OUTSIDE THE BOX
The State of the Nation Address will be delivered to the people of the Philippines soon, and it will be interesting to see if there are any comments at all regarding government policy and specific plans in light of the continuing global economic crisis.
The motto of this current government might be “All politics, all the time.” That is not to say that any efforts to control, if not eradicate, official and bureaucratic corruption are wrong. However, it is important in understanding corruption in the Philippines that corruption and politics are intertwined and inseparable. Equally important to understand is that any inroads into solving the problem of government corruption is not the ultimate solution to furthering Philippine economic progress.
While corruption certainly dampens and hinders economic growth, economic policy will determine responses to and solutions for the worldwide economic problems that the Philippines must operate within.
Having said that, the economic “salvation” of the Philippines will not be found in the halls of the government. It will be found in the attitude and actions of the millions of Filipinos who have placed their hard-earned capital at risk to establish businesses, in the intelligence and expertise of the people who operate those businesses, and in the labor and skill of the tens of millions of employees who are the lifeblood of the private sector.
Therefore, while the government may prefer to ignore, at least publicly, the economic storm that is swirling around the country, you and I do so at our own jeopardy and danger.
But as I say, the Philippine government seems to want to ignore present-day realities, but you cannot afford to be ignorant of the situation.
The last couple of weeks have seen reports from the Western economies that are as economically earth-shattering as Japan’s earthquake/tsunami. Then, the Philippine government sent out a warning to take shelter; this time, there is no warning.
Do not think that the Philippine government is different by keeping the true condition of the global economy from the people. Those nations most affected are the worst.
The simple way to describe the fluctuations of economic data over the last several months, even back into 2010, is “bottom bouncing.” This is a state of affairs when economic activity goes to a very low level, and then we see short-term blips to the upside. As in the price action of stock-market issues, these can truly be a bottom if external conditions changed for the better. However, if general conditions stayed the same, this bottom bouncing is only a pause before things get worse.
There was a small rise in economic activity in the US during April. Note these numbers. On May 3 gold traded at $1540 per ounce and the US dollar index was priced at 73. Gold fell to $1478 on May 17 and the dollar index rose to 76.36 on May 24. Yesterday gold traded at $1546 and the dollar was trading at 73.8. The euro made the round trip from 1.49 to 1.397 back to 1.463 currently.
Whatever the blip in April, May economic numbers are terrible. From being “bailed out,” now Greece is closer to default and Spain has come into the default game.
One way of measuring the severity of the government debt crisis is to look at Credit Default Swaps (CDS). This is basically an insurance policy against loan default for lenders to governments. The CDS price is constantly changing as risk increases. The year 2011 was supposed to be the time of recovery of sovereign debt. That’s what all the Western government economic experts said would happen. Except, since January 2010, the cost of the CDS insurance is way up in percentage terms; Greece 40, Portugal 33, US 19, Malaysia 9.5, China 8, Peru 12, Japan 18 and Thailand 22 percent. The Philippines’ CDS has increased 6.8 percent.
Global inflation is going through the roof even in unexpected places. While the government is rightly concerned about the Philippines’ 5+-percent inflation rate, look at other countries; Vietnam is -19.8, Turkey is -7, Pakistan -13, India -9.4, Indonesia -6, France at 3.7 is the highest there in 12 years, and the UK is at 4.5.
As another indication of how fortunate we are in the Philippines, most of all these governments, including the US, subsidize the price of certain basic commodities, and yet they still cannot keep prices down. Our economic system is much sounder and stronger.
But the official numbers do not give a true picture for the consumer. Look at this empirical evidence of price increases in the US. Lettuce has skyrocketed 28 percent since last year, while an ear of corn up 50 percent from last year. Tomatoes are up a staggering 86 percent. Ground beef is up 12 percent. Ice cream is up 5 percent, beer up 2.4 percent and coffee has increased by 14 percent nationwide. Over the past year the cost of gas has increased by 34 percent.”
On the deflation side, the average cost of a home in the US is down 33 percent from the 2007 peak. The most housing prices fell during the Great Depression was 31 percent, and there is still no end in sight.
On the consumption side, the numbers are terrible. Crude-oil fuel products run an economy. In the US, total commercial petroleum inventories increased by 7.2 million barrels last week. Total products supplied over the last four-week period has averaged nearly 18.7 million barrels per day, down by 5 percent, compared with the same period last year. There is no economic recovery. It is only getting worse.
Does government influence our daily economic lives? Most certainly. A US congressional joint economic committee report confirms that the Obama administration’s monetary policies have added approximately 56.5 US cents to the price of every gallon of gasoline.
Likewise, smart policy can have a beneficial effect.
The government needs to speak directly to the global economic crisis and its related economic policy and plans as things get worse. The Philippines cannot wait for the storm before sending out the danger alert regardless of the politics.
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Tuesday, 7 June 2011