Financial markets are, by no means, representative of an entire economy. But through their gyrations, they can highlight the good and bad developments about a particular country.
At their best, the marketplace for foreign exchange, stocks and bonds can serve as beacons that point stakeholders toward opportunities that could be exploited, or issues that need to be addressed.
In the case of the Philippines, last week’s meltdown called attention, in no uncertain terms, about local problems that demand the most urgent attention from policymakers to prevent things from getting worse.
The numbers say it all: over P400 billion in stock market value lost in the last four trading days, and the peso falling to its weakest in almost 13 years.
To make things worse, the latest surveys of the Bangko Sentral ng Pilipinas showed businessmen and
consumers being mostly pessimistic about their current and near-future prospects.
Government critics have scored the Duterte administration for missteps and blind spots that have led to the local economic situation seemingly getting out of hand, especially in terms of the nine-year-high inflation rate, now the highest in Southeast Asia, that has painfully eroded the purchasing power of the average Filipino.
Government policymakers, on the other hand, tend to dismiss such outside criticism and blame the current troubles on external factors instead. Economic managers, in particular, have highlighted the role of the economic crises in Turkey and Argentina, and the trade tensions between the United States and China, as the main reason for the weak local markets.
President Rodrigo Duterte himself has taken to blaming surging local prices on, first, the US-China trade war being stoked by US President Donald Trump, and then later on rising interest rates in the world’s largest economy.
Both can only be accepted as correct by using extremely creative economic logic; the administration’s economic managers have repeatedly stressed that the country’s inflation woes are due to high prices of imported fuel and the rice shortage.
The truth is that the Philippine economy is afflicted with a perfect storm of unpreventable adverse developments abroad, and completely preventable bad news at home.
Rising international crude oil prices are beyond the ability of a small market like ours to influence, but local taxation policies and consumption patterns aren’t.
The peso’s weakness, caused by the flight of investors to higher yields abroad, cannot be stopped. But the government can make them think twice by improving local economic prospects.
Fund managers cannot be prevented from dumping their investments in emerging markets en masse, but decisive execution of long-term structural reforms can make them give the local economy a long hard look and, possibly, not lump the Philippines with its more vulnerable peers.
There are elements that are beyond the influence of local policymakers. But there are many more that are within their control.
After starting off in the right direction last month — a decisive rate hike by the central bank, a strong push by the administration toward rice tariffication, and other measures meant to provide immediate relief to less affluent consumers—economic managers are now being challenged by financial markets to follow through on their initial moves.
In doing so, however, they must also resist the temptation of easy populist moves used by previous administrations, like ordering state pension funds to prop up the stock market, flirting with capital curbs or, the most dangerous of all,
ordering price and other state controls beyond what are warranted.
Filipinos deserve to have the immediate causes of the current economic malaise addressed. But the economy’s broader health also demands that the Duterte administration provide a long-term focus and a firm resolve to ensure that the growth trajectory remains stable.
The nation can do with less grubby politicking from Malacañang, and more rational energy and urgent concentration directed at the lurching economy.
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