Suspend rate hike, scrap concession agreement with water firms, govt told

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The Water for the People Network (WPN) said that government should not accede to the ruling of an international arbitral court granting the Maynilad Water Systems, Inc. petition to collect its corporate income tax (CIT) from consumers. 

The water rights group agreed that any impending water rate increase amid the ongoing dispute on pass-on CIT should be deferred.

The group likewise urged the scrapping of the concession agreement (CA), which it said allows onerous grounds for price hikes.

The Singaporean Supreme Court finalized an International Chamber of Commerce (ICC) arbitration decision that Maynilad may recover its CIT through pass-on charges.

Maynilad has demanded that the Philippine government pay Php3.4 billion in indemnification for non-recovery of its CIT for the period March 11, 2015 to August 31, 2016.

This is after the Metropolitan Waterworks and Sewerage System Regulatory Office (MWSS-RO) refused to honor an arbitral decision favoring Maynilad while that for Manila Water remained pending.

As per CA with the Philippine government, both Maynilad and Manila Water took to international arbitration in 2013 to contest the RO’s rejection of their petitioned rate increases for the rate rebasing period of 2013-2018.

The firms’ petitions included CIT recovery and other expenses unrelated to the delivery of water services.

For the period of 2018-2022, the MWSS Board has already approved the RO’s rate rebased tariffs, which again reportedly disallows CIT recovery. The MWSS-RO announced a staggered Php5.73 per cubic meter (cu. m.) rate increase for Maynilad and Php6.22/cu. m. for Manila Water.

These are lower than the firms’ petitioned rates, wich for Maynilad still included the CIT.

The WPN urged the MWSS Board in a letter to uphold the decision to prohibit CIT recovery because it is unjust to consumers.

“In the first place, it is very wrong to pass on the burden of paying the CIT to consumers,” said the group.

The concessionaires are technically public utilities providing a very basic need such as water, said WPN. Aside from mandating the periodic alteration of basic charges through rate rebasing, the CA ensures the concessionaires’ steady flow of revenue and profit-making with other increases based on inflation, an environmental charge, and value added tax, noted the group.

WPN supports the MWSS-RO plan to suspend the impending rate hike this year should Maynilad insist on collecting indemnification from the government.

“The amount being demanded by Maynilad alone could reach Php40 billion, tantamount to an increase of about Php5.00/cu. m. on current average tariffs. Any rate hike today is also insensitive due to the soaring prices of goods and services,” said the group.

Inflation has risen to 6.7 percent in September from 6.4 percent in August.

Aside from pushing for the prohibition of the CIT and rate hike suspension, WPN stressed that strategically, government should review and repeal the CA altogether.

 

“It is the basis of the enrichment of private water firms at the expense of consumers. Government should instead ensure control over water resources to have these safe, accessible and affordable for the public,” WPN said. #

IBON — Php238 NCR wage hike doable without worsening inflation

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As the Metro Manila regional wage board deliberates a minimum wage hike for later this month, research group IBON said that a much-needed Php238 minimum wage increase is possible and need not be inflationary.

Millions of Filipino workers including in the National Capital Region (NCR) are burdened by high prices of goods and services.

The group said that the wage hike is possible and will not be inflationary if only companies are willing to take a small cut in their profits.

The government can meanwhile support smaller establishments to be able to afford the wage increase.

The purchasing power of poor and middle income households in NCR is eroding due to high inflation this year on top of the accumulated erosion from inflation in previous years.

At the national level, IBON estimates that the country’s poorest 14 million households have already lost anywhere from Php1,800 to Php4,725 cumulatively from January to September this year because of inflation.

The erosion in purchasing power in NCR is likely to be even greater. Monthly inflation in the first nine months of the year averages 5.0 percent nationwide but is higher at 5.6% percent in NCR.

IBON said that NCR firms have more than enough profits to support a Php238 minimum wage hike.

The latest data from the Philippine Statistics Authority’s (PSA) Annual Survey of Philippine Business and Industry (ASPBI) reports that NCR firms (with 20 and over employees) had combined profits of Php903 billion in 2015 while giving an average daily basic pay (ADBP) of Php530.

Using ADBP as a proxy for workers’ wages, raising the NCR minimum wage to Php750 and ensuring that workers get this will cost just Php132 billion which is just 14.6 percent of their profits.

