Categories
Economics Politics & government

[3022] Fuel subsidies, Pakatan Harapan, spending cuts and political capital exhausted wastefully

When the government in Putrajaya highlighted its policy of warmer air-conditioned office temperature as part of the drive to save energy, Malaysiakini exaggeratedly called it an austerity drive.[1]

It is not at all but several weeks later, the government is carrying out a larger spending adjustment exercise by cutting what the Finance Ministry calls non-critical expenditure across all ministries in order to accommodate for the ballooning fuel subsidy cost, which in turn is created by military conflicts in the Middle East.

I still would not call it austerity for the same reasons I rejected the charge levelled at the 2018-2020 Pakatan Harapan government: at that time, total spending and the economy itself actually grew. For 2026, total government spending and the economy would very likely expand too. It is just not the Malaysian mainstream view to expect a recession and an aggregated government spending cuts in the next 12 months. (Still, it does not help that the Anwar Ibrahim-led government itself uses the language of austerity…)

I find the cuts disagreeable though understandable.

Disagreeable because, for instance, to have RM3 billion worth of non-critical spending within the Ministry of Health that suffers from all kinds of manpower and facility shortage sounds incredible. So outrageous that even the Ministry of Health is contesting the cuts. One would think that if there were indeed that size of non-essential spending, it should be redistributed to essential services within the ministry instead of being redirected towards fuel subsidies that are not just unsustainable financially, but wasteful in terms of opportunity cost at a time when economies are competing at the technological level that could redefine future growth in a big way.

Ideally, what should be cut instead is the fuel subsidy spending, which the latest policy has failed its purpose. The regime was designed to save money but the truth is, it was designed to do minimal work during a time of low petroleum prices.

Just imagine the kind of policy we could run based on the amount used and to be used for fuel subsidies this year alone. We could turbocharge electrification throughout Malaysia and address the energy prices more sustainably. Fortify our health and education system to meet ongoing and future challenges. Build larger and stronger public transport network, which also reduces out dependency on petroleum. Provide very large cash transfer programs, which is a superior form of assistance versus subsidies. We could even pay Sabah and Sarawak large petroleum payments and address the cause of that one episode of national divisions.

Nonetheless, the cuts are understandable from various aspects. The war could end soon, somehow. Trump always chickens out. Alternative source of crude oil could be found soon, a betting man could say.

But the most important of them is the national election, which could happen as early as this year. In fact, some state elections are slated for this year, which shows Anwar Ibrahim is running out of options. Inflation negatively affects voters’ satisfaction with the government of the day. And after the electoral disaster for Pakatan Harapan in Sabah along the general discontent faced by the coalition within its own camp (with Umno sharpening some long knives in the passenger seat), anybody in PH seeking reelection would think twice before committing to an energy price hike.

For Anwar Ibrahim, it is doubly so because he and his allies have spent their political capital on self-serving items that include Azam Baki, the Sabah corruption and corporate scandals. These actions easily wash out actual (though limited) reforms done by the government. Not to mention, PH (and PKR especially) have spent an outrageous amount of time fighting its own base instead of its opponents.

As a result, in the PH tank there is no more political capital to be spent on tough policy for the common good at the non-instant gratification horizon. That is a tragedy for a coalition that ran reformasi as a slogan. PH has always needed to use its political capital for tough decisions. Close at the end of the line, it is plain to see that capital has been misspent on political machination that would never inspire confidence among the public, or fire the imagination of the PH base.

[1] — The government has decided to raise air-conditioning temperatures in all its offices as part of austerity measures and to cut down on energy spending. [Austerity: Govt turns up the heat, raises aircond temps, to relax dress code. Malaysiakini. Zarrah Morden. Zikri Kamarulzaman. April 2 2026]

Categories
Books, essays and others History & heritage

[3021] The River Road to China: recounting the 1866-1868 French expedition for the source of the Mekong

The song Begawan Solo used to play regularly on Malaysian television. It is an Indonesian serenade in the form of keroncong describing the longest river in Java.

Solo is one of the great rivers of Southeast Asia and when I think of great Southeast Asian rivers, the Salween, the Irrawaddy and the Chao Phraya would come to mind. Adding to the list is possibly the Kapuas and the Musi. But the greatest without doubt is the Mekong.

The Mekong River flows from the Himalayas, snakes through southern China and defines the contemporary boundaries of Myanmar, Laos and Cambodia before empties out into the South China Sea just south of Saigon.

