Oil subsidies and Asian diplomacy

Here in Bangkok, when demonstrations hit the streets it is not just a matter of a few earnest folk wielding placards and chanting slogans. As we saw in September 2006 with the overthrow of Prime Minister Thaksin Shinawatra, street protests here can easily spill over into full scale civil unrest and the toppling of governments.

Kevin Rudd has made it his business to engage in pro-active diplomacy with Asia, as evident by his two visits in his relatively short time in office.

Evidently, there is much to be gained from Asian engagement such as trade advantages, the promotion of regional stability and positioning Australia to wield significant influence over the sustainable and peaceful development of the Asia Pacific region into the 21st century.

However, on this last point, the federal government will have to walk a much more conciliatory and sophisticated line if it is to be a successful regional leader, if the recent calls for Asian governments to halt their oil subsidies are anything to go by.

Comments by energy Minister Martin Ferguson suggesting that Asian fuel subsidies pose the biggest threat to Australian motorists might be well intentioned, but there is a real danger that the comments will be received here in Asia as at best naïve, or worse as a kind of thinly veiled imperialism.

Ferguson is right that subsidies on fuel will lead to increases in its consumption, and that this is a major problem in the context of rapidly diminishing oil supplies; and it is true that more than 50 per cent of Asian fuel consumption is occurring in countries with fuel subsidies.

But Ferguson seems to have failed to grasp the scope of the response that such changes would unleash in Asia.

If Asian countries were to follow Ferguson's recommendations tomorrow and cut their fuel subsidies, Asia would be plunged into mass civil unrest - and the cost to our regional economy would be devastating, not to mention the impacts of large scale regional instability.

Take Malaysia as an example. There the government lifted its subsidies on oil prices last month, meaning a 41 per cent in the price of gasoline and a 63 per cent increase in the price of diesel fuel. The result has been the biggest ever protests against Prime Minister Abdullah Badawi took place last week in Kuala Lumpur.

Here in Thailand, already in the grip of an ongoing street protests in Bangkok and Chiang Mai around constitutional changes, disgruntled farmers and fishermen have given the government notice that they will take to the streets en masse unless subsidies on fuel are put in place to help these workers meet the spiralling costs of living.

Western business leaders and governments have complained that Asian oil subsidies are distorting international markets, and giving some Asian countries an unfair advantage. "When it comes to energy, particularly oil, and increasingly gas, the world is retreating from the open markets and free trade we have worked so hard to achieve since World War II," Martin Ferguson said.

Similar sentiments are being voiced with regard food subsidies. Peter Brabeck-Letmathe, chairman of Nestlé, speaking at the World Economic Forum on East Asia in Kuala Lumpur recently, said food subsidies distorts the free market and therefore have a negative impact on the availability of food. “I am absolutely against food subsidies,” he said.