In effect, NCR firms can pay the Php750 minimum wage and not have to pass this on to consumers as higher prices if they accept a slight cut in their profits.

Large corporations can readily give this substantial wage hike, said the group, but government should ensure assistance to micro, small and medium enterprises (MSMEs) so that they can afford this.

This can come in the form of tax breaks and incentives, cheap credit, subsidized fuel and utilities, and technology and marketing support, among others.

IBON added that the large wage hike is also justified by growing worker productivity.

Between 2009 and 2017, labor productivity in NCR grew by 35 percent from Php456,059 per worker to Php614,297.

However, that same period, the real value of the mandated minimum wage only increased by 11 percent and of ADBP by 16 percent, both measured in real terms at constant 2012 prices.

This implies that a large part of productivity gains go to employers as profits rather than to workers as higher wages.

IBON stressed that it is more urgent than ever in these times of economic crisis for the government to ensure the poorest working class Filipinos do not suffer needlessly and for those with the capacity to adjust, such as enterprises and the wealthy, to contribute to a more equitable economy. #

Inflation worsening: Gov’t should act fast as households’ incomes hemorrhage

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Research group IBON said that inflation has not tapered off as government projected but has accelerated in September, highlighting government’s continued neglect in addressing rapidly rising prices of goods and services.

The group said that government continues to push failed neoliberal measures, while feigning concern for Filipino families struggling with a quickly falling purchasing power.

Sonny Africa, IBON executive director, said, “The purchasing power of Filipino families continues to fall because the Duterte administration is more concerned about managing the political backlash of rising prices than genuinely addressing the burden on the country’s poorest families.”

The Philippine Statistics Authority (PSA) reported that the headline inflation rate accelerated to 6.7 percent year-on-year in September 2018, higher than the 6.4 percent in August.

Africa said that this is also more than double the 3.0 percent in the same period last year and over five times the 1.3 percent in June 2016 at the start of the Duterte administration.

The inflation rate for the poorest 30 percent of families is however likely even higher and some 8.5 percent or more.

Africa said that inflation has not moderated because the government refuses to suspend implementation of the Tax Reform for Acceleration and Inclusion (TRAIN) law or to implement price ceilings on basic necessities and prime commodities.

“Doing these would have sent a strong signal of the administration’s sincerity in addressing rising prices and would bring immediate relief for tens of millions of Filipinos,” stated Africa.

Instead, inflation has already eaten up thousands of pesos in the purchasing power of the incomes of the poorest households who are already under-consuming and have low standards of living as it is.

Africa estimated that each of the country’s poorest 30 percent of households have lost at least Php1,800 to Php2,916 already from the start of the year until September due to inflation.

These are households assumed to be earning some Php12,835 or less monthly.

Less poor and middle income households have also seen their purchasing power eroded.

The next 30 percent of households have lost Php3,418 to Php4,725 since the start of the year.

These are the households earning up to around Php21,119 monthly.

IBON estimates the erosion of purchasing power by deflating household incomes with reported monthly inflation rates.

The impact on the poorest households is also underestimated by the unavailability of inflation rates for low income groups.

The administration has been promoting measures such as importation of agriculture products and the public utility vehicle modernization as ways to mitigate high inflation.

But Africa said that these government measures are tepid because the economic managers only see the numbers as cold statistics and callously insist that the situation is manageable.

“The measures are weak, slow to take effect and oblivious to the worsening conditions of tens of millions of the poorest Filipinos,” said Africa.

Africa also said that lower inflation in the National Capital Region (NCR) may reflect how the government is just managing the political impact of inflation.

“Reported NCR inflation of only 6.3 percent could be because the administration diverted food supplies to NCR to lower food prices here but at the expense of the regions,” said Africa.

Food inflation in non-food producing NCR is conspicuously moderated. There was a just 0.6 percentage point increase in NCR versus 1.5 percentage point increase outside NCR, and 1.2 increase nationwide.

“The government should provide real relief to millions of poor Filipinos and middle class. This includes immediate price controls, stopping TRAIN’s consumption taxes, and a meaningful wage hike. Steps must also be taken to strengthen domestic agriculture and Filipino industry,” he said. #

 

Rate hike for Maynilad customers approved: Looming increase in water rates to burden consumers more

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Amid soaring prices, the MWSS Board of Trustees has given the nod to higher water rates for Maynilad Water Systems Inc.

