What will we do about the opposition? They seem to have shit for brains. Five consecutive quarters of recession and Inquirer columnist Manuel L Quezon III (MLQ3), former Communications Undersecretary of the Aquino administration, fallaciously follows the line of Financial journalist Prinz Magtulis by declaring we are officially in stagflation territory. In his piece “Welcome to the lost decade”, Quezon writes…
What were the government’s reasons for refusing to do what every other reasonable government has done, which is to freely distribute money to prevent businesses from folding up and people losing their assets or any sort of income? In a nutshell, the government decided that credit ratings are based solely on a government’s balance sheet, and that whatever the cost (to the citizenry) the balance sheets must continue to look good, which means putting a lid on deficit spending. A very old-fashioned notion, according to some economic observers who point out the ratings agencies themselves look at more things than simply the balance sheet.
Any responsible writer wants to get his facts straight lest he suffer the pain of being accused as stupid, or worse, a moron.
If you’ve read economic history, stagflation was coined during the 70s when the US officially entered a recession after years of growth beginning with World War II. Prior to that, it was in an economic depression. By 1969, the US exhausted its domestic oil reserves. This meant it had to rely solely on imports. This was what World War I was all about. There wasn’t enough whale oil to power the Industrial Revolution so the US, Britain and France decided to dismantle the Ottoman Empire for its oil. This was also the root of the Middle Eastern conflict which continues to the present.
The US didn’t want to continue financing world wars so after World War II, the Bretton-Woods agreement was announced. Nations had to have their currency backed by gold reserves. As the US Dollar was the fiat currency, countries had to deposit a certain amount of gold with the US Federal Reserve. The oil producing states in the Middle East didn’t have gold but they had oil. As the US does whatever whenever it is convenient for them, the President Richard Nixon took the US off the gold standard. This was actually a fluke because nations today still stock gold reserves but it served the American’s purpose at that time. The measures put in place by Nixon didn’t have the desired effect. The US and the rest of the world reeled from two oil price shocks; 1973 during the Yom Kippur war and 1979 when Iran fell to Islamic fundamentalists. It wasn’t until the Reagan administration that the US economic recovery began. That continued throughout every administration except for financial crises in between as those which occurred in 1997 and 2008.
Stagflation inflation is caused by wrong adjustments in economic and monetary policy. In the case of the Philippines at present, it is supply-based inflation owing to a shortage of pork and the exigencies of the pandemic which has disrupted production and shipments of agricultural and marine products from the provinces to the markets. What Magtulis actually asserts in his Philippine Star piece “Economy down, inflation up in pandemic-stricken Philippines in Q1” is this…
Unlike last year as well, inflation is fast becoming a problem in an already weakened economy. Staggering pork prices pushed the price of basic goods and services by 4.5% in the first quarter, running above the central bank’s 2-4% annual target. The combo of stagnation and fast inflation meets the technical definition of “stagflation,” but Socioeconomic Planning Secretary Karl Kendrick Chua would not call it that just yet.
“Our targets are annual so we would not call it (stagflation) until the data justifies it,” he said in a briefing.
The Opposition, as is evident in the way Quezon spins Magtulis’s statements, wants the government to spend on fiscal stimulus by handing out money to the public and businesses. Finance Secretary Carlos Dominguez would prefer pump-priming activities such as continuing investment in infrastructure projects which generates employment and lower income and specific taxes as contained in the recently-passed Corporate Recovery and Tax Incentives for Enterprises (CREATE) Law. Of this, Quezon writes…
What’s more, government basically put up a “Go away” sign when it enacted CREATE which did what its title promised — for our competitors. Simply put, if you remember the bidding among cities to host the HQ of Amazon — plying the company with promises of incentives—that’s the name of attracting investments in the global economy.
Government borrowing has increased in order to finance pandemic response. The problem with the Opposition is they can’t make up their mind. Dominguez is in a damned if he does, damned if he doesn’t situation with the opposition and its band of economists. The CREATE Law includes a provision for the creation of a Fiscal Incentives Review Board. No existing incentives have been cut. CREATE is part of the three-phase tax reform program which Dominguez announced after he assumed his post. It has taken Congress a long time to act on the second and third tranches. It was only recently that it did. We lost out on FDIs not because of CREATE but because of our lack of infrastructure, high labor and power costs and the tax regime as compared to our ASEAN neighbors.
It is accurate to say that the government has been remiss in measures needed to reopen the economy safely. The absence of a unified contact-tracing system and a public transport system which enforces minimum health protocols is badly needed to safely reopen the economy and manage the risk of infection. There is also the need for the digitization of essential government services. For its part, the private sector has to spend for testing and the adoption of mitigation measures to ensure workplace safety of its employees. Government cannot do it alone.
It does not help when the Opposition continues to criticize and destabilize instead of focusing on cooperating and helping the government adjust its response for the benefit of the Filipinos as a whole. We cannot expect this from the opposition because they have their eyes on the 2022 election.