Jack The Scribbler

“Today marks a historic moment for all Filipinos. We have taken the first step in terminating an agreement that was executed in 1947 during the days of lingering US colonialism. This morning’s action of the Philippine panel signals to the nation a resolve to chart a new and truly independent course in which all dealings with foreign governments shall uphold the dignity and sovereignty of the Philippines. All Filipinos must bear in mind that ours is one nation, with one future. We must continue to build a nation which is peaceful, prosperous and proud — a nation for ourselves and for our children.”

— The Philippine Government, represented by the Philippine Panel on the US Bases Exploratory Talks, issuing a Notice of Termination of the 1947 Military Bases Agreement on May 15, 1990, a day after both countries formally held exploratory talks about the matter at the  Central Bank (now Bangko Sentral ng Pilipinas) building in Manila. The announcement above was read by panel spokesperson and then Tourism Undersecretary Rafael Alunan (who would later become Local Govt. Secretary) and cited in the book, A Matter of Honor: The Story of the 1990-91 RP-US Bases Treaty written by ex-Department of Health (DOH) Secretary Alfredo R. A. Bengzon, who was vice-chair of the Philippine panel

While at the helm of the Philippines' central bank, Amando Tetangco Jr. was able to help boost economic growth to its highest levels in more than three decades.

[Blogger’s note: Here’s another piece — an editorial — written by Arnold Tenorio, the Manila Times’ business editor, for the paper’s February 21, 2011 issue. The piece may be “dated,” he himself told me in an email message, since “it was written before the BSP raised policy rates.” [See: Manila Times]
“But I believe the value of this piece is that it pointed out the structural impact of OFW [Overseas Filipino Workers’] remittances and to a lesser extent of the BPO [business process outsourcing] sector not only on the [Philippines’] external payments position, but also on GDP [Gross Domestic Product], particularly PCE [personal (or private) consumption expenditure],” his email said. “As always, I appreciate a little space in your precious blog. Thanks.” (Yeah, right.) So here you go, another piece by Arnold.]

THE Bangko Sentral ng Pilipinas (BSP) forecast of a seven to eight percent growth in the country’s gross domestic product (GDP) this year is the boldest official pronouncement yet of what’s in store for the domestic economy this year.

Speaking before members of the country’s organization of business journalists, BSP Gov. Amando M. Tetangco Jr. said GDP growth would come in faster than the 34-year record of 7.3 percent last year given the uneven growth trajectories of the advanced economies on the one hand, and their emerging peers on the other.

The BSP chief also pointed to higher interest rate differentials, which have benefited emerging markets in terms of a greater share of capital flows.

In fact, monetary authorities recently raised their forecast for the country’s balance of payments (BOP) to reach $6 billion to $8 billion this year, and our gross international reserves (GIR) to hit a record $70 billion.

Aside from these international developments, Tetangco pointed to the BSP’s macro-prudential measures, which have prevented asset bubbles from emerging in the Philippines.

According to the governor, asset valuations in the country have yet to reach bubble-like proportions because of the strong underlying macro-fundamentals and the BSP’s prudent regulatory framework, which has provided safety valves and has channeled resources to those sectors that most need them.

All these local developments have contributed to the country’s low and stable inflation, in stark contrast to the surge in prices among neighboring emerging markets.

This is why, the BSP insists, they are not behind the curve as far as monetary tightening is concerned.

According to our monetary authorities, the Philippines has been among the few countries that have enjoyed positive real interest rates, thus requiring no policy tightening despite the return of what appears to be the inflation surge of 2008 all over again.

In the Philippines, inflation last year averaged 3.8 percent, at the low end of the central bank’s target of 3.5 to 5.5 percent.

A crucial factor explaining this low inflation environment is the country’s ample GIR, which in turn is a function of the Philippines enjoying BOP surpluses in recent years.

Last year, our GIR grew by 40 percent to $63.608 billion from $45.591 billion in the same period in 2009, reflecting a new record high.

The country also registered a BOP surplus of $14.403 billion, or 124 percent higher than the 2009 surplus of $6.421-billion. The 2010 surplus was more than $6 billion higher than the revised $8.2-billion forecast for the period.

Largely contributing to this whopping performance was the rebound in exports, as global trade flows recovered from the slump of the previous two years.

In the particular case of the Philippines, two other factors that led to the robust external payments position were the resilience of overseas Filipino worker (OFW) remittances and the country’s growing share of the outsourcing and off-shoring market.

Money sent home by OFWs rose to a new record of $18.763 billion, slightly exceeding the BSP’s forecast of $18 billion for 2010.

As for the country’s share in the global outsourcing pie, anecdotal evidence points to the Philippines’ lead as far as employment levels in the call center segment alone are concerned.

What the two phenomena — rising OFW remittances and call center employment — suggest is that the Philippines not only has strong sources of foreign exchange besides the traditional external trade of merchandise goods.

