Economic prospects under Marcos Jr. presidency

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Hours after Ferdinand “Bongbong” Marcos, Jr. was showing insurmountable lead over rival Vice President Leni Robredo, Chayong Camus of JP Morgan, a Wall Street investment banker, recommended a “sell” to stock investors in the Philippine Stock Exchange. Such recommendation forebodes negative prospects of the incoming Marcos administration.

In local parlance it is like “Baligya na imo stocks kay malugi ka kung dili nimo na ibaligya (Sell your stocks or loss if you don’t).”

It seems, for this economist of JP Morgan, presumptive Pres. Marcos Jr cannot tackle the myriads of economic issues in Philippines facing his incoming administration. And he summarized them in this way: “Philippine equities face myriad challenges, including twin deficits, higher inflation, slower government spending in the quarter after election (during transition), higher public debt, risk of a valuation derating and potential earnings growth disappointment…we downgrade the Philippines to underweight and the Philippine Real Estate sector to neutral. Our new order of preference in ASEAN is Indonesia – Vietnam – Singapore – Thailand – Malaysia – Philippines.”

Let me explain the important ones of these financial technicalities.

Twin deficits are when first, governments spend more than they earn and second, government reduces taxes which is the source of their earnings. We do not have twin deficits in our economy. We only have budget deficit – our National Budget for 2022 is PHP4.3 trillion but our government is expected to collect from all revenues only a maximum of PHP3.0 trillion.

Kulang ug Php1.3 Trillion. Kinahanglan mangutang ang gobyerno nato ug PHP1.3 trillion aron mapondohan ang mga projects ug adonay pang sweldo sa empleyado. Ang atong gobyerno nangutang ug suma total PHP6.0 trillion sukad misaka si Pres. Rodrigo Duterte pagka-presidente.

Our government is like a family of our neighbor who earns PHP30,000 a month but spend PHP50,000 a month. Sige lang ug pangutang kada bulan, kada tuig. Ang resulta ma-ut-ut sa pagka pobre bisag naay gikita nga PHP30,000 kada bulan.

Higher inflation is another problem in our economy which Marcos, Jr will have to address.

Ang mga presyo ningsaka sa mas taas kay sa niaging mga tuig. When Pres. Simeon Benigno Aquino ended his term, the inflation rate was 1.25%. Prices were stable all through his term.

But things have changed in the economy during Pres. Duterte.

By 2018, the inflation rate was 5.21%. In 2021, inflation rate went down to 4.1%. This year, the inflation rate is projected at 2.98%.

What causes inflation?

The most basic cause of any rise in inflation are a) less money in government coupled by increase in spending by government; and b) sudden rise in price of a basic commodity like oil.

When Pres. Duterte assumed the Office of the President in 2016, he embarked in massive increase of government spending without the corresponding increase in the tax revenues. That was the main culprit.

Government can hardly afford is new expenditures. The deficit in the budget ballooned from PHP600 billion to PHP 1.3 trillion.

He maintained that level of expenditures until Covid pandemic came in 2020. During which period, the government borrowed PHP3.0 trillion for ayuda (aid), vaccine purchase, and financed government which suffered drastic reduction in income due to government decision to lock down the Philippines.

Ang lock down sa tibuok nasud nagpa-pobre sa atong gobyerno kumpara usa nag lockdown. Resulta? kinahanglan mangita ug kwarta ang gobyerno pang bayad sa giutang.

Here, government decided to increase Excise Tax on fuel products – diesel, gasoline, kerosene, gas, and bunker. These are the current triggers of the inflation rate.

Personally, I will not be surprised if actual inflation rate is higher than 4.9%. Tan-awa sa mga merkado diha sa Sibugay kung ang presyo sa isda ug utanon ni taas lang ug 5%.

Among the economic problems hounding the Philippines, the presumptive president needs to address this. But based on his pronouncements during the campaign it seems inflation rate will worsen.

First, he said he will lower prices of oil by bringing back the Oil Price Stabilization Fund (OPSF) and he will lower the (retail) price of rice to P20.00.

OPSF was a price intervention mechanism devised by the government to lower the price of oil whenever there was price volatility or sudden upward movement. Every liter bought by the motorist is levied a certain amount that goes to a standby fund from where Oil Companies will collect when there is sudden increase in the world market.

Great idea? Wrong, very wrong idea.

The experience was, the claims from Oil Companies due to price volatility emptied the OPSF and had to be eventually subsidized by government. It added to the budget deficit of the government and resulted in inflationary pressures to the price of basic commodities.

The scheme was abolished during Ramos regime in 1996 and the Oil Retail Industry was deregulated. Since then, prices had been stable until the spending binge of Pres. Duterte.

Lower the retail price of rice to P20.00. This is the most ignorant idea pronounced by Marcos, Jr. He can do this by buying palay at farmgate price of P5.00. Which will result to no farmer will plant rice in the Philippines and will depressed the local stocks. The result of which will be increase volume of imported rice at current retail prices.

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Or Marcos Jr will buy all domestic rice production at a higher price since nobody will sell at P5.00 per kilo of palay. Such policy will increase the budget deficit of the government by an estimate of PHP200 billion.

Again, it will impact on inflation by increasing it.

Marcos Jr. never spoke of any substantial economic policies except these above. And these are not well thought out and researched by his staff. I wish he will have a better handle of the economy in the next six years.

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