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THE dollar’s continued decline is raising questions around the
world about the wisdom of keeping its formal place as the global
medium of exchange and store of value.
The US currency’s fall has been blamed for
crude’s record price in the international market, as nations that
buy the commodity and pay in dollars lately find it cheaper to
import. The problem is this only fuels demand and bids up prices
further.
Costlier fuel has been tagged the principal
culprit behind the recent poverty incidence in countries like the
Philippines. Last week, the National Statistical Coordination Board
attributed the rise in the number of poor Filipinos alongside the
country’s record economic expansion to more expensive oil.
Therefore any immediate solution to the erosion of Filipinos’
living standards should address the rising cost of fuel.
Much has been said about the government’s
biofuels program, which is aimed at replacing in the long run ever
costlier oil imports by jumpstarting the development of fuel sources
other than crude, such as sugar- or corn-based ethanol or jatropha.
Similarly, a government program to explore oil
within Philippine territory has attracted a growing number of
foreign prospectors, who, we hope would stay despite a brewing
controversy over a tripartite deal involving China.
We laud such initiatives to reduce the
country’s long-term risk to costlier oil imports. But something
must be done about alleviating poverty in the short term by
mitigating the inflationary impact of rising fuel prices.
The Bangko Sentral ng Pilipinas (BSP) has
signaled that it may put a stop to its rate-cutting campaign given
that lower rates would only fan economic activity and with it
inflation. The Philippine economy is widely expected to grow anyway,
albeit at a slower pace.
This has been the attitude of the European and
Japanese central banks. Unfortunately for monetary authorities in
Gulf States, where a lot of Filipinos work, a policy of pegging
their currencies to the dollar has caused inflation to rise by
double digits, as those governments are forced to cut rates in lock
step with the US Federal Reserve’s monetary easing.
But beyond monetary policy, the Philippine
government has to rework the fiscal side of the short-run growth
equation.
We said earlier that the government has to buy
stability through pump priming if it were to survive lingering
challenges to its legitimacy that have been exacerbated by rising
inequality. But we reiterate our call for a stop to the
indiscriminate grant of fuel subsidies and the implementation of
target support for vulnerable members of society.
Responsible state expenditures should be
complemented by a similarly measured spending by households and
businesses. The government’s incentive system is key to
encouraging responsible behavior in the private sector.
Barring such a reworking of the incentive
structure, further cuts in oil import tariffs would only serve to
boost demand, and along with it prices at the pump. Therefore a
simple-minded solution such as this would be self-defeating.
With demand for imported oil managed well, the
country would have better use of the expected surge in dollar
inflows, especially when the BSP suspends its rate-cutting campaign.
Reducing the country’s debt, for example, would be one such
worthwhile way to spend cheap dollars.
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