masterwordsmith-unplugged

Recently, the Sunday Star reported the likelihood of a cut in electricity rates by Tenaga National Berhad. This claim was further buttressed by Energy, Water and Communications Minister Datuk Shaziman Abu Mansor's comment that he would brief the Malaysian Cabinet on this matter on Wednesday. Of course, one of the main factors that has caused a change in this direction would be oil prices that continue to plummet. I believe that we should be prudent and instead of celebrating cheaper tariffs, the time has come for us to come to grips with our sinking fortunes.

Take a look at 2008. I don't think many of us will want to remember it. I most certainly will not miss that year. And why so? It was a year when stock markets tanked, government budgets bled as millions or billions went to bail out banks, hundreds of thousands lost their jobs and/or homes. So is there is a reason to celebrate that filling our car tanks is now a cheaper exercise or that we do not have to think twice about switching on our air-conditioners? The fact is, after hitting a high of USD147 a barrel in July, world oil prices have crashed to their lowest levels since 2004. Click here for the latest oil price.


While on one hand car owners, airlines and any person/company that uses lots of fuel can be grinning from ear to ear at plunging oil prices, it is a season of reckoning for oil-producing countries. And why so?

For so long, such nations were so used to their windfall that they did not take steps for such a depressing scenario and are coming to grips with their tumbling revenues. How may oil-producing nations be affected?

* Massive cuts in public spending
* Unemployment
* Inflation
* Political and social unrest
* Higher crime rate as a result of some of the above-mentioned effects
* Lower national income which could lead to governments being forced to flex their muscles in fiscal and monetary policies
* Reduction in expenditure on public health/housing and other public/social goods

A look at Russia can tell us the magnitude of the problem. Recent reports claim that Russian officials squirreled away at least USD600 billion in cash reserves during the years of soaring energy prices. Its economic growth has fallen from 7% to 2% while its stock index is down by 70%. Its investors have withdrawn USD190 billion since last August. Zeljko Bogetic, the World Bank's chief economist in Moscow, warned investors last month that if the oil price drops to $30 a barrel and stays at that level through 2010, Russia would be forced to empty the rest of its cash reserves and borrow money abroad. "Clearly we are in the middle of a major growth recession in Russia," Bogetic said.

Across the other side of the globe, Venezuela is in deep recession. The price Caracas gets for its oil has dropped some 70% since July to about $31 a barrel. In Iran, the price crash has plummeled Iran's foreign earnings, 85% of which come from its shipments of 3.8 million barrels of oil a day. Last summer the country was garnering about $300 million a month from oil and natural gas. This month it's likely to make just $100 million, according to Saeed Leylaz, an economist in Tehran who edits the business newspaper Sarmayeh.

And what is happening in Malaysia? I dread to even google the statistics for our country and to maintain my sanity, peace of mind and to ensure that I can sleep peacefully, I chose instead to focus on Russia and other countries. At the same time, we must remember that our leaders are busy (sic) with other issues.

At the 151st (Extraordinary) Meeting of the OPEC Conference in December 2008, 11 OPEC oil ministers voted to reduce production by 2 million barrels a day. Now bear in mind that this is the BIGGEST production cut in the 48-year history of the organization. Looking the trend in recent weeks, it is obvious to me that even such a move may fail to push up prices because it is the dramatic slowdown in global growth, and NOT an oil glut, that is driving oil prices downwards.

A few days ago, the fried rice hawker near my home told me that his business had dropped by 40% even with the Chinese New Year crowd. His face was in anguish when he lamented that it would probably be even worse after the Chinese New Year.

Another blog reader emailed me and shared about how low are interest rates in UK and Scotland and how long it took for the British government to declare that the country is in recession. Currently, interest rates there are at 1% for deposits while for loans, it is at 8% despite the fact that the government has pumped in money into the economy.

I know today is the last day of the Chinese New Year and I sound like a prophetess of doom but the fact is, our fortunes are sinking and the future seems bleak. But I have to be pragmatic. When we get lower tariffs, think again of the implications. Think beyond the savings but think about tightening belts and riding this wave of recession. May God help our leaders to steer our country in the right direction.

* Click here for What's Behind (and Ahead for) the Plunging Price of Oil.