Not Sonny’s fault

Finance Secretary Sonny Dominguez is getting a bad rap and unfortunately, even the President seems to believe it. In a recent speech, he remarked that Sec Sonny’s TRAIN had made many people cry.

The President is obviously referring to the inflation problem we now have. A lot of people have been blaming the effects of TRAIN 1 for it. That’s too simplistic and not true.

Dissecting the inflation numbers will point to high food prices as the primary cause of our high inflation rate. Reviewing events of the past months will show food prices, particularly rice, rose because of the failure of NFA to store adequate buffer stock.

Worse, the NFA administrator showed empty NFA bodegas to media reporters as a means to get back at the NFA chairman. They had been having a long running argument on rice import policies.

The President is ultimately responsible for the high price of rice. He coddled the NFA administration, fired the NFA chairman and issued the order to import rice too late to make a difference.

As for high food prices overall, blame the agriculture secretary. It is his responsibility to see that vegetables, poultry, beef and pork are adequately available in the markets to assure reasonable prices.

Weather problems are partly to blame, but that’s a given in our typhoon-prone country. Government should by now have strategies, like buffer stocks, to cope with typhoons getting stronger with climate change.

The effect of the tax increase on oil products is a lot less than people want to believe. If at all, we can blame the DOF people of not factoring the cascade effect of high retail oil prices.

I guess TRAIN 1 is also a victim of the long congressional process. When they designed it, the international price of oil was pretty stable and nowhere near its current highs. It seemed alright to increase the tax on it with minimal impact on overall prices.

Unfortunately, by the time TRAIN 1 went into effect, price of oil was on an upswing. Tax increase, plus high international oil price produced a double whammy.

Still, if one went through the impact of oil price on the price build-up of many consumer products and services other than transportation, it is still not that much. But the psychological impact of high oil prices is something government decision makers must always remember.

There is this propensity of merchants to jack up their prices beyond the impact of the price of oil because they can always point to it as justification. Maybe if DTI price monitoring teams were more proactive, that could have been controlled.

Indeed, even the President was guilty of blaming high international oil prices and even Trump’s trade war as the factors behind our high inflation rate. He realizes if he calls out high food prices, he is to blame for that.

Hopefully, the President faces up to his role in the high inflation episode and does something about it. But, we don’t see that happening.

After a tense debate in the Cabinet between Sec. Sonny and the agriculture secretary, Malacañang announced the removal of restrictions on rice importations. But the agriculture secretary said no such order was given and we are back to square one.

I am afraid that high inflation is being blamed largely on the economic team and that’s just not so. The economic team may have been remiss in anticipating a rise in inflation given increased government expenditures and the long lingering rice supply problem. But there are other people in the administration more responsible for the mess.

It will be a mistake for the President to sideline the economic team and listen more to the politicians around him. As it is, there are already a lot of populist decisions that are frittering away resources that could be better used to get serious in building infrastructure.

It is election season, we all realize, and we need to give allowances for silly decisions from a policy perspective. But the economic team shouldn’t lose their balls in pointing out the dangers such policies may bring.

Then again, if the economic team’s stature within the administration is diminished, we may lose a lot more in terms of credibility among investors. Even our positive credit rating may be at risk.

We need investors to come in because we cannot do the job of development by ourselves. I was talking to a Filipino banker last week who told me that over the past six years, there was so much investor interest in our country.

But the interest dissipated even before Duterte came into the picture. There were billions of dollars, he said, ready to be invested in, among others, infrastructure. He should know because he manages infrastructure funds for a major international bank.

So where did all that money go? Mostly to Vietnam, he said.

Why did the investors get sour on us? Mostly it is the quality of our governance. It is difficult to get in and once in, the regulatory environment is iffy. We change rules. We do not adhere to contracts. The Maynilad and the tollways situation with contracted rate increases being ignored had been bad news for potential investors.

The revision of the Foreign Investment Negative List or FINL had been in the President’s office since February. We send investment missions abroad and they can’t answer when that list will be approved.

Finally, it was signed by the President and released last Wednesday. We have lagged behind most of our ASEAN neighbors in terms of attracting foreign direct investments partly due to our foreign ownership restrictions. Opening up some sectors should help.

The economic team has made some mistakes. But it is important that they are able to continue fighting for reforms within the administration. The alternative is having more of the same. That is not a good option.

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