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There are four things positive you must remember despite or because
of the so-called financial crisis. Oil prices are down 60 percent.
Rice prices are down 30 percent. The peso is down 17 percent, from
P42 to P49. The real estate business remains robust or is up. There
is no way all those four factors can be negative for the economy,
for the people, for you and me.
Oil is a bellwether product. It determines the
price of your electricity, your diesel, your gasoline and many other
things. Oil was $147 per barrel in July. It is now hovering at $60.
Utilities–fuel, light and water–constitute about 7 percent of
the consumer price index (CPI). For every P100, utilities constitute
P7 of expenditures.
Food is even weightier. It is 55 percent of the
CPI for low-income families. If food goes down by 30 percent, its
contribution to CPI goes down to just 38.5 percent. If oil goes down
by 60 percent, its contribution to the CPI goes down to just 4.2
percent so that the total effect of both food and oil to the CPI
declines to 42.7 percent, from 62 percent, a drop of 19.3 percent.
Multiply the 19.3 percent to the 12.5 percent inflation rate and
immediately you bring down inflation rate to single digit.
Since the CPI is also used by the banks, by the
telephone, water and cellular companies in pegging their prices or
rates, the prices of these services should likewise go down. The
only two industries that have refused to respect the law of supply
and demand and to down their prices are the giant oil companies and
the Meralco. Their pricing is excessive by now. Your local gasoline
or diesel price is overpriced by at least P10 per liter or by 25
percent. Your electricity rate is overpriced by at least 20 percent
per kilowatt hour.
On the other hand, the 17 percent peso
devaluation means an additional purchasing power of P112 billion in
the hands of the country’s ten million OFWs. The $16 billion they
remitted last year was worth only P672 billion at P42 to $1. This
year, when they remit that same amount of dollars it is worth P784
billion. The P112 billion if translated back into dollars is worth
$2.3 billion–an amount far bigger than any local rescue fund the
Bangko Sentral can assemble if our banks become beleaguered and far
bigger than the so-called economic stimulus package of the
government.
Now for real estate. It was up almost 22 percent
in the first half. Hans Sy tells me demand for the SM residences
that sit cheek by jowl with their SM malls remains strong, so
strong, in fact, that prices have doubled from two years ago to
about P100,000 per square meter. The SM units are small, about 40
sq. m., or P4 million per unit. Two factors explain why they sell
well. The OFWs and an emerging phenomenon–people want to live near
their places of work or schools.
Don’t believe the Bangko Sentral that OFWs
will be hurt by the so-called financial crisis. The Filipino OFWs
are unique–highly educated, easily trainable, very skilled, and
English speaking and therefore, they will remain in demand. Next to
perhaps Mexico, the Philippines is now the largest exporter of
expatriate manpower and the world’s biggest earner. Also, in the
last five years, the number of OFWs has doubled. So any reduction in
income has been made up for by the rapid rise in the volume or
number of OFWs.
This year, the Bangko Sentral ng Pilipinas
projects remittances of $18 billion from OFWs. Divide that by ten
million (the number of OFWs) and you get $1,800. Ten million of the
country’s 16 million households have an additional per family
income of $1,800 per year or $327 per capita. Add the $327 to the
$1,600 average domestic per capita income and you have ten million
families having per capita income of $2,000—usually the benchmark
income for middle class.
Ten million Filipino families are middle class!
Unlike the American middle class whose wealth is built on
vapor—house on credit, car on credit, credit card bills on credit,
wealth on credit—our Filipino middle class has real assets–a
concrete house on a lot averaging 200 sq. m. for which a 20 percent
downpayment has been made, a jeepney or a Revo or Innova or an Urvan
for which at least 20 percent downpayment has been made and some
savings in the bank, an average of P200,000. Now, that’s what I
call the real economy.
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