This and impending Manila Water Company, Inc. rate increases are bound to burden consumers anew, said water rights group Water for the People Network (WPN).

WPN urged the Metropolitan Waterworks and Sewerage System-Regulatory Office (MWSS-RO) to suspend the hike so as not to aggravate the difficulty of millions of low-income families in spending for their basic needs.

Approved by the MWSS Board is a Php5.73/cubic meter (cu. m.) hike for Maynilad as proposed by the MWSS-RO.

Meanwhile, the proposed increase for  Manila Water rates is Php6.26-Php6.55/cu. m.), which is set for deliberation within the month.

These figures are the supposed results of the rate rebasing process.

Every five years, government determines new water rates according to its review of the water companies’ petitioned rates vis a vis their past and projected expenses throughout the concession period.

Purportedly in consideration of consumers’ inflation woes, the MWSS-RO proposed for the increases to be collected in tranches, starting in October.

Maynilad’s approved rate hike schedule begins at a weighted average of Php0.90/ cu. m.

Manila Water’s rate hike begins at a weighted average of Php1.50.

WPN however said that regardless of the scheduled tranches, any addition to current expenses further constricts spending for poor households.

This includes millions of families whose incomes already fall way below the Php995 Family Living Wage (FLW) for a family of five. The daily minimum wage in the National Capital Region (NCR) totals Php512.

MWSS-RO computes that this October, the bills of households covered by Maynilad will increase by a net amount of Php6.53 for households consuming average 15 cu. m. per month and a net amount of Php13.68 for households consuming average 25 cu. m. per month.

For Manila Water customers consuming the same average volumes of water, rates increase by a net amount of Php9.68 and Php20.30, respectively.

Aside from the basic charge, however, WPN noted that the all-in tariff includes other fees such as the foreign currency differential adjustment (FCDA), environmental charge, and the value-added tax (VAT).

All-in tariffs are already at Php48.03/cu. m. for Maynilad and Php36.40/cu. m. for Manila Water as of July 2018.

The MWSS-RO claimed that Maynilad’s approved rate hike is much lower than the company’s Php11.00 petitioned increase, as is the RO’s recommended increase for Manila Water compared to the latter’s Php8.30 proposed hike.

This supposedly reflects the MWSS’ prohibition of the inclusion of the water firms’ corporate income tax and expenses unrelated to water services such as donations and recreation.

WPN however said that the agency’s refusal to publicly show the documents proving this–prior to the approval of the MWSS Board–underscores that the rate rebasing process lacks transparency and authentic public consultation.

During the 2013 rate rebasing process, public clamor versus the discovered inclusion of such items in water bills led to the MWSS-RO’s rejection of the water concessionaires’ petitioned rates.

Thus, per their concession agreement (CA) with the government, Maynilad and Manila Water subsequently appealed to international arbitration courts to demand compensation for lost revenues.

The courts have ruled twice in favor of Maynilad. Manila Water, which the international courts have turned down, has a pending case.

Consumers face more tariff increases in the future, WPN said, because of government’s privatization of water despite its being a public utility.

The group challenged the MWSS-RO to spare consumers of additional fees by stopping the hike.

WPN also stressed the urgency of scrapping the CA, reversing water privatization and instituting strong government regulation over all public utilities. #

295,000 jobs lost since Duterte assumed office, IBON maintains

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Research group IBON stood by its estimates that close to 300,000 jobs were lost since the start of the Duterte administration after Employers’ Confederation of the Philippines (ECOP) honorary chair Sergio Ortiz-Luis said the group’s description of jobs lost is “deceiving”.

Ortiz-Luis reportedly said that it is deceiving to claim that the number of employed decreased by 300,000 just because there is data showing that employment dropped, even if there are new entrants to the labor market.

But Philippine Statistics Authority (PSA) data reports net employment generation, said IBON executive director Sonny Africa. “Net employment generation means employment created net of employment lost,” he explained.

“Ortiz-Luis’ argument about the number of entrants into the labor force is meanwhile puzzling because this is actually irrelevant in the PSA’s measurement of employed Filipinos,” Africa added.

“The number of employed reflects the number of jobs the economy generates, while the labor force measures those who have to compete with each other for whatever jobs the economy generates,” he explained.

PSA figures show that the number of employed fell from 40.954 million in July 2016 to 40.659 million July 2018.

