They are caught between a rock and a hard place. But they have only themselves to blame because there are other ways to finance the subsidies without burdening the people," PAS treasurer-general Hatta Ramli toldMalaysia Chronicle.

"It also shows the Najib administration has a very weak hand and has reached a point where they have no choice but to publicly admit they have run out of ideas an issue that is of vital national importance."

Hatta slammed the BN government for allowing corruption to remain rampant, wastage and deals that benefited huge crony conglomerates at the expense of the man on the street.

"If they were to cut the subsidies on the Independent Power Producers, or tighten their belt and scrap some of the non-performing projects that are unpopular and do more harm that good, it would be a much better idea. But somehow, they always go to the poorest to finance the activities of the rich and the corrupt."

- Malaysia Chronicle