Ad hoc solution to inflation

After months of trying to assuage the fears of ordinary Filipinos about rising prices, the Duterte administration finally undertook its first concrete measure toward capping the country’s nearly decade-high inflation rate.

At last week’s Cabinet meeting, the economic team presented a draft executive order for the President’s approval that would ease restrictions on the importation of basic food items, in the hope that the ensuing increased supply of meat, fish, seafood, vegetables and rice from abroad would help tame inflation by tempering the propensity of local producers and traders to raise their own prices.

Economic Planning Secretary Ernesto Pernia said the quick implementation of these “immediate and short-term measures” will address supply issues that have driven inflation up steadily since the start of the year, all the way to 6.4 percent in August, and almost certainly higher this month.

These measures, he said, include making rice available in the market through the immediate release of stocks from the National Food Authority warehouses, the importation and distribution of projected harvests, as well as the monitoring of rice transfers from ports to warehouses and retail outlets.

This step may very well curb spiking prices in the short term. But, clearly, it is also a stopgap move that must eventually be reinforced, or replaced, by a more comprehensive and better thought-through policy.

That’s because opening the floodgates to easier food imports will have a detrimental effect on local food producers, many of whom are, as it is, already at a disadvantage against foreign competitors who enjoy either direct or indirect subsidies from their governments.

While the policy proposed by the administration’s economic team will keep existing tariffs in place, it will still result in more imports entering the local market at lower prices.

This will undoubtedly impact heavily on local food industries. It will help contain inflation, but it can potentially cause substantial damage to industries that are a key leg of the Philippine economy.

As such, the policy of relaxing food imports must remain a temporary one, and should be withdrawn once inflation is tamed—hopefully by next year, if the economic managers’ forecasts are correct.

The age-old debate of having consumers enjoy lower prices versus protecting local industries from unfair foreign competition is one that should be set by decision-makers and stakeholders with clear, unhurried minds during a period of economic stability.

It must be done in a calm, rational light, without the backdrop of political panic and vested considerations that must be in play these days as an economically pinched nation lurches toward crucial midterm elections.

While such fast-acting solutions may be necessary, they may also constitute make-or-break policies that are made in a frantic environment, under the duress of a public irate over spiraling inflation.

Like many other challenges his administration faces, President Duterte is vaunted to have the ability to ram through obstacles that conventional wisdom had previously thought to be insurmountable.

The current crisis presents a rare opportunity for the government to address the root of the country’s inflation problem that returns every few years: supply bottlenecks that are easily exploited by industry cartels, and by lumbering, corrupt government agencies with an aversion to unpopular, long-term bitter pills that could mitigate inflation early on.

In the suffering that Filipinos experience today is also a window for policymakers to make the Philippine economy more resilient against inflation in the future. The Philippines, after all, will never be fully insulated from the effects of rising commodity prices, whether here or overseas.

But the steps the government will take henceforth will determine whether the next inflation cycle down the road will be won more handily, or whether the Philippines will end up having to go through the same upheaval — never having learned from the trying past, and tackling the recurrent problem with the same ad hoc, haphazard schemes.