IBON attributed the drop in the number of employed Filipinos to a huge 1.8 million reduction in agricultural employment over the same period.

Job losses and expensive food characterize the crisis in the agricultural sector, the group said.

IBON further said that job creation in the rest of the economy was not enough to compensate for the big agriculture job losses.

Gross job losses counted 2.2 million while gross job creation was only 1.9 million, hence the 295,000 drop in the number of employed.

The biggest job generation is in sectors that do not necessarily indicate a strong economy, IBON said, such as in the public sector and construction.

The group added that net job creation from July 2017 to July 2018 is feeble at 488,000 additional jobs compared to the 701,000 jobs created on average annually in the decade prior to the Duterte administration.

This failed to offset the 783,000 jobs lost in July 2017 from July 2016.

IBON said that Ortiz-Luis joins the administration’s economic managers in being dismissive of the jobs crisis becoming more severe under the Duterte administration.

“They have on the contrary hyped latest employment statistics as the highest among July rounds in the last 10 years, deflecting the issue of massive job losses,” the group said.

“It’s the economic managers that have been deceiving us, apparently Mr. Ortiz-Luis included,” Africa said. #

Jobs crisis getting worse under Duterte gov’t – IBON

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Research group IBON said that the jobs crisis in the country is getting more severe under the Duterte administration.

The group said that the government should be more forthright and admit growing economic insecurity from inflation and joblessness rather than keep trying to downplay this.

Millions of Filipinos are jobless, including those excluded from official unemployment figures, or have jobs but endure poor quality work.

IBON said there are less jobs available now compared to the start of the Duterte administration.

The number of employed Filipinos has fallen by 295,000 from 40.95 million in July 2016 to just 40.67 million in July 2018.

This is largely due to a huge 1.8 million drop in agricultural employment over that period.

Job losses and expensive food characterize the crisis in the agricultural sector.

IBON pointed out that job creation in the rest of the economy was not enough to compensate for the huge job losses especially in agriculture.

There were gross job losses of 2.2 million between July 2016 and July 2018 but only 1.9 million in gross job creation, hence the 295,000 drop in the number of employed.

Moreover, the group said, the biggest job generation is in sectors that do not necessarily indicate a strong economy.

The largest part of additional employment since July 2016 was in the public sector where 500,000 jobs were created, followed by construction with 393,000 in likely mostly short-term work.

These were followed by 269,000 jobs in manufacturing which is potentially important but barely 14 percent of gross job creation in the last two years.

IBON stressed that net job creation in the economy is feeble. Only 488,000 additional jobs were generated in July 2018 from the year before.

This is less than the 701,000 jobs created on average annually in the decade 2006-2015 prior to the Duterte administration.

It was also not enough to make up for the huge 783,000 jobs lost in July 2017 from the last year, hence net job losses since the start of the administration.

This crisis is obscured in the official statistics because millions of discouraged workers are no longer counted as unemployed even if they are jobless and are just statistically dropped from the labor force, said the group.

Combined with the effect of K-12 implementation in senior high school (SHS) since 2016, the labor force participation rate has dropped to 60.1 percent in July 2018 which is the lowest in 36 years or since 1982.

There are also signs that the quality of work is drastically worsening, said IBON.

The number of under-employed, or those with jobs but seeking additional work, increased by 464,000 in July 2018 from the year before to reach 7 million.

The underemployment rate has correspondingly risen to 17.2 percent from 16.3 percent last year.

The current jobs crisis consists of the millions of jobless Filipinos including those who are no longer officially counted as unemployed and the millions of Filipinos who have jobs but suffer poor quality work that is not enough to live securely and decently.

As it is, IBON conservatively estimates at least 11.3 million unemployed (4.3 million) and underemployed (7.0 million) Filipinos as of July 2018 which is one in four (25 percent) of the labor force.

IBON said that amid skyrocketing prices and inflation, it is more urgent than ever to ensure sustainable and decent employment for millions of Filipinos.

The only long-term solution is for the government to invest in genuinely developing domestic agriculture and Filipino industries. #

Government losing control of economy –IBON

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The Duterte administration is losing control over the Philippine economy and the poorest Filipinos are suffering for this, research group IBON said upon the release of the August inflation rate.

The greatly accelerating inflation is only the latest in a series of bad economic news about the economy’s so-called fundamentals.

