The economic managers

President Duterte said early on that he doesn’t understand economics and he will leave economic matters in the hands of his economic managers. If inflation continues its upward trend and the cost of living becomes even more unbearable, can he blame it all on his economic managers?

That would be unfair. True, the President gave them a lot of room to operate. But recent problems with high inflation is due to a failure in managing our rice supply. That is something the President alone is to blame.

The President’s failure to back up his economic managers on rice policy is at the root of it all. Sure, oil prices went up too. But a review of the numbers will show that food price inflation is mostly to blame and that spells r-i-c-e.

Why did the now on leave NFA administrator have that strong a hold on the President? It can’t just be because of Bong Go. For Jun Evasco, a very trusted senior aide of the President, to lose the bureaucratic battle to NFA administrator Jason Aquino is simply incredible.

This is the problem we have with the present set-up in President Duterte’s administration. His economic managers, particularly Finance Secretary Sonny Dominguez, may have the freedom to run economic policy. But in areas where the political intersects the economic, as in the rice situation, he didn’t listen to his economic managers.

I do not see the situation getting better with the Agriculture Secretary getting back control over NFA. A former sportswriter, the agri chief is not likely to be that knowledgeable in the interrelationships among economic sectors. His solution to high food inflation is to remove food costs in the consumer basket for measuring inflation.

The economic managers are not responsible for the rice fiasco that led to high inflation, but they can be faulted for failing to see and warn strongly enough about the consequences of wrong decisions on the rice situation.

In that sense, even the BSP cannot be faulted for supposedly being behind the curve in raising interest rates. They probably saw a rise in inflation lurking in the shadows but they knew it wasn’t the kind of inflation that would quickly respond to interest rate hikes, if at all.

The BSP’s failure was more about ignoring the sentiments of the banks and other financial institutions for a rate hike until it was too late. Ignoring market sentiment and failing to properly explain their stance diminished confidence in the economy.

As a result, a decline in the peso’s exchange rate and a selloff at the stock market was aggravated. All these, in turn, put in more pressure on inflation, creating a perfect storm that included TRAIN 1 and rising global oil prices.

The surprised reaction of the economic managers to what had been happening was not reassuring. They were initially quite defensive, vigorously denying TRAIN 1’s to blame for rise in inflation.

Beyond rice, the economic managers must be awakened from a blind belief that Build Build Build is going to deliver as they say it would. Beyond the theory is the reality that problems of execution are pretty big hurdles.

The Budget Secretary should now focus on fixing the same bureaucratic logjam that doomed infra projects under past administrations. The challenge for BBB is not just to provide funds but to fix the procurement and award process so work can actually start faster.

A good case study of bureaucratic stupidity is the handling of the LRT 2 extension project of less than four kilometers. I have criticized both the Abaya and Tugade leaderships of DOTr on this. An explanation I received from the current DOTr precisely proves my point about the problems that bedevils implementation of our infrastructure projects:

“LRT-2 East Ext. was implemented by the previous administration on a fragmented, split contract, split funding source, multiple points of responsibility approach. Despite being a mere 3.8-km. extension, it was split into three separate contracts: viaduct package, stations package, and electromechanical system package.

”The funding source was also split: the viaduct and stations package were funded with GAA, while the electromechanical system package was funded with a JICA ODA loan. With bidding starting as early as September 2014, only the viaduct package was successfully awarded in December 2014.

”Bidding for the stations package started only 1 year later, in September 2015, and failed in July 2016. It was only successfully bid out between August 2016 to December 2016.

”Bidding for the electromechanical package did not start until December 2015 and failed in June 2016. It was bid out again in April 2017 and failed again in December 2017.

”The electromechanical system package was only successfully bid out in September 2018, after extensive discussions with JICA to address earlier wrong cost estimates.

”It is notable that while bidding for the viaduct package started as early as September 2014, bidding for the stations package only began in September 2015, and bidding for the electromechanical package only began in December 2015.

”As demonstrated by this experience, the splitting of contracts and the splitting of funding sources create the risk of multiple points of failure, which result in likelier project delays.

”Despite misgivings in its earlier project structuring and procurement, DOTr’s efforts have led to the successful award of all of LRT-2 East Extension’s contract packages, and the project is now on track to completion in Q1 2020.”

As I have been saying, it was wrong of former transportation secretary Jun Abaya and his undersecretary Timmy Limcaoco to break up projects that delayed awards. I am glad that Secretary Art Tugade finally untangled this mess even if it took him all of two years.

There are lessons here that the economic managers must learn to save Build Build Build. Hopefully the economic managers have instituted measures to avoid delay. Also, be more realistic in promising delivery dates.

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