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Peter Kammerer

Governments are struggling to fend off the economic impact of spiralling energy costs

Asian countries risk losing the economic gains made since the 1997 financial crisis if crude oil prices remain high, analysts said this week.

With inflation already rising in some countries as prices hover at near-record levels, governments are looking for ways to cushion the impact.

Subsidies on oil products, most evident in Malaysia and Thailand, are under increasing strain, prompting emergency meetings of energy officials.

Oil has also become political for  candidates in next month's presidential election in Indonesia, and the Philippines' recently elected president Gloria Macapagal-Arroyo, who is controversially considering a petrol tax to raise much-needed revenue.

Prices could also be a significant factor in next year's general elections in Thailand if they remain high.

A recent study by the inter-governmental International Energy Agency concluded that if high oil prices were sustained for a year, Thailand would lose 1.8 per cent of gross domestic product, the Philippines 1.6 per cent and India 1 per cent.

Oil exporting nations China and Malaysia would be less exposed, although would still experience respective cuts in GDP  of 0.8 per cent and less than 0.4 per cent.

The director of the agency's oil markets and emergency preparedness office, Kenji Kobayashi,  said on Thursday the impact for Asia  would be considerable given the region's high dependence on oil imports.

Although Asia produces only 10 per cent of the world's oil, it uses more than a quarter of global supplies. Industrialisation has created expanding demand, most notably in China and India. Oil imports are estimated to have cost India US$15 billion - about 3 per cent of GDP - last year.

'Sustained oil prices of US$45 a barrel and above will cause inflation in coming months followed by a hampering of economic growth,' Mr Kobayashi warned from his Paris office.

'They have to make efforts in their macro-economic and energy policies to reduce the effects.'

Although Asian countries have been  turning to natural gas and  improving energy conservation, oil remains the primary power source.

The Singapore-based head of the Centennial Group consultancy's economic research practice, Manu Bhaskaran,  concluded that China, India, South Korea and Thailand would be worst hit by rising prices. Indonesia, Malaysia and Singapore were better placed to weather any economic turmoil.

Global growth would slow as oil prices rose, reducing the demand for exports from the region, he said. The more open a country's economy, the greater the impact.

Malaysia was better placed than most other countries because of the revenues it would earn from higher oil prices. Indonesia was also in this situation, although would benefit to a lesser extent, Mr Bhaskaran said.

Singapore, which had become oil-rich because of its role as a major oil refining centre, would also gain through increased refinery margins. Higher global prices also meant more oil and gas exploration in the region.

Nonetheless, Malaysia on Thursday said it would have to review subsidies because losses to the government were becoming a burden.

Indonesia, Thailand and India would also have to rethink their subsidies, Mr Bhaskaran said.

'Higher oil prices have created policy dilemmas for governments,' he said.  'Raising oil prices means inflation goes up and that affects the economy. They're caught in a bind, but they have no choice but to bite the bullet.'

Asian Development Bank economist Park Cyn-young determined in a study of the impact of a US$10 a barrel oil price rise on 10 Asian countries that the Philippines, Thailand and Singapore would fare worst. Trade balances would be impacted the most.

If oil prices were to remain above US$40 a barrel until the end of next year, inflation in Asia, not including Japan, would rise by more than 1 per cent and real income would fall by 0.8 per cent, or US$28.8 billion,  her report said.

But Ms Park doubted this week that the present price rises would be as severe in impact as those in the 1970s and 1980s.

'Even at US$50 a barrel, Asian countries will be able to cope,' Ms Park said.



Oil price rise poses huge risk to Asia