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Fri, Sep 09, 2005 - Page 12 News List

Asian fuel subsidies must go, ADB says


High oil prices are here to stay and Asia should wean its people off costly fuel subsidies as the region absorbs the fallout in terms of lower economic growth, the Asian Development Bank (ADB) said yesterday.

Crude oil prices from late last month are now 75 percent above the Philippines-based lender's average price estimates for this year. It said prolonged prices at this level "would have the potential to cut developing Asia's growth and would pose challenges for economic management."

While some uncertainties remain, "higher oil prices could be here to stay for some time," the ADB said in its twice-yearly publication, the Asian Development Outlook. The first direct effect would be soaring inflation.

If oil stays at US$70 a the barrel next year, GDP growth would be cut by 1.8 percentage points in Thailand, 1.4 points in the Philippines, 1.3 points in Singapore and 1.1 points in India, Indonesia and Malaysia, it said. It would shave a point off GDP in China, 0.9 points in Hong Kong, half a point in South Korea and 0.2 percent in Taiwan.

Sustained high oil prices "would inevitably restrain output growth" while Asia's "major industrial trading partners would also suffer, amplifying direct negative effects" through reduced exports.

The risks are significant "but with appropriate policy responses, should be contained in size and duration," it said.

At the same time, "developing Asia needs to re-evaluate decisions that have been made in the belief that oil would remain cheap and that higher prices would be temporary," it said.

First on the agenda would be "fuel subsidies, artificially low prices, and low levels of taxation on oil products," situations that it said are widespread across the region.

The report said the costs of subsidies "have escalated sharply and are now beginning to create fiscal strains."

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