The Mekong is the great river I am most familiar with. From the air, I have seen the river and its delta in Vietnam. I have been to Phnom Penh twice over the span of 14 years and marveled at the transformation of the city. I have walked the streets of Vientiane during what appeared to be a dry season when the river to the west looked meek with people walking across to either get into Thailand or Laos. Further upriver in Luang Prabang where I spent several weeks, the river was wide and fierce. To cross it as many did at the Laotian capital would be pure madness. I have been through the Chiang Khong border checkpoint, where the Thai-Lao Friendship Bridge crosses a gentler Mekong. And more recently, I have been to Sop Ruak where the Thailand-Myanmar-Laos tripoint is.

While geographically and politically familiar with the river, I had never really thought about the history of its exploration until when I picked up a little gem from Tintabudi bookstore some months back. It is Milton Osborne’s River Road to China. I am familiar with Osborne from a long time ago when I took a class on Southeast Asian history at Michigan. His work was one of the references we used in a class ran by Victor Lieberman.

By Hafiz Noor Shams. Some rights reserved.

River Road to China recounts the 1866-1868 French expedition’s attempt to locate the source of the Mekong and determine whether it was navigable. Based on my previous travels and embarrassingly basic geographical knowledge of the river, I would have bet it was navigable all the way up to at least the Myanmar’s section. At each section of the river that I have visited, the Mekong is wide except in Vientiane during what appeared to be a drought.

With a more limited geographical knowledge but with a whole lot more courage (or bravado), that was exactly the suspicion of the French empire, which was expanding its influence across the Indochina in competition with the British. The French were looking for inland access to southern China via the Mekong, while the British were doing so through the Salween in Myanmar. There was race to Yunnan and the supposed riches of southern China.

The French expedition led by Ernest-Marc-Louis de Gonzague Doudart de Lagrée and also later Marie Joseph François Garnier met their first challenge near Sambor, approximately 200km to the northeast of Phnom Penh by river. The Sambor rapids were difficult but it could be negotiated, especially with stronger ships of the mid-19th century. de Lagrée, his men and local guides definitely did with more primitive boats after a struggle that came physically and psychologically.

Public domain image. Wikipedia: https://commons.wikimedia.org/wiki/File:Mission_M%C3%A9kong_05310.jpg
The principal expedition members at Angkor in 1866. By Émil Gsell.

de Lagrée had been to the Sambor rapids before and he had thought it was impossible to pass. But the expedition did pass the rapids and that raised hope.

That hope was quickly dashed. The Khone Phapheng Falls at the modern Laotian border are the uppermost reach of navigable Mekong. Khone Phapheng Falls are in fact the widest waterfall in the world. I never knew that, thinking Iguazu Falls on the Argentine-Brazilian border being the widest. But no. The Khone Phapheng Falls have a width of nearly 11km, Iguazu is only nearly 3km.

Unlike the Iguazu that rises close to 100 meters, the Khone Phapheng is just 21 meters tall in a series of cascades. In many ways, the Laotian falls are a gentle feature. But that was enough to block any steamship from going upstream. Years later, the French ended up building a rail line to sidestep the problem presented by the Falls.

Now knowing the Mekong was unnavigable, there was still an objective left: find the source of the Mekong. And so, the expenditure pressed on but in a disastrous fashion due to tropical diseases, the limits of French medical knowledge of that time, political realities of the Indochinese interior and simply, European imperial arrogance. de Lagrée in fact spent a second half of the expedition suffering from what seems to be malaria and died unceremoniously in Yunnan away from the Mekong after a failed surgery. de Lagrée shared the fate of another French explorer, Alexander Henri Mouhot, who popularized in Europe the ruins of Angkor but died out of malaria. Mouhot is buried in a tomb in the outskirts of Luang Prabang.

The rest of the team attempted to look for the source but they eventually abandoned the mission due to a civil war in Yunnan between Muslim rebels and the Chinese imperial forces. It was too dangerous to proceed.

While there was strong suspicion about the location of source of the Mekong by the end of the 19th century, it was only truly discovered by the 1990s technology. We today know that the Mekong originates from Lasagongma Spring, deep in the Tibetan Plateau.

Finally, there are two other points I would explore slightly further.

One, the expedition played a role in expanding French influence in Southeast Asia. During the expedition, France controlled the Mekong delta (French Cochinchina) but one surviving member of the expedition, Garnier, briefly captured Hanoi on the delta of the Red River in northern Vietnam on the pretext of securing free river passage in yet another attempt to access Yunnan but this time, via the Red River. While he died in a battle near Hanoi and the city itself was liberated by the Vietnamese soon after, in the longer run, France ended up ruling the whole of Vietnam because Garnier showed it was possible.

