|
The Philippine economy faces a “perfect economic
storm” of inflation at nine-year highs as food and oil prices
soar, rising interest rates
and slowing growth, analysts said.
They said inflation was unlikely
to ebb soon after hitting an annual rate of 9.6 percent in May,
leading the Bangko Sentral ng Pilipinas to hike borrowing costs on
Thursday for the first time since 2005.
“Throw in rising unemployment
and you have the recipe for a perfect economic storm,” former
Budget Secretary Ben Diokno told Agence France-Presse.
Official data showed food prices
rose 14 percent in May as rice, the national staple, rocketed 31.7
percent and corn 27.1 percent. Petrol, kerosene and diesel prices
have also surged.
“If inflation pressures persist
into next year and it feeds into further price increases, or leads
to an economic slowdown and job losses, then we may start to see
unrest,” warned political risk consultant Roberto Herrera-Lim.
“It is when you combine the
two—job losses and inflation—then things become troublesome,”
Herrera-Lim, the Southeast Asian analyst for New York-based firm
Eurasia Group, said in an interview published on the ABS-CBN
television web site.
The government has already
announced measures to ease the pain on the country’s poor, such as
a one-time P500 ($11) subsidy to help pay electricity bills, which
will cost around $45 million.
It has also announced a
$68-million quarterly fuel subsidy for the public transport sector
and loans to help convert buses and taxis to alternative fuels.
Meanwhile, farmers are to be
given fertilizer subsidies and poor students scholarships, with the
government going to the international debt market to raise $750
million to help pay for it all.
But at the same time economic
growth is slowing, falling to an annual rate of 5.2 percent for the
first quarter compared with 7.2 percent for all of 2007.
Last year’s economic
performance was the best in 31 years and inflation in 2007 was just
2.8 percent.
The government has now abandoned
hopes of balancing the Philippine budget this year for what would
have been the first time in a decade.
“Giving away cash grants for
food and electricity consumption, subsidies for farmers and the
transport sector and borrowing from abroad to pay for them show
desperation,” Diokno said. “It doesn’t help the situation in
the long run.”
Rommel Macapagal, chairman of
Westlink Global Equities, said the government’s handouts were
short-term solutions.
“The problem is that it can do
very little about rising fuel and food costs on its own because it
is a worldwide problem.”
Other experts warned inflation
could rise into double digits, potentially heralding still higher
interest rates.
Cayetano Paderanga, an economist
at the University of the Philippines, said it was too late to stop
inflation hitting double-digits.
“The inflation rate will still
go up before it goes down and there is a very good chance that it
will breach 10 percent,” he told the Philippine Daily Inquirer
newspaper, adding it would then be increasingly difficult to
control.
“Ten percent is an important
threshold. Beyond this level, the psychology of the people changes
and it becomes more difficult to control their expectations of price
increases.”
It could create a situation like
“stagflation,” he said, where economic growth slows but
inflation stays high, posing a severe test for policymakers.
--AFP
|
