Gloomy

Over the longer term, things will probably work out for the best. But at the moment, the mood is gloomy. It is the short term that matters in politics.

The inflation numbers for June, released this week, overshot all estimates. That caps all the other sources of anxiety.

A 5.2 percent inflation rate is not a total disaster. But it does indicate that the economy, growing at a searing 6.8 percent could indeed be overheating. If that is recognized, every policy solution in the toolbox will temper the growth.

Apart from raising policy rates, the BSP could tighten liquidity requirements for our banks. That means lesser funds to lend out and narrower profit margins. Both will rein in investment growth.

The stock market, already weakened by the withdrawal of foreign funds and anxiety over the effects of the Trump tariffs, reacted to the latest inflation numbers by returning to bear territory. The peso, already Asia’s second worst performing currency, threatens to depreciate further.

Should the peso depreciate even more, that will fuel even higher inflation. It will magnify the domestic prices for imported oil. It will raise the cost estimates for the infra projects we are doing. It will make imported capital goods more expensive.

This week, Trump’s tariffs against some of China’s exports take effect. Beijing has retaliated with tariffs of its own. Now Trump threatens to impose tariffs on as much as half-a-trillion dollars worth of goods from China.

If the tit-for-tat continues, both economies will suffer. China, a major growth driver for the entire global economy, will likely see a slowdown. If China slows down, global growth slows down as well.

Emerging economies such as the Philippines need a robust global environment to sustain their momentum. Even if we are not directly engaged in the tariff war, we will be adversely affected by it.

Much more than any other single factor – domestic inflation, currency depreciation and others – it is the prospect of a global slowdown that throws a dark cloud over the stock markets. It seems the episode of low interest rates, cheap oil and negligible inflation rates spurred by the stimulus measures taken after the 2008 financial crisis has ended.

From this point on, we will have a less hospitable environment for sustaining our economic expansion. The goal of achieving a GDP growth rate of seven percent or better this year just became a lot more elusive.

Faced with higher prices for basic goods, higher transport costs and lower employment prospects, the ordinary Filipino is a little shell-shocked. The nation needs to be encouraged to shoulder on with the reforms we need to build a strong and inclusive economy.

The forthcoming State of the Nation Address (SONA) is a good opportunity for President Duterte to rally the people and build public morale over what are really transitory setbacks. Unfortunately, this does not seem to be the sort of SONA the President intends to deliver.

The presidential spokesman tells us the forthcoming SONA will be a message “straight from the heart.” Hopefully it will not be another meandering soliloquy by the President about how he was molested as a child.

Crabs

If we must grow at the present rate, we need to install at least 7,000 more megawatts of generation capacity over the next five years. Otherwise our economic growth will run into an unbreakable wall. No modern economy grows without sufficient power supplies.

It takes about five years for a power generation project to finally produce supply. That means that the investment decisions to produce the 7,000 megawatts of electricity we will need in five years should be made now. That is not happening.

With one of the fastest growing economies in the world, we will need to double our power generation capacity by 2030. Otherwise we suffer the crippling power shortages we experienced during the early nineties.

Today, we generate 34 percent of the power we need using coal plants. Another 34 percent is generated using oil and gas plants. The remaining 32 percent is generated using renewable energy sources, principally our hydroelectric and thermal plants.

Secretary Al Cusi is correct in maintaining a technology-neutral stance given the urgency of installing enough new capacity to meet our needs. The Energy Department is not inclined to impose caps and quotas on one technology against another. The most important thing is to have enough power supply – or the roof caves in.

There are vested interests at play, however. They want policy to favor one technology (the more expensive one) over the rest. In pursuit of their narrow corporate interests, they think nothing of pulling down their rivals or blockading the approvals process to get their way.

They are like crabs in the basket, sacrificing the long-term national interest for selfish ones. In the end, everyone lands at the bottom of the basket. We all move perilously closer to power scarcity.

The vested interests in the power sector have succeeded in getting many policies to work in their favor. They managed to win “feed-in tariffs” that favor one technology and penalize the others. They have used the courts and the crowds-for-hire to block approvals and paralyze the competition. They have cynically employed supposedly pro-environment groups as cover for skewed policies.

This week, four commissioners of the ERC, just emerging from a previous suspension, was suspended again. If the ERC cannot work because of actions like this one, the urgent decisions cannot be made.

This moves us closer to a future of costly and insufficient power.