Grumpy old men
The week began with an analysis in the Financial Times that says the peso is likely to weaken some more, with two trends contributing to this weakening. The first is a slowdown in the growth of remittances from abroad (remittances from the Middle East have actually been decreasing); and, second, a similar slowdown in the growth of the BPO sector.
A weaker peso also drives up the costs of manufacturing, affecting exports, while imports are expected to increase if government manages to embark on the infrastructure it’s promised, widening the trade gap. Companies that borrowed when the peso was stronger, and foreign currency cheaper, now have added interest costs. And if the central bank increases the cost of lending to counter inflation, there’s less credit to be had, slowing down business expansion.
The Financial Times analysis says rising prices has hit the poor the hardest, while the middle class has been “cushioned” from the effects of price increases due to the reduction in income tax under TRAIN 1. But if anecdotal evidence is any guide, talk in business circles of an increase in the repossession rate of cars suggests that this cushioning may be more theoretical than real. What is less a matter of conjecture and more of an observable trend is that investment pledges are down, as expansion plans or new projects are put on hold to see whether TRAIN 2 (which the business community seems to widely oppose, at least in terms of the components that would scrap investor incentives) pans out or not.
As it is, business, which had been interested in political proposals only to the extent that they help or hinder the economy, can’t be too happy about the consultative committee on Charter change appointed by the President. The committee essentially retained the economic provisions that business had wanted scrapped. Without any loosening of the economy, all a new constitution would signal to business is that, aside from the extortions of the national government and mulcting by the local government, a third level—the regions or federal states—would now enter the picture, eager to milk the already sore udders of businessmen large or small.
And this, in fact, is the realization that’s dawning on business people: Where formerly people could discount political risk because it was considered divorced from commercial risk, we’re sliding toward a lose-lose situation where political and commercial risks are increasing.
Over the past couple of years, there used to be a kind of conventional wisdom that was applicable to domestic events. However chaotic, crazy or disruptive the political players seemed to be, the economic managers, according to this conventional wisdom, were prudent, responsible and dedicated to continuity. In other words, this thinking went, the country had the best of both worlds: an administration whose president knew how to play to the gallery, thus maintaining national morale, but who had the fortuitous combination of ignorance and lack of interest in economic matters to leave well enough alone.
This belief began to be shaken when the President began using the economic team to help in his political agenda, and when the economic team incautiously used the President as a blunt instrument to accomplish its plans. Mighty, Mile Long, TRAIN, to name just a few incidents, might still be excusable, except success in these fronts seems to have fostered a sense of infallibility that began to manifest itself in what business considered weird behavior on the part of the economic managers.
A particularly disastrous performance—because unsettling, with its perceived petulance and angry old man unreasonableness—by the secretary of finance in Singapore, combined with similarly blithe, antique behavior on the part of the budget and economic planning secretaries, began to make businessmen think the conventional wisdom all along was wrong. The country is neither prudent, nor all that responsible, nor committed to continuity.
We’re entering uncharted waters, politically and, to a certain extent, economically, under increasingly erratic, geriatric command.
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