Turnaround

Only two months ago, the daily headlines about Philippine financial markets looked dire. The peso was hitting lower lows on a regular basis, threatening to breach its weakest level that was set 12 years ago. The stock market, too, was declining almost everyday as foreign investors took their portfolio funds elsewhere.

As a result of that, government data showed such so-called hot money recording net outflows almost every week, further weakening the peso and aggravating the problem of inflation by making critical imports like fuel more expensive.

Perhaps most importantly, interest rates were being restrained from rising by regulators who were in denial about the crippling effects these market elements could bring to bear on the Philippine economy.

Many voices and quarters—bankers, analysts, economists and investors—came out strongly to urge the Bangko Sentral ng Pilipinas to move against these volatile elements by acting more forcefully against the record-high domestic inflation rate. Earlier this month, the monetary authority finally abandoned its obstinate view that soaring prices of goods and services would correct itself without any intervention, and decided to raise interest rates by the highest level in a decade.

Almost at the same time, the other government units unveiled their own plans to mitigate the effects of high prices, recognizing the gravity of the inflation scenario that was putting even the most basic of goods beyond the reach of the poorest Filipinos.

What a difference two months can make.

Today, the peso has returned to relative stability versus the US dollar. The stock market has resumed a slow but steady uptrend. Portfolio funds are headed for equity, and debt markets have been in the black for the last four weeks.

And banks, which had been hesitant to lend funds because they felt that yields were artificially low, are beginning to extend credit again—money that will help lubricate the gears of economic growth.

Consumer prices remain on an uptrend, but there are indications that the rate of increases are decelerating due to a combination of factors, not least of which is the perception that authorities are now more willing to implement painful measures to rein in inflation. The immediate danger appears to be abating, thanks to the steps taken by the country’s economic managers, most especially the aggressive, if somewhat late, response of the central bank.

But make no mistake about it, the many threats to the country’s economy remain.

Despite some instances of imprudent talk, economic managers have lately shown a willingness to listen to the clamor of the people, and an openness to adopt solutions put before it by others when their own ideas fall short. What is needed now is for them to follow through with additional measures to ensure that this near-term market stability becomes a launchpad for real economic gains. Specifically, Malacañang should continue pushing for the implementation of long-term solutions that will put the country on more stable footing, even when the immediate threat of financial upheaval has passed.

Especially welcome is the BSP’s reaffirmation of its role as a guardian against inflation, and its stated willingness to implement another round of rate hikes to finally stabilize consumer prices. Equally welcome is the commitment of fiscal authorities to ensure that future editions of the tax reform program will be revenue-neutral, and not result in additional burdens on
ordinary Filipinos.

Finally, the administration must do more to deregulate the cartelized rice industry (undoubtedly against a strong status quo lobby) and address with decisiveness the inflation-causing rice shortages that have left places like Zamboanga City in a state of calamity because of the scarcity of the food staple.

The country’s economic difficulties seem to be stabilizing for now, and there is momentum for progress. Does the administration have the wherewithal to make these gains permanent?