Politics abhors a vacuum
Three news items barely registered with the public over the past few weeks. The World Bank, which had lowered its growth projections for the Philippines last year, said it was maintaining its forecast for this, and next, year, as it expected consumption to be strong, based on possible infrastructure spending (an “if,” expressed in the dry language of economists as follows: “The government’s ability to carry out its investment spending agenda will determine if the Philippines can achieve its growth target of 6.5-7.5 percent over the medium term”).
Less of an “if” was the other reason it expected consumption to increase: the senatorial elections next year.
A ratings agency (Fitch) said it was maintaining its rating for the country, but mentioned that the Philippines faced “lower income per capita and weaker governance and business environment indicators compared with its rating category peers.”
The IMF’s yearly visit, meanwhile, took place in mid-July. In its technocratic style, the IMF mission opined that if the Bangko Sentral essentially gets up to speed, in contrast to its recent performance showing it was behind the curve; if the economic managers manage to trim the deficit (the IMF suggests 2.4 percent of GDP, but our economic managers want 3.2 percent of GDP); if the Department of Finance gets its (unpopular) rationalizing of tax incentives for investors through Congress; and if political risk in the form of proposals for federalism were managed in a rational manner, then things would continue to look promising (that’s a lot of “ifs”).
What they had in common was expressions of concern over the economy “overheating,” which happens when growth increases at an unsustainable rate: demand exceeds supply, which makes prices go up, and the result is inflation. (An example given quite often by business owners is that there are jobs available, say for bookkeepers, but not enough qualified people in the market to fill the vacancies; existing staff are overburdened, efficiency decreases, or growth cannot meet potential.) The rise in prices due to inflation then makes consumption go down—what we all understand as a boom-and-bust cycle.
In very basic terms, the insistence of the President’s economic team on TRAIN-triggered inflation, which, combined with the Bangko Sentral’s slowness to react to the inflation spike, has caused concern. In the meantime, trade disputes are the order of the day and economic protectionism is on the rise. Thus, nations like ours, which have an economic umbilical cord to foreign markets for our labor and some goods, might find that umbilical cord pumping in less money than before, as jobs abroad dry up and exports find fewer markets in a global economy where demand decreases, while the prices of commodities are expected to increase (driving up costs).
These concerns might be passing bumpiness in the medium to long term. But, combined with political uncertainty — due to a combination of the President’s hands-off style, plus, until recently, unnecessary aggressiveness on the part of former speaker Pantaleon Alvarez with his no-election and brute-force Charter change schemes — they might stall things, when momentum should have been building for the economy. After all, uncertainty leads to hesitation among investors, foreign and domestic alike. And where business is undecided, the public, on the other hand, always fickle, can lash out at the most inconvenient times, such as midterm elections.
Something had to fill the vacuum in governance, and it turned out to be Speaker Gloria Macapagal Arroyo. This is not to say she has the actual answers, but the sort of people uneasy over current trends are precisely the type who might find her a comforting presence. Because, however exciting his style of governance might be, no one believes the President has a clue about what to do about these trends.
GMA, however — aside from projecting being in charge, by means of a photo opportunity in the gigantic Speaker’s Office where she was shown wagging a finger at the President’s economic team (the Secretary of Finance looking particularly glum at the far end of the table) — had the President make the point for her when he said that, before she became Speaker, she’d called him up to do something about inflation.
Since then, the economic managers have rather sourly conceded that the Speaker has proposed at least five measures to them. As Budget Secretary Benjamin Diokno grumpily put it, “She seems to be very concerned with inflation.”
