The inflation blunder

The toughest acts in the coming days need to come from Room 501 of the Bangko Sentral ng Pilipinas (BSP). 

The central, after all, must now race against time to quash the quickening inflation – a five-year high of 5.2 percent in June – that is hurting our pockets.  

But first the BSP must realize that it miscalculated the inflation outlook. As a result, it failed to act earlier than it should have. Surely, the BSP’s rear view mirror must have shown that global interest rates were already on the rise two years ago, something that would weaken the peso, which in turn would worsen inflation.

 Let’s also not forget that the BSP slashed the level of deposits banks are required to keep with the central bank – in March and June – when inflation was already on the rise.  

This released around P190 billion in additional funds to the financial system. 

It’s now time to move fast. But before all that, monetary authorities and Duterte’s economic team must stop downplaying the situation. Clearly, there was a blunder along the way.  

Monetary authorities said they didn’t act because inflation pressures came from the supply side and had little to do with TRAIN. But economic officials are now saying that there’s money going around because of TRAIN and free tuition and this aggravated the situation. 

Of course, there are factors outside BSP’s control that contributed significantly to the uptick in inflation. Global crude prices, for one, have risen to as high as $75 per barrel.  

For sure, the worst isn’t over yet. There’s a fare hike petition, a looming increase in electricity rates and clamor for a new round of wage increases.  

Hopefully, there’s still time to catch up.  

I have high respect for the central bank because the institution has performed well over the years. My mother worked there for 25 years and so did her mother before her, for 35 years.

 I am optimistic  BSP Governor Nestor Espenilla Jr., would be able to steer the institution back to its rightful place — independent, sovereign and capable of fulfilling its primary mandate of maintaining price stability that is conducive for growth. 

He is somewhat “lucky” to have an external crisis of this magnitude -- foreign fund outflows, spiraling crude prices in the market, a trade war – to show his mettle. Others didn’t have that chance.  

When he took over the BSP last year, I teased Gov Nesting that with his hoarse voice — a result of a medical procedure — he sounded like Mario Puzo’s Don Vito Corleone, the Italian mafia boss. I told him that sounding like the Don was quite fitting for his new role as the BSP’s big boss. He laughed off my ribbing.

 But these days, the governor can learn some lessons from the Corleone family’s rise and fall. And the most important one is to watch out for the Salvadore Tessios in his midst who may be preventing him -- one way or another -- from doing his job well. He should realize that when s#*t hits the fan, they would all be putting the blame on him. Maybe they’re not out to get his job, but perhaps they’d be so eager to see him bungle it. 

As Corleone’s son Michael said, “Tessio was always smarter.”

 The Malampaya tax impasse 

Did the Commission on Audit (COA) violate the Constitution and the stipulations of Service Contract 38 when it required oil companies to pay P146.7 billion in alleged back taxes for the Malampaya project in offshore Palawan? 

In issuing a Notice of Charge (NC) to this effect, the COA is effectively amending Presidential Decrees 87 and 1459, which the Malampaya Consortium cites in claiming that all taxes have been paid because these were included in the government’s royalty take of 60 percent of the project’s net income. 

The Malampaya Consortium is composed of Shell Philippines Exploration, Chevron Malampaya LLC, and Philippine National Oil Co.-Exploration Corp. 

The Department of Energy led by Secretary Alfonso Cusi filed a petition before the Supreme Court last May 15 to challenge the COA resolution.  It argued that the COA committed grave abuse of discretion when it interfered with the department’s powers to administer and implement Presidential Decrees 87 and  1459. 

But COA argued that the government’s act of shouldering the income taxes of the consortium has no legal basis.

Not true, says the consortium.  They countered that tax assumption is not equivalent to tax exemption since the assumption does not exempt the contractors from amendatory income tax laws.  

The enforcement of COA’s notice is feared to “cause irreparable harm to the country’s long-term interest, as it will further erode the confidence of foreign petroleum industry investors,” the energy department said. 

The consortium said it is important to respect the “sanctity of contracts and the rule of law in the Philippines.”  

The Malampaya deepwater gas-to-power project generates 2,700 megawatts of power and supplies 30 percent of Luzon’s power generation requirements.  

It’s a landmark project but issues such as this put a dark cloud on the country’s investment climate.  

Iris Gonzales’ e-mail address is [email protected]