Malaysia reviews price controls after vote

By Mark Bendeich

KUALA LUMPUR (Reuters) - Malaysia is reviewing price controls with a view to adopting a more free-market approach, the domestic trade minister said on Monday, portraying the move as a response to voter demands for reform.

The ruling coalition suffered its worst ever election setback earlier this month. It retained a simple majority but came under huge pressure to hasten change.

The government estimates it will spend 10.2 billion ringgit ($3.2 billion) on subsidies this year, or about 8 percent of total government operating expenditure, with the biggest burden being the cost of keeping fuel prices among the lowest in Asia.

It also subsidizes items ranging from rice and sugar to steel and cement under a system that sometimes gives firms a monopoly or oligopoly over the supply of price-controlled items. Marketed as poverty alleviation, the system benefits favored companies.

Domestic Trade Minister Shahrir Samad denied a local media report that he had already decided to lift price controls on some essential goods, but said Prime Minister Abdullah Ahmad Badawi had given him just two months to review options and take action.

"We have been encouraged by the PM to take a fresh look at everything, putting the interests of the people first," he said in a phone interview. "That means re-looking at price controls."

He stressed the review would look very closely at the supply arrangements for price-controlled items.

"I am thinking of a free market and a more market-directed (approach) rather than trying to put in price controls which may not work at all," Shahrir added.

The local currency firmed on the minister's remarks. The ringgit was bid at 3.206 against the dollar at 0913 GMT, having firmed to 3.183 earlier.

"TIME FOR ACTION"

Shahrir said energy-related subsidies were being reviewed by the government's Economic Planning Unit and was not subject to the two-month timeframe, but he called for a public debate on the general system of price controls and how they operated.

"It's all about change...It's time for action and if there's a need for change, then let's change," he said.

The ruling coalition suffered the heaviest setback in its 50-year reign at general elections on March 8, losing its two-thirds majority in federal parliament and surrendering control of five states to opposition parties.

The prime minister made big changes to his cabinet last week, but subsidy reform was not expected so soon, given that rising prices also cost him votes at the polls.

Asked why the government was reviewing the subsidy system at a time when voters were already unhappy with the cost of living, Shahrir said the government wanted to focus on the supply side, not just look at slapping price controls on certain items.