Export

There seems to be more bad news for us at the next turn.

US Fed chief Janet Yellen, in her most recent remarks, indicated another rate hike forthcoming. That could happen this month.

On the basis of that expectation, we are seeing a lot of movement in hot money. Equities investors are quickly shifting to the dollar, expecting further strength. Over the past few trading days, foreign money was detected leaving the Philippine market. This explains why our stock exchange is weaker even as the New York exchange continued posting record growth.

As pointed out in last week’s column, the continued depreciation of the peso will exert upward pressure on our inflation rate. From early indications, it is possible our inflation rate could rise beyond the target range. That will pose problems.

Already, we are looking at significant increases in the price of staple commodities reflecting the increase in transport costs. Price increases in canned goods also reflect the rise, in peso terms, of prices of imported inputs.

An inflation rate of three percent or more will palpably reduce purchasing power. Those earning fixed wages will be affected most. Periods of high inflation fuel discontent at the grassroots. Our monetary authorities should try to manage the inflationary impact of the peso’s depreciation with a little more sense of urgency.

Comparative ASEAN numbers show the Philippines faring poorly in foreign currency earnings from merchandise and services. Although we lead our neighbors with a $29 billion annual inflow of remittances from our migrant workers, we fare poorly in merchandise and services exports.

Malaysia, Thailand, Indonesia and, increasingly, Vietnam earn a lot from tourism. The Philippines ranks a poor third.

The disparity in earnings from merchandise exports is even more dramatic. All our traditional exports are down. Our best bet is mineral and tropical fruit exports. The ability of these two items to raise national earnings is now compromised by policy uncertainty.

We do not have much of manufactured exports to speak of. Decades of expensive power hollowed out our manufacturing base. Where once we were a power of sorts in garments exports, this too hollowed out. Highly politicized trade unionism during the eighties and the nineties pushed our labor-intensive garment industry to migrate elsewhere. Today, we cannot hope to attract the industry back since we face stiff competition from Indochinese countries where wages are lower.

We have not modernized our agricultural sector enough to make us competitive in anything. To the contrary, the country now suffers from smuggling of prime agricultural products such as chicken parts, garlic and onion.

For years, we wrongly relied on quantitative restrictions against rice imports in a vain effort to preserve our rice farms without mechanizing them. That merely encouraged rice smuggling that made traders wealthy and farmers poor. We have reached the end of the line on that as well. Now we need to lift quantitative restrictions on rice as well and we are unprepared to produce rice at competitive costs.

There is nothing promising in our agricultural sector except banana plantations. The existing plantations, however, are now threatened by a return to impractical policies. That has dissuaded investments in agribusiness.

We have abundant minerals and mining is virtually our last export card. But the DENR is now in the process of shutting down our mines. We have discovered the largest copper vein in the world in Tampakan. But the provincial government banned open pit mining, driving away the billions of dollars in investments necessary to extract the valuable mineral.

Without a comprehensive strategy to drive up our exports, we will be vulnerable. Nearly all our oil needs are imported and denominated in dollars. Raw materials for what remains of our manufacturing is imported.

Without a strong export base, our economy will remain consumption- rather than investments-led. As such, it will tend to be exclusive rather than inclusive, with high rates of unemployment and hence poverty.

We are indeed in the midst of a robust property boom. But this boom is driven by the four million housing backlog we suffer from (therefore demand driven) and the growth of the BPO sector (now threatened by Trump’s protectionist policies). This is a boom that is, in the end, self-limiting.

We are expecting a boom in infrastructure construction. That boom addresses the shortfall accumulated during the three decades when we invested only about half of what our neighbors did in new infra.

Our poor infra backbone makes everything inefficient. We cannot move goods quickly through our antiquated port system. We cannot draw in significantly more tourists than the paltry lot we already have because our airport system is obsolete. We cannot even move our own workers efficiently to their places of work because of our decrepit transport system.

The drawbacks are large. The challenges are enormous.

The Duterte administration has drawn up a plan that seeks to make the economy grow by at least 7 percent into the medium term, build up our infra rapidly to induce more investments and invest enough in our young to prepare them to be globally competitive. That plan is a costly one. To finance it, we need the comprehensive tax reform package now submitted to Congress.

If the comprehensive tax reform package is not acted upon quickly enough by the legislators, ensuring an additional P800 billion in new revenues for government, the ambitious growth plan cannot be accomplished.

Many in the business community are hoping President Duterte will invest his awesome political capital in getting the economic reforms going. Leave criminality to the police.