Equally, if not more important, is that the country has a steady and growing source of dispensable income, which fuels personal consumption expenditure (PCE), heretofore the main engine of Philippine economic expansion.

That PCE didn’t contract owed to the steady income of these two demographic groups — OFWs and call center agents.

They are the heroes who helped prop up the Philippine economy amid the worst global financial crisis in decades, and — we suspect — the same groups that would sustain our growth this year and well into the medium term.

Companies are aware of the two groups’ economic influence, and have since deployed their marketing efforts to corner a piece of their incomes.

We hope the government likewise would realize this potent force that has prevented the domestic economy from unraveling during the depths of the recent global crisis.

From where we stand, the OFWs and call-center workers most likely will be responsible for a big chunk of the bold economic growth forecast set by the BSP.

Philippine fuel companies, including the one shown above in this November 2009 file photo, have been prompted to hike pump prices, no thanks to higher costs in the world market. From January to April this year, a total of eleven oil price increases have been reported. Photo by Nonie Reyes

[Blogger’s note: This is another contribution from Arnold S. Tenorio, the Manila Times’ business section editor, who wrote this as an editorial for his paper that came out on March 14, 2011. He holds an MBA degree from the University of the Philippines and the distinction of being the only contributor for this website. His first contribution was an assessment of President Benigno Aquino III’s Daang Matuwid (Straight Path). See: Manila Times, Arnold Tenorio]

As oil revisits the record-high of 2008, it has become fashionable to debate over whether or not to impose price controls, and whether or not to extend subsidies to the poor.

The debate becomes more querulous since more expensive crude cascades into higher prices of other commodities, including food.

The government, the business community, and orthodox economists are one in dismissing price controls as counterproductive, supposedly worse than the problem they are aimed at solving.

To rehearse the argument, price controls create artificial shortages, since other things being equal, producers would rather not sell at a loss, especially if demand is strong. The shortage encourages a black market to emerge for the commodity whose price is controlled. As a black market, the price is set erratically, sometimes at rocket-high levels to reflect the pent-up demand for the controlled commodity.

In any event, the non-poor are the heaviest users of oil, thus only this group stands to benefit from any price control. So far, so good.

But in the same breath, those who argue against price controls also push for fuel subsidies for the poor – and herein lay the problem.

The argument for subsidizing the poor’s fuel consumption rests on the assumption that more expensive oil would leave them with little to spend on more essential items such as food, health care, education, among others.

The trouble with this line of thinking is that the poor, having been spared from the burden of costlier fuel, have no incentive to economize on this commodity.

Witness here the hordes of public utility vehicles (PUVs) — jeeps, buses, and tricycles — that have apportioned for themselves lanes upon lanes of otherwise public roads while waiting for commuters to emerge from their places of work or school, or to alight from the overhead trains.

As if the public nature of these infrastructures gave PUVs the license to transform these roads into terminals and parking lots!

In appropriating the roads, PUV drivers not only clog up byways and constrain access by other motorists. Worse, PUV drivers leave their engines idle, wasting so many liters of fuel and in the process generating pollution. Imagine the health costs not only on the drivers, but also on commuters, who include children.

Especially in the case of a commodity like oil, a free market characterized by rising prices naturally bring down demand, thus helping reduce the aforementioned externalities.

Besides pollution and its consequences on the health of people and the environment, irresponsible consumption of oil leads to the waste of this fossil fuel, as well as of scarce foreign exchange that could have been used for other more productive activities.

And all because the government and oil companies grant the “poor” PUV drivers — and by extension, their operators — fuel subsidies.

Another problem with subsidizing only the poor’s fuel use is that this policy is blind to the differential impact of rising oil prices on members of the so-called non-poor.

The non-poor is not solely the rich.

Counting among the non-poor — and comprising the bulk of them — is the middle class, whose numbers increased throughout the country’s recent growth spurt alongside the boom in the overseas Filipino worker (OFW) diaspora.

By lumping them with the rich, the middle class suffers from rising fuel prices in more ways than one. As members of the non-poor, the middle class help pay for the fuel consumption of the poor under the oil companies’ cross-subsidy pricing scheme.

Many members of the middle-class are also subject to the withholding tax system, thus, unlike the rich, see their incomes reduced every month automatically. For like the poor, many in the middle class don’t have price escalation clauses in their work contracts, leaving the latter equally vulnerable to inflation.

Now a portion of the taxes withheld from the middle class find their way into financing the government’s outright subsidies for the poor. The irony of it all is that, with the government faced with a budget deficit, public services availed of by the middle class not only enjoy no subsidy, but are usually subject to rate increases to plug the fiscal gap.

So it’s not the poor who end up with the short end of the stick during rising oil prices. At least they have subsidies. Not so for the middle class.