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FILIPINOS now are at their most bearish in more than a year if we
are to believe the Bangko Sentral ng Pilipinas (BSP).
In its latest Consumer Expectations Survey, the
BSP last week reported that respondents’ confidence about the
overall economy, their household finances and their incomes
registered a -43.8 percent, indicating that people with a negative
outlook outnumbered those with a positive outlook during the current
quarter.
This pessimism is expected to continue through
the next three-month period and possibly the coming 12 months. The
consumer confidence index fell to minus 27 percent for the third
quarter from the minus 6 percent registered during the previous
round of the survey.
Worse, respondents now are pessimistic about
their economic prospects in the next 12 months, with the index
reversing to minus 20.3 percent from 6.6 percent reported
previously.
The survey showed that respondents belonging to
the low- to middle-income groups felt the most vulnerable to the
current surge in prices of goods and services. People polled
indicated that that their expenditures especially for food,
transportation, fuel, electricity, education and personal effects
would rise in the near term owning not to improving consumption, but
higher prices.
The BSP said consumers’ buying intentions over
the next 12 months dipped to 7.9 percent from the 13 percent
recorded in the previous round of the survey. Respondents said they
would put off expenditures on non-durables like vehicles and house
and lot, even as they foresee a jump in their purchases of consumer
durables in light of rising prices.
Growing disparity
In what may be an affirmation of the growing
disparity between the fortunes of the haves and have-nots, the BSP
poll indicated that upper-income respondents were upbeat about their
household incomes, as their family income index rose to nearly 14
percent from a little over 10 percent the year before. In contrast,
the low-to-middle-income groups felt that their incomes deteriorated
over the same period.
Despite this divergence, all income groups
suffered declines in terms of the proportion of respondents who felt
that their incomes would improve over the next three to 12 months.
The BSP’s assurance that inflation may have
peaked this month, and would start easing next month therefore
doesn’t find support from consumers, as they remain cautious about
economic conditions in the near term. Indeed, at least one market
observer noted that inflation would likely peak much further this
year, possibly September or October, which means that Filipinos
cannot expect any respite from rising prices for the better part of
this year.
In contrast to what other Asian governments have
been doing, the Philippines’ response to increasing price
pressures has been to expand its subsidies. It is doling out cash
supposedly for the poor’s rice purchases and electricity bills.
Furthermore, the government has cut taxes on fuel imports, removing
the levy on diesel products on the assumption that the poor use this
item the most.
Fueling demand
In short, the government’s moves are aimed at
further fueling demand, which largely has been responsible for the
current surge in fuel and food prices worldwide. Greater demand amid
tight supply conditions only serves to bid up prices further,
putting the squeeze on those who can ill-afford the unabated rise in
living costs.
We take no issue with regard to targeted
subsidies for the poor, as state support is likely to enable them to
just cling on to minimum living standards. We however doubt whether
the government’s interventions are benefiting only those intended
to receive this state support.
We fear that indiscriminate subsidies like the
wholesale cut in taxes on diesel products risks eroding the
government’s revenue base while causing subsidy leakages to those
who can do without the support. Take the case of the diesel subsidy
courtesy of the tax relief, which also benefits owners of
gas-guzzlers like SUVs.
As many analysts have been saying, the present
episode of skyrocketing fuel and food prices is largely due to
economic fundamentals. Encouraging indiscriminate and wasteful
demand for these scarce commodities would only push up prices even
further, thus straining the government’s ability to fund its
subsidy program. Allowing the status quo to persist would result in
a reversal of the government’s fiscal position, with the unsavory
prospect of rising debt—something this administration had worked
hard on putting a lid on.
Untenable situation
What makes this situation untenable is that the
Philippines is a net importer of both fuel and rice. Thus any
unexpected jump in domestic demand would also eat into the
country’s dollar reserves. This early, the BSP has cut its dollar
surplus forecast, in the face of slowing foreign investments and
export receipts.
We think the country is nowhere near a balance
of payments crisis similar to what crippled it during the mid-1980s,
thanks largely to the reliable remittances of Filipinos working
abroad. Even so, we are still susceptible to a deterioration in the
government’s fiscal position—something that would be equally
damaging to the domestic economy as a whole.
The crisis facing us therefore is one that has
haunted us for a long time: the country’s lack of competitiveness.
A reversal of the government’s fiscal gains would serve to
perpetuate this handicap, which has limited our nation’s upside
potential.
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