Asia Hard Hit by Oil Price Hikes ; with Its Dependence on Fuel Imports and Subsidies, the Region's Economic Weaknesses Are Exposed
Robert Marquand writer of The Christian Science Monitor, The Christian Science Monitor
Mukesh the Delhi auto-rickshaw driver scrapes by as it is.
Karina's family of fish sellers in Jakarta is paying a budget- straining 12 cents a gallon for gas.
And now, an oil price rise.
Developing nations, particularly in Asia, take the brunt of oil price shocks. The latest rise isn't likely to completely undo the Asian economic recovery. But it has left many governments - and consumers - scrambling to adjust to the new reality.
India, for example, imports 70 percent of its oil, and heavily subsidizes the local pump. Each dollar rise in a barrel of crude costs the Indian government $400 million in hard currency. Those costs are projected to rise from about $10 billion to as high as $21 billion this year - a figure Indian analysts say matches spending on education and defense.
As a result, last week Indian officials announced a 10 percent cutback on new government jobs, and a year moratorium on filling vacant jobs - though it also delayed passing along higher prices to consumers, because of concerns about the possibility of strikes similar to those that European truckers mounted this summer.
"For us, this comes like a bolt out of the blue," says C.D. Wadva of the Center for Policy Research in New Delhi. "We were hoping to tread the path of incremental growth, and we never planned for any big shocks."
Even as recovery from Asia's economic meltdown of 1997 is still taking hold, rising oil prices are acting as a wet blanket of uncertainty across the region.
Few analysts think oil fluctuations will spark a crisis of the kind that blindsided the global economy just three years ago. Even though oil-dependent Asia leads the world in growth of demand, the region is performing strongly enough so that an oil hike by itself can't flatten its economies, and some experts warn against fearful jitters.
Yet prices that jumped from $13 to more than $30 a barrel, plus weak currencies, high deficits, and, in recent weeks, large market swings, are dampening optimism for a sharply higher Asian economic upturn.
"We fantasized during the 1990s about a Pacific or Asian century," says Cha Soiw Yue, an economist at Singapore University. "But after the crisis ..., we don't speak with that kind of confidence."
Last month the IMF's World Economic Outlook warned of a possible oil-related slowdown in the global economy. Asian states depend heavily on exports, and lower demand by belt-tightening Americans for electronics, auto parts, and other manufactured goods that Asia excels in could constrict growth.
Higher costs for crude threaten to exacerbate weaknesses peculiar to different Asian tigers - lack of investment in Indonesia due to instability, Thailand's struggle with a huge overcapacity and bad loans, and South Korea's 100 percent dependency on imported oil, to name a few.
Combined, such factors affect investor and local consumer confidence. In Southeast Asia, for example, direct investment remains down from a peak of $21 billion in 1997 to $13 billion today, said a report by the secretary general of the Association of Southeast Asian Nations (ASEAN), leaked recently to reporters. …