Inflation Crisis Undermines Asian Governments

SPIRALLING prices for food and fuel have claimed their first political casualties in Malaysia and Pakistan, and threaten other Asian governments forced to impose subsidy cuts even as elections loom.

Malaysia's ruling coalition suffered its worst polls setback in half a century in March, as voters registered their fury over the government's inability to rein in the rising cost of living.
And when President Pervez Musharraf's party was trounced in Pakistan's February elections, high food prices and shortages of flour and oil were seen as more influential than the nation's political traumas.

New fuel price hikes have triggered protests and strikes in Malaysia and India in recent days, and Indonesia has seen a series of demonstrations in several cities.
'In any country that has elections coming up within the next two years, inflation and how the government wrestles with the problem will be important,' said Mr Robert Broadfoot of the Political and Economic Risk Consultancy.

'So therefore we're talking about India, the situation in Malaysia is still not finished yet, in Indonesia you've got elections next year, and the Philippines in 2010,' said the Hong Kong-based analyst.

Malaysia's government was forced to impose a hugely unpopular 41 per cent price hike last week, after being faced with a cost of US$17 billion (S$23.2 billion) - a third of the national budget - to underwrite some of Asia's cheapest fuel.

In a situation mirrored across the region, Prime Minister Abdullah Ahmad Badawi had to choose between cutting subsidies the nation can ill afford, and shoring up his ever-dwindling popularity.

Coverage of Pakistan's elections focused on the assassination of former premier Benazir Bhutto, but as the vote approached there were long queues outside stores and flour dispensaries, and fist fights over supplies.

Ms Bhutto's Pakistan People's Party and the party of ex-prime minister Nawaz Sharif won the polls and promised a solution to growing economic problems - although food prices have continued to rise.

Ms Bridget Welsh, a South-east Asian expert from Johns Hopkins University, said even when oppositions cannot offer a viable alternative, inflation is an avenue for a protest vote against flawed governments.

That threat encourages administrations to adopt short-term policies to appease voters, instead of introducing painful but necessary reforms.

'Now with inflation being really significant, you have a situation where they're going to the polls and their decision-making space will be much more narrow,' Ms Welsh said.

'I think it's going to become more important than it has been in Southeast Asia's history since the 1970s, in part because so many of the governments rely on economic performance for legitimacy.'

In India the Congress party-led coalition is desperate to tame inflation, which is headed for peaks not seen in a decade, as it braces for a voter backlash in national elections by May 2009.
The latest fuel price hike triggered protests and strikes in several states, and calls for Prime Minister Manmohan Singh to resign.

Congress has already suffered a string of state poll defeats, in which rising prices were a key factor, having impacted particularly hard on India's hundreds of millions of poor whose support is vital.

The government is fearful of the so-called 'onion factor' which says that if dietary staples become too costly for India's poor, politicians are in trouble.

Mr Broadfoot said the issue of rising prices is extremely difficult for governments to handle as the problem is the result of complex underlying problems in fast-developing economies.

'It's not the inflation rate per se, you've got that broader context of the slower-growing pie, slower-growing incomes, subsidies not working, and other problems not being addressed,' he said.

Subsidies and intervention measures cause their own problems, including in Malaysia where suppressed prices of cooking oil produced severe shortages and panic-buying, he said.

In Indonesia, President Susilo Bambang Yudhoyono has taken a major political risk by slashing fuel subsidies despite the widespread protests and fears of price-driven unrest ahead of elections next year.

The price hike of an average 28.7 per cent was seen as essential as the forecast subsidy bill for 2008 tripled, but helped push May inflation to 10.38 per cent - in double digits for the first time in nearly two years.

The Philippines is not scheduled to hold national elections until 2010 presidential polls, but President Gloria Arroyo says she is keeping a 'laser focus' on soaring rice prices, which helped inflation reach 9.6 per cent in May.

The nation is one of the world's top importers of grain and the military and police are helping avoid food riots by ensuring poor neighbourhoods get adequate supplies at state-subsidised prices that are half the market rate.

