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Editorial

Learn from last year

/ 05:08 AM February 04, 2019

Many experts agree: After suffering one of the most challenging years in recent memory, the Philippine economy is poised for a comeback this year.

And this early into 2019, there are already several encouraging signs that give credence to this belief. For one, the local currency, a key barometer of foreign and local investors’ confidence in the local economy, has appreciated significantly since it hit multiyear lows last year.

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The equity market has also been on an upward trajectory in recent weeks, with the Philippine Stock Exchange Index no longer flirting with bear market levels as loss-weary investors had grown accustomed to just a few months ago, but with bull market territory that indicates the return of confidence in the country’s economic prospects.

Then there is that issue of inflation — the main killer of confidence last year, which forced many consumers and business conglomerates to tighten their purse strings.

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Early indications have revealed a plateau in the upward trek of prices of goods and services that plagued the country for almost all of last year.

And if the economic pundits are correct, this plateau is about to turn into a downtrend that will ease the burden that Filipinos have been bearing.

Now comes the caveat: What experts have been saying is that the Philippine economy is poised for a turnaround, and may shake off last year’s woes to retake its place among the outperforming stars of emerging markets. But this is, by no means, a sure thing.

As we have seen in the past, it only takes one inaccurate official pronouncement (like last year’s “We are facing a rice shortage”), one unfortunately timed policy decision (like the hike in excise taxes), or a force majeure event that is completely beyond the ability of economic planners to foresee or act on (like last year’s spike in international crude oil prices) to derail the Philippines’ growth.

Fortunately, there are measures that can be taken today to help ensure that expectations of a good 2019 for the country will come true.

For one, the local economy needs to be fed with more cash.

In a belated response to last year’s inflation crisis, the central bank raised interest rates by a total of 175 basis points — its most aggressive tightening streak since the economic crisis of the Estrada presidency in 2000.

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That 1.75 percent may not sound like a lot, but for many Filipinos who depend on consumer credit and for many small businesses that depend on bank loans for their working capital, that could spell the difference between making this month’s interest payment or going into default.

To ensure that the latter is avoided, policymakers must start to reverse last year’s series of interest rate hikes so that Filipino consumers and businesses will once more have easy access to credit, to help lubricate the wheels of economic activity.

The Bangko Sentral ng Pilipinas can start the ball rolling by resuming its groundbreaking reform of releasing more cash into the financial system by lowering banks’ reserve requirements—a move that was aborted last year when inflation spiked
beyond the control of policymakers.

With many in the financial community believing that the central bank was late to respond to inflation last year, it would be wise to respond to economic indicators in a more timely manner this year, and not be late for two consecutive years.

There are other policies the Duterte administration can pursue with more zeal and focus to make sure that the rest of the Philippine economy makes good use of that liquidity sitting idly in banks.

One such move is to accelerate the government’s infrastructure buildup program, which would create thousands of new jobs while putting wages into the pockets of Filipinos — wages that will then be spent to move the economy even faster.

This is not about small-scale infrastructure projects like repaving perfectly good roads around many of the cities around the country, but the massive, big-ticket infrastructure projects that would benefit from iron-clad political will: a new international airport (or two) perhaps, plans for which have been on the drawing board for three decades already but, for one reason or another, have remained unimplemented.

The Philippines recorded a slowdown last year from all these oversights and blunders. We can’t repeat such mistakes this year.

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