Economy in the doldrums

“Now, the economy is in the doldrums… Interest rates are picking up, are getting high so it destroys the existing (economic gains) … You raise your (interest rate), our (peso value) goes down, theoretically,” President Duterte said in a speech at the National Information and Communications 2018 Summit in Davao.

The President observed that the situation in the provinces had become a problem for his administration because projects were barely progressing. He was so desperate he mused about leaving jueteng alone.

“Now if there’s jueteng … at least money goes around. Some people will get hungry, others will be able to eat, (but) there’s commercial activity,” he said.

The President’s take on the economy made economists from either side of the fence agree that he doesn’t know what he is talking about… an economic illiterate. A former DOF usec urged a current one to tell the economic managers to urge the President to zip his mouth on economic issues.

That’s one suggestion I disagree with. I think it is unfair and only exposes the way some economists think they are intellectually superior not just in comparison to the President, but with everyone else.

They forget that economics isn’t exactly like Physics, a true science. A rice consumer cannot say it is harvest time, there is so much rice being harvested and according to Economics 101, the price should go down. The “law” of supply and demand is subverted by cartels, rent seekers, and corrupt government. The law of gravity is… the law of gravity, no ifs and no buts.

I believe the President has all the right to talk about economics because it is part of his responsibility. One other thing… the President is able to see economics from the perspective of common people as economic forces touch their lives. He may get a few economic principles wrong, but he gets the impact of economic forces right.

Okay, so the President didn’t get the relationship between the BSP raising of interest rates and rising inflation. The President is wrong, to say that BSP raising interest rates weakens the peso when the exact opposite should happen.

Theoretically, higher interest rates help induce capital inflows which, in turn, tend to strengthen (rather than weaken) the peso. But that happens only if there is positive sentiment towards the Philippines. Unfortunately, there is political risk aggravated by the President’s mercurial outbursts that investors fear ends up as policy.

But yes, saying the economy is in the doldrums contradicts the rosy picture the economic managers constantly paint. Indeed, a key usec protested that the real economy is growing at above six percent… exactly 6.8 percent GDP growth in the first quarter, among the highest in the region.

And let us not forget we are still considered investment grade by international credit rating agencies. Because of TRAIN, the share of taxes collected by the government also increased to a record high of P567.1 billion in the first quarter.

Unfortunately, favorable macroeconomic statistics fail to change the perception that the economy is in trouble. Common people, including Duterte, see weaker peso and higher inflation translating to higher cost of living because that’s their experience.

Inflation is at its highest in seven years at 4.5 percent and the peso weakened to a 12-year low of P53.23 against the US dollar on June 13. And for local investors, the stock market is at its lowest in 24 months.

Because he spends his time in Davao, Duterte sees nothing much happening to Build Build Build.

“I said in Manila, they’re starting the megaprojects well. I supposed that they would be doing it on time. But in the provinces, it’s a doldrums thing,” he complained.

The President is misinformed by propaganda from his economic managers. Nothing much is happening in Manila too. Not one of the major projects they listed in BBB is shovel ready.

This is why I am wondering where the money DOF said has been spent on infrastructure, so far, went. Finance Undersecretary Gil Beltran said the first-quarter expenditure effort, or share of government spending in the gross domestic product (GDP), reached a 15-year high of 20 percent. He attributed this to the rollout of the Duterte administration’s ambitious ‘Build Build Build’ infrastructure program.

Really? Where? Maybe the money had been moved from Treasury account to the account of implementing agency like DOTr, but it is still sleeping there. DOTr has not started any of the projects in its list by way of actually going beyond ceremonial ground breaking.

The President said he was looking for more funds to finance big-ticket projects in the provinces to induce economic growth. This is driving him into China’s tighter embrace. Perhaps if the economic managers did not downgrade the role of the private sector in BBB, they wouldn’t be in such a bind.

The economic managers may have cringed when the President declared the economy is in the doldrums, but I see this as a good sign. From now on, the President should be asking tougher questions in discussions with economic managers. Seeing what he sees on the ground, he should show more impatience on the slow movement of the much hyped BBB.

The President may not be as learned in economics as his economic managers are, but I wouldn’t zip his lips on economic issues, assuming it is possible for anyone to zip his mouth. Give him credit for seeing the economy the way ordinary folks see it.

Maybe the economic managers should do a better job of explaining issues to him. But it doesn’t mean they are always right. Economics is so dynamic with so many players affecting its outcome. If all he does is parrot what his eco managers say, he will lose credibility and political ground.

Now that he has declared the economy is in the doldrums, what will his administration do next?

Boo Chanco’s e-mail address is [email protected]. Follow him on Twitter @boochanco