The Philippine Statistics Authority (PSA) reported that the headline inflation rate in August 2018 accelerated to 6.4 percent or its highest in almost a decade from 5.7 percent in July.

This is more than double the 2.6 percent inflation in August 2017.

Inflation was highest in alcoholic beverages, tobacco and narcotics at 21.6 percent year-on-year but inflation also worsened among food and non-alcoholic beverages, especially vegetables (19.2 percent), corn (12.6 percent), and fish (12.4 percent).

Meanwhile, from July to August 2018, steepest inflation occurred in vegetables (4.9 percent) and rice (2.1 percent).

IBON said that the rapid rise in food prices hits poor families the worst because food takes up a greater portion of their expenditure compared to higher income families.

The bottom 30 percent income group spends 59.7 percent of their expenditures on food, compared to just 30 percent for the upper 70 percent income group based on the 2015 Family Income and Expenditure Survey.

IBON estimates that the poorest six deciles of Filipino families with monthly incomes ranging from Php7,724 to Php21,119 have suffered income losses of around Php1,455 to Php3,781 due to inflation from January to August this year.

Other indicators of macroeconomic fundamentals are no better, IBON said.

The high August inflation comes on the heels of second quarter gross domestic product (GDP) growth which was the slowest in 12 quarters, the peso falling to its lowest in 13 years, first semester remittance growth the slowest in 17 years, trade and balance of payments deficits the worst in the country’s history, and gross international reserves (GIR) that are the lowest in nine years.

IBON added that the more rapid inflation means that prices are higher than ever and will remain high even if inflation tapers off in the coming months as government projects.

The government needs to become more decisive in addressing increasingly unaffordable goods and services, IBON said, adding immediate and longer term measures can be taken.

The most immediate is to stop implementation of the TRAIN law and particularly its inflationary consumption taxes, IBON stressed.

This will not arrest inflation completely but it will take away the most recent inflationary pressure that is also the one most directly within the government’s control. The government can also consider price controls, said the group.

The president has the authority to impose price controls not just in the case of calamities but also when there is illegal price manipulation and if prices of basic commodities are already deemed at unreasonable levels, it said.

The long-term solution however, IBON underscored, is to strengthen domestic agriculture and Filipino industry. These are essential to provide cheaper food, goods and services in the domestic market. This will also lessen imports and lower pressure on the peso to depreciate.

The group also said that another solution is to reverse the privatization or commercialization of water, power, education and health to take away the profit premium making these services more expensive.

These are steps that the Duterte administration’s economic managers hinder due to their stubborn adherence to failed neoliberal policies, said IBON.#

PH Economy Duterteriorating

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IBON FEATURES – Stay the course, the country’s economic managers always insist. They will be the last to admit bad economic news because eternal sunshine is part of their job. Their recent spontaneous reactions against federalism are however more revealing. They are losing control of the economy as it is and they know the ill-conceived self-serving federalism project will just make things worse.

After just a little over two years of the Duterte administration, the economy is stumbling with adverse movements in key economic indicators. It is not yet a severe economic crisis nor necessarily about to be one soon. Still, it is clear that the fundamentals are unsound and the economy is increasingly vulnerable to a political upheaval or to a renewed global downturn.

The majority of Filipinos are poor and gained little when times were supposedly good – but they will be hit the worst when the illusion of progress is finally broken.

Unsound fundamentals

Government economists like to invoke macroeconomic ‘fundamentals’ particularly when supposed economic good news are not being felt by the people. The argument is that these are vital to eventually bettering Filipino lives so the concern for them is a concern for the masses.

This would be believable if there were not habitual inattention to things of more direct everyday relevance to people like higher wages or better social services or insistence on anti-people measures like regressive taxes. In practice, the concern about certain economic indicators is really more because they matter to the investment and production decisions of big business and foreign investors.

The administration’s problem today, even if they will not admit it, is that many of the so-called fundamentals are taking a turn for the worse.

The most headline-grabbing is inflation which is already up to 5.7% in July 2018. This is more than double the 2.5% in the same period a year ago and four times the 1.3% inflation rate in June 2016 at the start of the Duterte administration. It is the highest inflation since March 2009 or a nearly 10-year high. While businesses worry about how to plan ahead, tens of millions of the poorest Filipino households worry about how their lives are just becoming even more difficult.

