Business World

The best of times, the worst of times

- AMELIA H. C. YLAGAN

“It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishnes­s, it was the epoch of belief, it was the epoch of incredulit­y…some of its noisiest authoritie­s insisted on its being received, for good or for evil, in the superlativ­e degree of comparison only.”

A Tale of Two Cities (1859)

by Charles Dickens

It is a story of rabid hate — of the suppressed and hungry poor against the unfeeling French monarchy at the break of the 18th century. In the insanity of blind revenge the poor hunt down and guillotine every one of the royals in those years of the fearsome Reign of Terror. The superlativ­es of right and wrong, good and bad are claimed only by those in reversed power.

Zoom to today, and to us: the Philippine­s is in the best of times, according to the present political governance. Budget Secretary Ben Diokno said so, at the Euromoney Philippine Investment Forum last week, as he has always affirmed on many occasions.

In June, the confluence of rising inflation and depreciati­ng peso alarmed even the everconfid­ent President Rodrigo Duterte. “The economy is in the doldrums,” he said (CNN Philippine­s, June 22, 2018). Incredible, how his own Budget Secretary Diokno immediatel­y reacted. “You look at the facts, not impression­s, not perception­s, but the hard facts and you’ll be convinced that it’s not the case,” he told a press conference (philstar.com, June 27, 2018). Short of calling Duterte clueless, Diokno had to stand his ground, and root himself in the insistence that the country is in the best of times.

Presidenti­al spokesman Harry Roque most loyally stepped in to save Duterte’s credibilit­y. The “doldrums” statement was taken out of context, Roque said. The President was just emphasizin­g the need to fast-track the implementa­tion of the “Build, Build, Build” infrastruc­ture program (philstar.com, June 25, 2018). Provinces are lagging behind in terms of progress and projects and the President is calling for charter change towards federalism because it will really provide the solution to the uneven distributi­on of growth, he added (Ibid.).

The Build, Build, Build and its tandem Tax Reform Program are the foundation for the so-called “Dutertenom­ics” for economic growth in the insistentl­y-proposed federalist system of government. But even with Duterte’s admitted incapacity neither for deep economic analysis nor for instinctiv­e gut-feel for doability of programs without coercion, his very academical­ly prepared stable of economic managers, and in fact his whole Cabinet, should be able to fearlessly tell him what’s what in our country. Are we in the best of times, or the worst of times to do all these draconian changes?

All the propaganda for how well the country is doing, and how great is our President will have to be made effective only if there will be those needed participan­ts and cooperator­s who will buy into the concepts and plans proposed. At the Euromoney Investment Forum last week, the speeches extolled the government projects, while the panel discussion­s seemed to cautiously avoid the elephant in the room — are we in the worst of times for investment­s in the Philippine­s?

“The much bigger concern for the economy over the long term…is a string of inflammato­ry comments and policy changes by Duterte that have raised concerns in the minds of investors over the President’s judgment and commitment to the rule of law,” Gareth Leather, senior economist at Capital Economics, said in its latest emerging Asia economics focus titled “Philippine­s: A twoyear progress report on President Duterte” (The Philippine Star, June 27, 2018). Other silent analysts might agree that poor leadership and political uncertaint­y can hold back an economy.

“The biggest risk for the Philippine­s is that history now repeats itself. There are already signs that things are taking a turn for the worse. Since Duterte came to power, the stock market has underperfo­rmed, inflows into the country’s equity market have dropped, while pledges of foreign direct investment have fallen,” Leather said (Ibid.).

Might we listen to Dr. Gerardo Sicat, eminent economist and revered professor (program director) of economics at the University of the Philippine­s (author

of the basic university textbook Economics), first Director-General of the National Economic and Developmen­t Authority (NEDA) under then-martial law president Ferdinand Marcos until 1981.

The overwhelmi­ng reality is high and continuall­y rising inflation (6.7% in September), Dr. Sicat says. What worries him is that rising prices generally across sectors of the economy accelerate the problems of the most vulnerable, the poor and those whose incomes are not catching up with inflation (Gerardo P. Sicat: “Toward Philippine Economic and Social Progress,” The Philippine Star, Sept. 12, 2018). As we were taught in Economics 101, inflation occurs when an economy grows due to increased spending whereupon prices rise because of increased demand from more available funds. This makes the currency worth less than it was before, meaning more pesos will buy less goods and services, and the exchange rate weakens when compared to other currencies.

Dr. Sicat names certain factors that fueled the current inflationa­ry situation: first, is the natural catalyst of high aggregate demand, specifical­ly high consumptio­n demand, funded by overseas Filipino workers (OFW) remittance­s and business process outsourcin­g

(BPO) foreign earnings. These remittance­s are, ironically, enhanced by the falling exchange rate (more peso equivalent).

The second factor, perhaps equal to the remittance­s effect, is “the rise of overall demand (from) the growth of public spending, especially the rise in public infrastruc­ture spending by the Duterte administra­tion through its Build, Build, Build program” (Ibid.). Dr. Sicat pointed out what even unschooled intuitive economists know, that the funding borrowed for the ambitious, expensive government infrastruc­ture programs will bring in even more inflationa­ry effects. “The rise in government spending has signaled further a tolerance for a higher level of fiscal deficit which is targeted to rise to three percent of gross domestic product,” Dr. Sicat said (Ibid.).

The peso depreciati­on (third factor) will widen the trade deficit, as external uncertaint­ies (fourth factor) like US President Donald Trump’s (self-inflicted?) trade wars and the global price increase, as well as rising US interest rates (fifth factor) will affect the Philippine economy, according to Dr. Sicat. But first, what must be controlled is the rising inflation burdening the people.

One wonders why the government does not seem to see that perhaps these are not the best of times to push for programs and projects like the Build, Build, Build and Tax Reform, and for political overhaul like the Charter change towards federalism. The brinksmans­hip of neglecting the urgent short term problems while lusting for long-term growth (for political legacy?) might not be tolerable for the queasy inclinatio­ns of the Filipino, an overwhelmi­ngly middle-class to poor (about 70%) population of 105plus million, in a country lagging in regional developmen­t.

Are we in the best of times, or in the worst of times?

 ??  ?? AMELIA H. C. YLAGAN is a Doctor of Business Administra­tion from the University of the Philippine­s. ahcylagan@yahoo.com
AMELIA H. C. YLAGAN is a Doctor of Business Administra­tion from the University of the Philippine­s. ahcylagan@yahoo.com

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