Two, I wonder if there were non-Europeans who had traversed the length of the Mekong before the French exploration. It seems quite plain that the locals who worked as porters and navigators for the French knew about the rivers more than their employers. More than that, there were Malay fishmongers all the way from the Malay Peninsula in Phnom Penh when de Lagrée spent days dining with the Cambodian king, Norodom I. He was familiar with the king given that earlier, he played a role in forcing Cambodia to become a French protectorate. More curiously, there were Malay bombmakers as far north as Dali, the northernmost city along the Mekong that the French explorers visited. If there were Malays along the upper reaches of the Mekong, surely it would not be an overreach to expect others like the Thais, Laotians, Cambodians. Vietnamese, Chinese or any other local groups that had explored the river.

Categories
Economics

[3020] Our surpluses are a bargaining chip we should use to address the energy supply crisis

The Malaysian government has stirred after a short period of complacency. While the charge of complacency is warranted (and the measures appear milder than it should have been in light of the severity of the problem we face), a slower-than-promptly approach does have its benefits. One of the benefits is the avoidance of knee-jerk reactions that generally arise during a panicky state. Yet another is that we get to learn from others’ successes and mistakes before carrying out our own measures.

Here, I am glad Malaysia has largely steered away from export-restrictive measures. Multiple economies have done so to prolong supply in the domestic economies. After all, shunning the export doors is a quick-and-easy solution. And looking at the domestic use chart below (produced earlier to highlight the crisis at hand), exporting might look unnecessary given the rising stress at home.

Yet, export ban is beggar-thy-neighbor policy that would make everybody worse off. This is especially so the most manufacturing products are complex involving inputs that could only be obtained through external trade. We could be a net exporter of oil and gas, but we would be a net importer of various chemicals. If we restrict our exports that other needs for their economies, it would be likely others would do the same too. This would result to a whole chain dying off in the short term (while investing takes years) and exacerbating the ongoing energy and chemical-based supply disruption.

Rather than resorting to restrictive trade measures, we should (and appear have) capitalized on our exports in return for guarantee for imported supply. Australia and Singapore have done exactly this recently where Australia promises to continue to supply Singapore with LNG and in return, the latter guarantees diesel supply for the former.[1] Malaysia appears to have the similar arrangement with Australia.

That is the way forward. Malaysia should use our surpluses in various industries as a bargaining tool to ensure our own supply security whenever possible: our surpluses are both the carrot and the stick we must use. The key is to strengthen our trade ties instead of cutting it.

[1] — In this context, we reaffirm our commitment to strengthen energy security, to support the flow of essential goods including petroleum oils, such as diesel, and liquefied natural gas between our two countries, and to notify and consult each other on any disruptions with ramifications on the trade of energy. [Joint Statement on Energy Security. Lawrence Wong. Anthony Albanese. March 23 2026.]

Categories
Conflict & disaster Economics Politics & government

[3019] Tracing the Middle East energy flows disruption throughout the Malaysian economy

I am worried at the way the Malaysian government is handling the supply crisis emanating from the latest war in the Middle East.

Complacency

While neighboring economies have quickly engaged in some kind of mitigating measures, Malaysia appears to be carrying on with business as usual. The latest business-as-usual approach the government has taken is to provide and finance highway toll discounts for the upcoming Eid holidays, which will work to raise petrol and diesel consumption above what it would have been without discount. The subsidy regime has also left unchanged, taking any possible adaptive saving measure out of the equation. Decision on work-from-home arrangement would only be taken after Eid.

It seems the government is complacent. After all, the official communication designed to comfort Malaysians is that Malaysia is a net energy exporter and that the country has two-month’s worth of supply of petroleum products at home. Adding to this is the fact that Malaysia is one of the better prepared economies to weather the supply disruption storm.

Negative effects are unavoidable

Yet, the negative effects are a matter of when, not if.

This is so because many of the industrial (indeed petroleum) products used within Malaysia are exposed to international trade. At the very least, domestic prices are affected by global prices, even if the country is self-sufficient in one specific sector or the other. That is one of the fundamental facts for a small open economy such as Malaysia. Within context of the latest supply disruption, it means domestic prices should go up tracking global prices. This has not taken into account the problem with smuggling, which is really a feature (and not a bug as some would think) of the way Malaysia set prices for its petroleum products.

Qualitatively tracing the disruption ripples with an IO table

To understand the seriousness of the supply disruption, the ripples throughout the domestic economy could be traced through the input-output table. The table links every sector with each other by accounting for all output for all sectors as well as its input from domestic and foreign sources. The latest IO table Malaysia has is from 2021, with the next one due to be published likely this year.

O&G disruption

The clearest channel to trace that disruption is to trace the industrial linkage between oil and gas to chemicals and from there on, to other downstream sectors that use energy and chemical inputs. The chart below is a graphical representation of that linkage within the context of domestic output use (with international trade taken into account).