Unemployment is also high. The reported low unemployment rate of 5.5% or just 2.4 million unemployed Filipinos in April 2018 is misleading. It is based on a revised definition of unemployment that among others does not count millions of discouraged workers. IBON’s preliminary estimate according to the original definition is an unemployment rate of around 9.1% or some 4.1 million unemployed. Adding the 6.9 million underemployed then means 11.1 million unemployed and underemployed Filipinos which is a sizeable one in four of the labor force.

Employment generation is in any case tepid. Job generation in April 2018 from the same period in the year before was an unremarkable 625,000 new jobs. This is just around the historical average since the 1980s and actually even less than average annual employment generation of over 800,000 since the 2000s. The quality of work is moreover undermined by low pay, poor benefits and apparently unabated contractualization.

Worse, neoliberal logic during times of high inflation means that working class Filipinos will not get meaningful wage hikes just when they need these more than ever. Economic managers will likely use rising cost-push inflation to justify keeping wages low. The government will choose to manage inflation by making Filipino working people make do with less, while ensuring that firms maintain their profits.

Worst in years

Economic growth is slowing. The 6.0% growth in gross domestic product (GDP) in the second quarter of 2018 is down from 6.6% in the same period last year. It is also the slowest in the past 12 quarters since the second quarter of 2015. This is despite the debt-driven surge in construction and government spending since the start of the year.

Among the reasons for this are sluggish exports amid the unresolved global crisis. Exports are overwhelmingly by foreign firms in export enclaves and actually contribute little to national development. In any case, the export slowdown to 13% in the second quarter from 21.4% in the same period last year has dragged first semester export growth to its slowest since 2015.

Imports on the other hand continue to grow because domestic production is still backward. The country remains overly dependent on imports of capital, intermediate and consumer goods for local and export zone use. The trade deficit soared to US$19.1 billion in the first half of 2018 which is a huge 62.6% more than in the same period last year and the worst semestral deficit in the country’s history.

More expensive imported oil contributes to the swelling import bill and trade deficit aside from also pushing domestic inflation. The country would be less vulnerable to rising global oil prices if the oil industry were not deregulated and if there was not just lip service to transitioning to more sustainable renewable energy.

Portfolio investment inflows from abroad in May, June and July fell from the same respective periods last year. The US$959 million inflow in July 2018 is a marked  33.1% decline from US$1.4 billion in the same month last year. Portfolio investments are volatile especially on a month-to-month basis. At any rate the US$9.8 billion in inflows to date in 2018 is a slight 1.8% dip from the same period last year.

The bulk of this so-called hot money goes to Philippine Stock Exchange (PSE)-listed securities and the PSE index (PSEi) has been generally falling. The PSEi breached 9000 in January but has fallen to around the 7000-7800 range since May. The foreign buyer-heavy PSEi is showing foreign investors voting with their feet.

Foreign direct investment (FDI) is among the government’s most favored indicators of investor confidence. This is probably even more so now than usual because reported FDI inflows seem to be the only bright spot left – the US$4.9 billion in FDI in the first five months of 2018 is a notable 48.9% increase from the same period last year. Whether this trend will continue though is uncertain. Approved investments in the first half of 2018 declined by 5.3% to Php292 billion from Php308 billion in the same period last year.

Even remittances from overseas Filipinos are becoming less reliable than before. Cash remittances fell to US$2.36 billion in June 2018 which is 4.5% less than US$2.47 billion in the same month last year. This dragged down remittance growth in the first semester of 2018 to 2.6% from the same period in 2017, which is also the slowest first semester growth since 2001 or in the past 17 years.

Measured on a year-on-year basis, monthly remittances were consistently growing in the 11 1/2 years between May 2003 and October 2014. Monthly declines are however becoming much more frequent and there have already been 10 months of year-on-year declines in just the last 36 months since July 2015.

Dollars come in and dollars go out. All told, the country’s balance of payments (BOP) deficit for the first seven months of 2018 has almost tripled to US$3.7 billion from US$1.4 billion in the same period last year. The government dismisses the huge deficit as due to imports of raw materials and capital goods to support domestic economic expansion. It should however also realize that the country’s growth pattern is not really building domestic capacity that ends chronic import-dependence or creates a sustainable growth momentum.

