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Oil Plunge a ‘Golden Opportunity’ for Asia Economies

Oil Plunge a ‘Golden Opportunity’ for Asia EconomiesOil Plunge a ‘Golden Opportunity’ for Asia Economies

The plunge in crude prices will give a much-needed boost to Asia’s oil-guzzling economies and provides governments a “golden opportunity” to implement crucial structural reforms such as cutting expensive energy subsidies, analysts say.

A slowdown in the key export markets of Europe, China and Japan, the end of US stimulus measures, and an expected US rate hike – fuelling a flight of foreign cash in search of better returns – has left some governments having to make tough decisions to get back on track, AFP said.

But experts say lower oil prices would ease inflationary pressures throughout much of Asia, allowing many central banks to either keep monetary policy on hold or reduce interest rates.

And the Asian Development Bank last month said developing countries could see an additional 0.5 percentage point of growth on average this year if oil prices remain low.

However reforms are needed, analysts say, and among the most crucial and controversial is the removal of fuel subsidies, which in the past been the catalysts for sometimes violent protests across the spectrum, from the impoverished to the region’s growing middle class.

While global equity markets are being strafed by a continuing slump in the prices of black gold – they have fallen more than 50 percent since June to five-and-a-half-year lows – analysts said countries should grab the opportunity and move now.

  Subsidy Cuts

Malaysia, Indonesia and India have already made cut to the populist but economically disastrous subsidies, which have contributed to government fiscal deficits.

Shang-Jin Wei, chief economist at the Manila-based ADB (Asia Development Bank), said in a statement that easing oil prices “present a golden opportunity” for oil-importing countries to introduce the reforms.

And Rajiv Biswas, Asia Pacific chief economist at global consultancy IHS, warned if they fail to move, leaders “will miss the window of opportunity and face public resistance to removal of fuel subsidies if oil prices strengthen significantly in future years”.

Previous efforts in Indonesia to slash fuel subsidies sparked violent protests, but the country’s new president Joko Widodo has vowed to tackle the problem despite risks to his popularity.

  Respite

The softer crude prices will also provide some respite for the region’s oil-reliant economies, facing global headwinds from slowing in their key export markets.

Biswas said “most of the Asian economies are large net importers of oil and gas, and will benefit from lower oil import costs and significantly reduced fuel costs for consumers”.

“This positive boost helps to mitigate the negative effects of China’s moderating growth rate and Japan’s slump back into recession in late 2014,” he said.

Analysts expect India, Asia’s third largest economy, to be a major beneficiary as it imports nearly 80 percent of its oil needs. Like China and South Korea, the lower prices should keep inflation in check and allow the central bank to implement much-needed interest rate cuts with less fear of stoking inflation.

 

Financialtribune.com