Here, the output of oil and gas has been traced down by five levels, i.e. from oil and gas, to refined petroleum, to basic chemicals, to special chemicals and then to the next stream user sectors that among others include pharmaceuticals (as listed in the chart).[1]

While five levels may appear deep, it is possible to drill down deeper and trace all the IO table and hence, the whole economy. For instance, a sector located downstream of pharmaceuticals includes the healthcare sector and healthcare output would be used by other services, like banking or even electricity manufacturing. Or for electricity, it could go down to land transport and then to other activities dependent on land transport.

I do only five because these five levels to me appear to be the among the sectors likely to feel the heat early on, either by the consumers, the producers or the government that may subsidize either consumption or production of certain goods. The numbers even tracing it only 5 levels already suggest a huge portion of of the economy should be affected.

That is not at all comforting.

Fertilizer disruption

O&G and is not the only source of the disruption. Fertilizer manufacturing, which uses natural gas as input, is also a major point of trouble in its own right. The chart below traces fertilizer’s immediate users.

Quantitative tracing

These charts are drawn to scale. For laypersons, that means it is more than possible to trace the expected quantitative effects on all industries using the underlying data. How would one ringgit change in output price of oil and gas affect the change in prices of other downstream sectors? How would one unit of volume change in oil and gas affect change in other sectors?

That will be some further calculations I will do in private.

[1] — for crude oil & natural gas, coke & refined petroleum, basic chemicals and specialty chemicals, the corresponding rectangles represent total output and imports of the respective sectors. For the rest sitting at the end nodes (to the most right of the chart), they instead represent sum of input from the supplying upstream sectors. For instance, while basic chemicals node represents all of its output and imports, plastic products node only represents the sum of inputs used from basic chemicals and specialty chemicals. For the end node (right most), only sectors using at least 1% of its supplier output are listed. Anything below that is aggregated under the label others. This is done for simplicity’s sake

Categories
Books, essays and others Economics

[3018] Piketty and Sandel on creating a sense of belonging through progressive tax

During the GST debate in Malaysia, there was a strong push to cut personal and corporate income taxes. Indeed, the government of the day did cut income tax across multiple income band and lowered the rate for those in the top income tax bracket. There were at least four supporting reasons behind the proposal.

One was that it would soften the GST blows faced by households and companies. Second, related to the first, it would the GST more politically palatable. Third, there was a sense that it was fairer (and easier) to tax consumption instead of income. And finally, there was an idea that it was fairer to have flatter tax rates.

It is the fourth point that came across my mind as I read Equality: What It Means and Why It Matters recently. The book records a conversation on economic, political and social equalities between economist Thomas Piketty and philosopher Michael Sandel.

Within the context of flatter taxes, both parties highlight the importance of the middle class in forming any social compact. The middle class is important because in most settings if not all, it is the middle class who would fund the arrangements the most. Such compacts involve the financing of public institutions and infrastructure that in theory would introduce positive externalities that no private endeavor could bring. 

But the middle class needs to be to convinced to come on board and pay up. It is not enough for them to become the beneficiaries of any institution generating positive externalities. This is especially so when they know the poor would not be paying as much as they do, if at all. Jealousy and a perverse kind of envy when it comes to taxation (or lack of) are something that need to be kept in mind.

This could be addressed by having a progressive taxation regime, where members of the upper class are required to pay more through steeper tax rates.

As Piketty states it in the book:

It’s also what contributed to building a new social contract where the middle class would accept contributing to the social state. They knew that they would benefit from it, but also that people at the very top were going to pay a lot more than they would. Whereas today, of course, there’s a big suspicion by the middle class—more than suspicion—that people at the top are not paying their fair share. It makes them say, “Okay, then I’m not going to pay for people who are poorer than me.” [Page 17. Equality: What It Means and Why It Matters. Thomas Piketty. Michael Sandel]

Of course, the tax monies received by the authorities have to be put to good use and that means for the betterment of society. That betterment at the very least is the various effective functioning public institutions, which are central to the creation of sense of community and belonging, but also long-term public investment in a myriad of fields.

That sense of community and belonging achieved through some social compact financed by progressive taxation is a profound point at a time when far right extremists are championing identity politics and driving a plural society, like the one in Malaysia, apart.

From here, Piketty (and Sandel) are presenting progressive taxation is a tool to fight off the far right. It is a tool to create institutions that inculcate that sense of civic community and belonging to rival whatever the far right is offering.

Piketty and Sandel had the conversation (which has been edited into a book format) from the standpoint of the political left. I would not classify myself as a leftist. Yet, the ideas are useful for a person like me, who believes in civic nationalism with a dose of liberalism.