OUTSIDE THE BOX
ONE of the most disturbing pieces I have read in a long time was a speech given by the President of the Dallas Federal Reserve Bank, Richard Fisher. Mr. Fisher has been in that position since 2005 and is an important member of the US Federal Reserve.
He said, “We are blessed at the Fed with sophisticated econometric models and superb analysts. The truth, however, is that nobody on the committee [Federal Open Market Committee], nor on our staffs at the Board of Governors and the 12 banks, really knows what is holding back the economy. Nobody really knows what will work to get the economy back on course. And nobody—in fact, no central bank anywhere on the planet—has the experience of successfully navigating a return home from the place in which we now find ourselves.”
If the members of the most powerful government financial body in the world are clueless about a solution to the global economic meltdown, maybe the world is in more trouble than we think.
But never fear. Two Federal Reserve research economists, Sylvan Luc and Zheng Liu, just released a study that quantifies with hard evidence that the crucial factor is uncertainty. It is uncertainty about the government that inhibits investment and therefore economic activity. Individuals as well as businesses will not reach into their bank accounts and spend and invest to grow the economy if they fell unsure about what the government is doing. “When people don’t know what the government will do next, they’re less willing to invest and spend.”
We often hear that “politics” is the problem for PHL. Someone reminded me that “committees” do not make decisions; the people on the committees do. It’s the politicians not the politics.
It is always easy to blame the Office of the President but the Philippines has a strong political class throughout the government that is as much to blame either directly or indirectly for the uncertainty.
The legislature as well as the executive takes credit for every positive economic number that it can and spins the number in a way that is most favorable in order to retain power. All the politicians want to take some credit for foreign direct investment (FDI) being up by 10 percent in the first half. No one mentions that Thailand’s increase in FDI between 2011 and 2012 was greater than the total FDI coming to PHL for 2011 and 2012 combined.
According to one investment banker, the Philippines is now a “darling” of global investors. So how come Thailand gets as much FDI in one month as we do in about one year?
The Philippines is often cited as being politically stable. True. It has been several years since military officers tried to overthrow the government. However, the Luc and Liu analysis is accurate. Government policy is creating uncertainty.
What exactly is the government’s position on China? Is Scarborough Shoal Philippine territory and China has invaded? Or is the area in dispute and sovereignty needs to be decided at the global level? Or is it that no one cares about sovereignty as long as guns are not fired in anger?
What is the real policy on mineral development? Should investors just wait for the legislative process to run so that a new taxation scheme will be unveiled and new mining permits will be approved? Or is it the intention of the government to ban mining for a prolonged period without actually repealing the Mining Act of 1995? There is a precedent for that as the Executive Branch indefinitely banned all logging activities without the benefit of public consultations or changes in the national laws.
However, uncertain public policy may be, there is a more sinister kind of uncertainty that runs through the political and governing system. Who can honestly say that any election from barangay to national level is guaranteed to be without any type of fraud or violations of the Election Code?
The recent “Anti-Epal” movement to highlight elected officials that use taxpayer funded public works projects to take credit in advancing their political careers would be completely ridiculous if the epal problem was not a clear indication of the uncertainty in the political process.
The government, through its political leaders, creates uncertainty by: a double standard in law and rule enforcement, changing regulations and policy too often, multiple voices speaking on policy, different branches of the government and departments within the government seemingly having different policy priorities, and the government focusing on short-term gains rather than long-term objectives.
You cannot expect to have the amount of private investment and spending necessary for constant economic expansion in an environment where uncertainty is “business as usual.” Uncertainty is the product of poor leadership by the politicians.
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