Inileev Admits Lack Of Edge

TASHKENT – Uzbekistan coach Rauf Inileev admitted that his side may have lacked a cutting edge against Singapore on Saturday following their big win against the Lions earlier in the week.

The Uzbeks become the first team to reach the final round of the Asian World Cup qualifiers thanks to substitute Alexander Geynrikh, who scored the only goal of the game 10 minutes from time. But their 1-0 win at the MHSK Stadium was a far cry from the 7-3 victory they recorded in Singapore six days earlier.

“I was worried before tonight’s game because we scored seven goals in our first match and I thought that the players might underestimate how strong the Singapore team are,” said Inileev.

“I’m sure that our opponents did not deserve to suffer such a big defeat and it’s always difficult to play with team which you beat easily just one week ago as you lose some motivation and concentration.

“It was tough match and we were lucky to win this time.

“Singapore played attacking football in the first match but they totally changed their tactics today and played a defensive game which made them very difficult to break down.

“But Alexander Geynrikh proved he worth coming on as a substitute. I’m happy that he became our hero in this match and scored the crucial goal.”

Singapore coach Raddy Avramovic admitted that his team had learnt their lesson from their heavy defeat earlier in the week.

“We learned enough from our last match,” said the Serbian.

“We analyzed all aspects of Uzbekistan’s team play and we realized that it is very dangerous to play open football against them.

“We paid strong attention to our defence but unfortunately, they broke through and we lost again.

“I do not believe that Lebanon can beat Saudi Arabia and I believe that we may have missed our chance of qualifying. However, we will continue to battle in our upcoming games.”

Hamilton In A Class Of His Own In Montreal Qualifying

Not even a flying Robert Kubica and a track that was breaking up in places could stop Lewis Hamilton in Montreal on Saturday afternoon, as he planted his McLaren on pole position for the Canadian Grand Prix.

BMW Sauber’s Kubica had actually taken provisional pole away from him with a lap of 1m 18.498s compared to 1m 18.886s when Hamilton began his final run, but even though there were marbles in Turns Two, Seven and 10, the Briton somehow found another six-tenths of a second to put pole beyond reach with 1m 17.886s. He described himself as extremely comfortable with the car.

Neither of the Ferraris really got going in qualifying, as Hamilton dominated every session. In the end, Kimi Raikkonen placed his third with 1m 18.735s, but an unhappy Felipe Massa was only sixth on 1m 19.048s. In between them came Fernando Alonso with 1m 18.746s, but the Spaniard may again be using the light first-run strategy that Renault employed in Spain. Behind him, Nico Rosberg placed his Williams fifth, with a strong 1m 18.844s best.

Heikki Kovalainen was seventh in the second McLaren, with 1m 19.089s, leaving Nick Heidfeld eighth on 1m 19.633s for BMW Sauber and Rubens Barrichello ninth for Honda on 1m 20.848s.

Mark Webber will start 10th, but did not run in Q3 after spinning his Red Bull exiting slippery Turn Seven and damaging the right front suspension at the end of Q2.

That session saw Timo Glock out-qualify Toyota team mate Jarno Trulli for the first time, with 1m 18.031s to the Italian’s 1m 18.327s. Trulli had two spins, and will start 14th. Separating the TF108s are Kazuki Nakajima, who lapped his Williams in 1m 18.062s and David Coulthard with 1m 18.238s for Red Bull.

Sebastien Bourdais was 16th overall on 1m 18.916s for Toro Rosso, but was the fastest runner to be eliminated in Q1 and will start at the back after needing his gearbox changed this morning. Team mate Sebastian Vettel will be with him. He didn’t run at all in qualifying as his STR3 needs a new monocoque after his crash this morning.

The Force Indias of Adrian Sutil and Giancarlo Fisichella will thus start 16th and 17th on 1m 19.108s and 1m 19.165s respectively. Jenson Button was 19th overall and will start 18th, his troubled Honda recording only 1m 23.565s thanks to gearbox problems.

The track surface is already occupying everyone ahead of a race in which safety cars are also expected to play a crucial role, such is the unforgiving nature of the Circuit Gilles Villeneuve’s walls.