These are exerting considerable pressure on the  peso which is depreciating rapidly. The average monthly rate of Php53.43 to the US dollar in July 2018 is its lowest value in over 12 1/2 years or since the Php53.61 exchange rate in December 2005. Year-to-date, the Philippine peso is the worst performing among the major currencies in East Asia – losing more value than the yuan, won, Taiwanese dollar, rupee, ringgit, Singaporean dollar, rupiah and yen.

The worsening deficit is also driving gross international reserves (GIR) ever lower. The end-July 2018 GIR level of US$76.9 billion is 5.1% less than the same period last year. The country’s external liquidity buffer is down to 7.4 months’ equivalent of imports of goods and payments of services and primary income from 8.4 months’ worth in the same time last year. This is already much less than the peak 11.8 month import cover reached in 2013 and as low as nine years ago in April 2009 when it was 7.3 months’ worth.

Wavering economic drivers

The factors that have been driving the economy recently are subsiding. The post-2008/09 low global interest rate environment is fading fast. Overseas remittances are slowing and business process outsourcing (BPO) is losing momentum. These depress household consumption and curb the real estate boom.

On the other hand, factors restraining economic growth are on the rise. Tax-, depreciation- and oil price-driven inflation is squeezing household purchasing power and rising interest rates are tempering business expansion and investment. The Bangko Sentral ng Pilipinas (BSP) has hiked interest rates thrice in May, June and August to try and stem inflation as well as to keep the country attractive to foreign speculative capital. The monetary board’s policy interest rate has risen from a steady 3% since June 2016 to 4% already by August this year.

Bank lending was actually already slowing since the middle of 2017 or even before these rate hikes. Consumer confidence and business expectations indices have also been steadily falling since the last quarter of 2016. All of these will dampen demand and eventually also output.

The economy is then in a precarious situation of high inflation, high unemployment, slowing growth, rising interest rates, swelling trade deficits, a failing peso, and stagnation of agriculture and Filipino industry. This combines with growing political uncertainty from resurgent and wider protests driven by economic discontent, assertions of human rights, and opposition to corrupt and authoritarian governance.

Short-term trends should certainly be interpreted cautiously. The recent deterioration in so many indicators is however consistent with deep structural problems in the economy. The most important long-term issue is the chronic underdevelopment of domestic production sectors.

Agriculture and fisheries are still backward and not even keeping up with population growth. Some 723,000 agricultural jobs were even reported lost in April 2018. Food prices will stay high if the sector is not given more attention and developed. Industrialization meanwhile is superficial. Reported manufacturing growth is mainly by foreign firms and their domestic subcontractors with shallow links to the domestic economy rather than driven by burgeoning Filipino industry.

Modern domestic agriculture and Filipino industry are the most reliable foundations of endogenous domestic growth. The government’s reaction is however grossly short-sighted. In particular, the debt-driven infrastructure offensive will be a limited and momentary stimulus at best. But even this will only be to the extent that limits on the absorptive capacity of government and of the private sector to implement the projects are overcome. The adverse effect of rising interest rates on the national debt also cannot be underestimated.

Ending poverty

The government is doing something wrong. It is way past time to discard neoliberal Dutertenomics for an economic program that really does end poverty. The government does not have to look far for ideas on how to start doing things right.

The mass movement came out with the wide-ranging People’s Agenda that Pres. Rodrigo Duterte personally received on his first day in office in end-June 2016. The government’s own National Anti-Poverty Commission (NAPC) proposed a fresh anti-poverty framework in January 2018 which has been taken up in inter-agency consultations and a national anti-poverty conference last month in July.

Even the National Democratic Front of the Philippines (NDFP) weighed in long ago with its bold proposed Comprehensive Agreement on Social and Economic Reforms (CASER) in 1998. This was updated in 2017 and the government and the NDFP were negotiating and actually making progress on a mutually acceptable CASER until the peace talks were unceremoniously scuttled in June this year.

Decades of neoliberalism have generated profits and wealth for a few at the expense of tens of millions of Filipino farmers, workers, informal sector odd-jobbers, and low-paid employees. The call to be patient as the government perseveres with fundamentally unsound policies is unacceptable. If anything, the danger of intensified crisis makes it all the more urgent to immediately change course. #

Poor Filipino families worst hit by rising July 2018 inflation

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Research group IBON said that faster inflation largely due to rising food prices hits poor households the worst.

