Asian nations split on how to cope with record oil prices

Indonesia and Taiwan both pledged payments to low income families to help them cope with planned fuel-price increases and New Zealand’s Finance Minister Michael Cullen Thursday announced tax cuts designed to help workers struggling with living costs. China, suffering the deadliest earthquake in 32 years, said this week it has no plans to lift fuel-price caps.

“We see fiscal positions deteriorating in countries that subsidize the local cost of oil,” said Robert Subbaraman, chief economist at Lehman Brothers Asia Ltd. in Hong Kong. “If oil prices stay persistently high at these levels, these kinds of measures can do more damage than good.”

Oil has more than doubled in the past year, and prices of grains such as rice, corn, wheat and soybean reached unprecedented levels in 2008. The increases have stoked social tensions and led to wider fiscal deficits as governments subsidize food and energy expenses for their people.

Indonesia’s President Susilo Bambang Yudhoyono, facing elections in 2009, is raising fuel prices for the first time in almost three years to reduce subsidies. The government would have to spend 190 trillion rupiah (US$20 billion) on subsidies if fuel prices were not increased, Finance Minister Sri Mulyani Indrawati said Wednesday.

Social unrest

The government expects to save 34.5 trillion rupiah by raising fuel prices, she said. About 14 trillion rupiah will be used to compensate the poor for the increase in energy costs and to thwart social unrest. About 12.2 trillion rupiah will help narrow the government’s budget deficit. Taiwan, which plans to increase fuel prices on June 2, will distribute NT$20 billion (US$659 million) in subsidies to middle and low-income families to offset higher energy costs, Premier Liu Chao-shiuan said Thursday, two days after being sworn in.

New Zealand’s government handed the nation’s 2.2 million workers income-tax cuts worth NZ$10.6 billion (US$8.2 billion) over the next four years.

“Food and oil prices have soared far higher and faster than we’ve seen for a long period,” Cullen said. “Our budget delivers tax relief for workers who are struggling with rising cost of living. Families are finding it tougher to make ends meet.”

China’s fuel caps

In China, the government said Thursday that speculation that it may lift curbs on fuel prices as early as next month is “baseless.” China caps fuel prices to limit their impact on inflation in the world’s most-populous nation.

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