SURGING OIL PRICES STARTING TO PINCH SOME ASIAN ECONOMIES
BANGKOK, September 6, 2005 (STAR) (AP) - Surging oil prices are starting to hurt some Asian economies, squeezing consumers, fishermen and airlines throughout the region and nearly triggering an economic crisis in Indonesia.
Oil prices have climbed to record highs in the wake of Hurricane Katrina, which shut down many oil facilities along the U.S. Gulf of Mexico coast at a time when worldwide energy output was already stretched thin.
Economic growth rates across Asia are down by one-third to half of last year, thanks mostly to higher oil costs, says Andy Xie, an economist at Morgan Stanley in Hong Kong.
"Growth rates could decelerate by another 1 percentage point due to further rises in oil prices," Xie wrote in a recent report.
The pain is most evident in Indonesia, where the rupiah has fallen to four-year lows against the U.S. dollar as ballooning fuel subsidies to keep prices affordable for the masses are bleeding the government's coffers.
Seeking to avoid a meltdown, the central bank last week hiked interest rates and President Susilo Bambang Yudhoyono told the nation last week he would have to cut subsidies at some point _ in effect raising prices for consumers, who currently pay about 2,400 rupiah, or 24 U.S. cents, for a liter of gasoline.
And while the rupiah has recovered slightly since then, the situation remains tenuous, and public criticism of Yudhoyono is growing as authorities have produced few concrete measures to tackle the problem.
In Thailand, where the average price of gasoline has jumped 26 percent this year to 26.5 baht a liter (US$2.47 a gallon), authorities have scaled back economic growth forecasts. The Thai central bank has cut its growth forecast to between 3.5 percent and 4.5 percent from an earlier range of 4.5 percent to 5.5 percent.
To offset higher oil prices in Thailand, the government has introduced an economic stimulus package and an array of energy-saving measures, including limiting advertising billboards to be illuminated for only three hours daily and requiring gas stations to close at night.
Thai fisherman have also felt the pinch. In recent months, more than 5,000 fishing boats-- almost one-third of fishing fleet in southern Thailand-- have gradually stopped operating as fuel costs ate up their profits, said Prasant Silphiphat, president of the Fishermen's Association of Thailand.
In China, the impact from higher oil prices has been felt in shrinking profit margins, regional shortages of gasoline and diesel, fewer auto purchases and less international travel.
With the economy growing at 9.5 percent, no one is forecasting a dramatic slowdown. But John Anderson, senior economist at UBS in Hong Kong, predicts that oil prices averaging US$50 a barrel would pull China's annual growth rate down to 8.2 percent, while prices averaging US$70 a barrel would bring growth down to 7.8 percent.
India's economy, growing at 7 percent, so far has been largely insulated from rising global oil prices, partly because of government fuel subsidies, with authorities allowing only modest hikes in prices.
But should oil prices remain at these levels, analysts say the government will have to raise prices, which will undoubtedly undermine growth.
"If it's going to be a permanent (oil) shock, then we might as well pass it through the economy," said Pradeep Srivastava at the National Council of Applied Economic Research in New Delhi. "That would mean higher inflation and slower growth."
Each increase of US$10 dollar per barrel in fuel costs-- if fully passed through the consumers-- could erase 1 percentage point from India's growth, according to an International Energy Agency study.
Airlines are perhaps suffering more than any other industry. Soaring fuel costs have brought losses at Thai Airways, Malaysia Airlines and China Southern. Many have added fuel surcharges to ticket prices.
But so far those hikes, most of which are less than US$20, don't appear to be deterring consumers from flying.
In Japan, past oil crises have forced the nation to become more fuel-efficient. But Japanese officials have expressed concern that high oil prices could undermine a recovery underway.
Australia, a major exporter of energy resources like coal and liquefied natural gas, could even benefit from rising oil prices, says Saul Eslake, chief economist at ANZ Bank.
But in the Philippines, higher fuel costs are exacerbating an already sluggish economy, and the government has taken emergency measures, including requiring government offices to cut power use by at least 10 percent.
The government is also considering reinstating a four-day work week for government offices to save on energy costs. The government saved 144 million pesos (US$2.57 million) in power and fuel expenses when it implemented a shortened work week in April and May.
Chief News Editor: Sol Jose Vanzi
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