The group also said that the Duterte administration’s proposal to increase food imports is short-sighted, and that the best defense against rising food prices and high inflation is to increase domestic food supply through long-term solutions that correct long-standing government neglect of agriculture.

The Philippine Statistics Authority (PSA) reported that July 2018 inflation rose to 5.7 percent from 5.2 percent the previous month.

This was mostly driven by worsening inflation in food and non-alcoholic beverages with higher rates among nine out of 11 commodity items in the index.

Prices rose fastest for vegetables (16 percent), corn (13 percent), and fish (11.4 percent).

IBON said that this increasingly expensive food is particularly problematic for poor families because food takes up a greater portion of their expenditure compared to higher income families.

According to the latest available data from the 2015 Family Income and Expenditures Survey, 59.7 percent of the expenditures of families in the bottom 30 percent income group was spent on food compared to just 38.8 percent for families in the upper 70 percent income group.

Rising prices will push more families into hunger and poverty, the group said.

The Duterte administration is proposing to arrest escalating food prices and inflation by lowering tariffs on food to increase their importation.

IBON however said that while this could give some immediate relief it is only a short-sighted measure and the government is still failing to come up with long-term solutions to rising domestic food prices.

The much-needed long-term solution is to increase domestic agricultural, fisheries and livestock productivity, said the group.

Yet the Duterte administration is proposing to increase food imports while cutting the Department of Agriculture (DA)’s proposed budget for 2019 by Php862 million, making it 1.7 percent lower than in 2018.

Domestic producers lacking government support are at risk of being undermined or displaced by cheap food imports.

IBON said that additional food imports should only be for a short time until prices stabilize.

 

Suspending the Tax Reform for Acceleration and Inclusion (TRAIN) Law will also greatly reduce inflationary pressures.

 

The group stressed that measures to increase farm productivity should immediately be implemented including providing irrigation, production and storage facilities, extension services, subsidized credit and marketing support, among others. #

Crisis of PH agriculture drives high inflation and economic slowdown

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Research group IBON said that the recently released second quarter 2018 growth figures confirm the fundamental reason for rising food prices: underdeveloped agriculture from government neglect.

IBON said that while the Tax Reform for Acceleration and Inclusion (TRAIN) law is the most proximate driver of inflation within the Duterte administration’s control, the agricultural sector’s underdevelopment is the long-term reason for rising food prices.

The sector is in deep crisis with slowing growth, massive job losses, and domestic food supply insufficient for the growing population, the group added.

The Philippine Statistics Authority (PSA) reported drastically slowing growth in agriculture to 0.2 percent in the second quarter of 2018 from 6.3 percent in the same period last year.

First semester growth has correspondingly been dragged down to just 0.7 percent in 2018 from 5.6 percent in the first semester last year.

IBON noted that agricultural growth today falls far behind estimated population growth of 1.6 percent in 2018 and is well below the seven-decade historical average of 3.0 percent since 1948.

The agricultural slowdown is also reflected in massive job losses in the sector.

Agricultural employment collapsed by a huge 723,000 to just 9.8 million in April 2018 from 10.5 million in the same period in 2017, the group observed.

“The Duterte administration only gives lip service to improving agricultural productivity amid this severe crisis of agriculture in the countryside,” IBON executive director Sonny Africa said.

He said that the 2019 budget for Department of Agriculture (DA), for instance, is even proposed to be cut by Php862.3 million or a 1.7 percent decline to Php49.8 billion from Php50.7 billion in 2018.

These are comparable figures using the cash-based equivalent for 2018 with the cash-based budget for 2019.

“The administration also continues long-standing government neglect of the sector,” Africa added.

“The combined agriculture and agrarian reform budget is only 3.7 percent of the total proposed cash-based budget for 2019. This is less than the 3.8 percent share under the obligation-based budget for 2018 and even lower than the historical range of about 4 to 6 percent since the mid-1980s,” he explained.

According to Africa, proposals to increase food imports may be necessary but should only be a short-term emergency measure used with restraint if it has been established that there is a shortage.

It is possible for more food imports to lower prices but only if traders do not exploit tariff cuts just to increase their profits, he said.

“With importation, uncompetitive domestic producers not given enough support by the government will be displaced if trade protection for them is removed. Importation could also tend to worsen the trade deficit and add to pressures for the peso to depreciate,” Africa warned. # (IBON.org)