Politics-driven inflation panic

The economic managers of President Rodrigo Duterte have apparently been shaken out of their denial stage now that the entire August showed 6.4% inflation rate. Thus, no less than President Duterte himself announced last week he is ready even to adopt a “free-for-all” importation policy, if need be, to dampen the politics-driven inflation panic.

According to Finance undersecretary Karl Kendrick Chua, President Duterte is set to issue an executive order (EO) that would implement reduction of tariff and removal of non-tariff barriers on certain goods and products we import from abroad. Chua explained the EO specifically targets to address the distortions on the supply of rice, fish, meat, poultry, and other food products through importation.

The Committee on Tariff and Other Related Matters (CTRM), under the National Economic and Development Authority (NEDA), is set to conduct a new round of public hearings on the possible reduction of tariff and by how much as well as the removal, if not easing, of administrative restraints, or the so-called non-tariff barriers to importation of these food products.

Under the country’s 1987 Constitution, the President is empowered to legislate an amendment of the Tariff Code only if the Congress is not in session. Thus, these remedial measures could be immediately implemented through the executive fiat that President Duterte can invoke when the 17th Congress adjourns for one month starting Oct. 11.

In particular, the rice prices steadily shot up in the aftermath over the turf feud between the National Food Authority (NFA) and the NFA Council late last year over how the government would import rice. While the tug-of-war whether the rice importation will be done through government-to-government transaction or through private importers dragged on, the average rice stock pile at the NFA warehouses dwindled to less than comfortable level.

The NFA is required to keep a buffer stock good for 15 days at any given time and a 30-day buffer stock during the traditional lean months of July to September.

The NFA Council-NFA feud resulted to shortage of supply in the markets of government-subsidized rice that people get from the NFA and affected the supply of commercial rice and began pushing up the prices.

Every rice importation by the NFA needs clearance from the NFA Council headed by Leoncio Evasco and the NFA, on the other hand, is headed by administrator Jason Aquino. As the price of rice steadily rose along with the public outcry over disappearance of lower priced NFA rice in the market, President Duterte stepped in the initial brush of the NFA Council-NFA feud. The Chief Executive ordered the relief last April of Evasco whom he asked to return to his being full-time Cabinet Assistance Secretary.

But apparently, this was not the only problem behind the rice supply problem. It turned out the NFA itself caused the rice shortage when the agency did not use its more than P5 billion budget last year intended for rice procurement. The Commission on Audit (COA) found out this specific budget provision was used to pay off the NFA debts to two government-owned banks.

Taking cognizance of the COA report, the economic advisers of President Duterte led by Finance Secretary Carlos Dominguez called for an investigation into this obvious case of technical malversation by the leadership of the NFA. President Duterte, in a make-believe “tete-a-tete” with his chief legal adviser Salvador Panelo on Tuesday at Malacanang Palace, casually announced his NFA administrator had “requested” that he be relieved from his post because of disagreements with fellow officials. But the President stopped short whether the offered relief of Aquino takes him off-the-hook.

The President disclosed he would like to appoint a new NFA administrator whom he strongly hinted as someone who he is waiting to finish a term of office before he could accept the offered post.

Most likely that someone is yet another retired military or police official like Aquino is.

The former Davao City Mayor has shown his preference for ex-military and police officials whom he generally described as “mission-oriented” and many of them are personally known to him for having once served stint in his home city. We have no quarrel with that for as long as these appointees are competent and capable to do the job right.

At the same “tete-a-tete,” the President vowed to recommend to Congress the abolition of the NFA Council, saying “it has no purpose.” The NFA Council is merely an inter-agency body but holds a lot of sway in deciding over our country’s main staple. Abolishing it does not need a lot of debate in Congress if no less than the President seeks for its closure out of the rice business.

Making its last hurrah though, the NFA Council reported to the President the rice supply situation will normalize with approximately 2 million sacks of rice previously contracted to be delivered before the end of September. And that they also authorized the importation of 5 million sacks that will be arriving over the next one and half months, and another 5 million sacks to be imported early next year.

The economic managers have agreed to recommend to the President the issuance of a directive to further simplify and streamline the licensing procedures for rice imports of the NFA. This is also preparatory for the approval into law of the Rice Tariffication bill that was certified by the President as urgent administration measure. It was already approved on third and final reading at the House of Representatives and is now pending approval at the Senate.

As envisioned by this Rice Tariffication bill, there would be no more quota restrictions that private importers can procure but would be subject to pay tariff. The government, in turn, will use the proceeds from rice tariffs to finance projects and programs to enhance rice and agricultural productivity.

Even as the government is now strongly addressing the supply disruption in our country’s staple food through importation, another yet looming economic problem is rearing its ugly head. The latest report of the Bangko Sentral ng Pilipinas (BSP) showed our country’s “current account posted a deficit of $3.1 billion due mainly to the widening deficit in trade in goods account and lower net receipts in the primary net income account” from January to June this year.

This simply means we import and pay more dollars than we export and earn dollars. In fact, the Philippine peso vis a vis the US dollar now ranges to more than P54 to $1. At least, it makes our overseas Filipino workers happy with their remittances to their families here in the Philippines and exporters getting higher value for their dollar earnings. But that’s a global phenomenon that strong macro-economic fundamentals of the country should be able to weather.

More troublesome is the politics-driven inflation panic that does the damage most.