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THE political noise generated by Malacañang’s suspected
complicity in a telecom bribery scandal is unnerving investors at a
very bad time.Last week, the peso and the Philippine stock market
fell, bucking a recovery across Asia, which was buoyed by reassuring
economic developments in the US. Asian bourses eventually ended last
week on a weak note after US Federal Reserve chairman Ben Bernanke
hinted of more rate cuts down the road, indicating that recessionary
risks for the world’s largest economy have risen—if it isn’t
in a recession already.
The important point about last week’s
developments is that the risks for the Philippines have compounded.
Whereas the whole Asia has to contend with a possible US recession,
the Philippines is further handicapped by brewing domestic political
troubles.
Whether the noise develops into a full-blown
crisis is far from certain. But a slowdown in the Philippines’
biggest export market risks damping domestic economic expansion,
possibly fueling political unrest.
Before we know it, the Arroyo administration’s
legitimacy may again face a credible challenge, upsetting in turn
the Philippines’ growth momentum. This is unfortunate as the
country is amid a bull run, having expanded for three years to a
31-year high in 2007.
A strong peso helped inflation stay in the low
single-digits despite skyrocketing oil prices. Slow price increases
caused interest rates to fall to record lows, allowing businesses
and households to secure cheap financing for expansion and more
generous spending.
Government also benefited from the low
interest-rate regime and the strong local currency, as these enabled
it to trim its debt by prepaying dollar-denominated loans and
refinancing obligations carrying higher interest rates.
The fiscal improvement not only freed up more
resources that government could spend on crucial infrastructure and
social spending. It also minimized the need for government to borrow
money, thus bolstering the downtrend in interest rates.
Investors took their cue from the government and
began betting on the country—first in the stock market and other
peso-denominated assets, and then in the real economy where jobs are
created. All of these fed a virtuous cycle of wealth creation.
All these have been put at stake by the current
turmoil triggered by the Palace’s alleged involvement in the
bribery scandal. President Arroyo therefore should tread carefully
in this highly partisan environment. Any wrong move and the success
the country has built so far may all come crashing down.
A worrisome development alongside the record
economic expansion is the seeming failure of its dividends to
trickle down to the poor. The latest government data at the
household level showed that the recent wealth creation has benefited
those who already are well off. So while the economy did grow, the
windfall wasn’t shared by all—and did not relieve the sufferings
of the neediest in our society.
With the US slowdown expected to damp the
Philippine economy, the existing income disparity presents a fertile
ground for any reckless demagogue to exploit to the hilt, and bring
this country to a standstill. The choice before the current
administration is clear: Address the persistent inequalities so the
present political troubles don’t feed on them—and maybe it might
survive until the end of its term.
Failure to do so risks another unconstitutional
regime change.
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