With the possible exception of some 433 extremely lucky Filipinos who scooped the grand lotto jackpot of 239 million pesos on October 1, the majority of us are finding it harder and harder every day to dip into our pockets. shallow just to make ends meet. These lucky punters who each received 500,000 pesos have at least increased their purchasing power for the next few months or so, depending on their respective spending habits.
Former Senator Kiko Pangilinan couldn’t resist drawing a price comparison between some of our kitchen essentials, like garlic and onion, with those sold in Thai public markets. A kilo of garlic in Bangkok costs 50 baht or 85 pesos while consumers in Manila have to shell out 400 pesos for a kilo. A kilo of onion there which could be bought for 35 baht or P60 fetches P300 per kilo here.
In his Facebook post, Pangilinan also denounces the fact that Thailand and Vietnam seem to be managing the inflationary effect of the currency crisis better, despite lower agricultural budgets. The Philippine agricultural budget of 102.5 billion pesos, he infers, is twice and three times that of Thailand and Vietnam, respectively.
Pangilinan is not alone in expressing dismay at the government’s inefficiency in managing the inflationary effects of a strong US dollar. If we go by the latest Pulse Asia survey, the majority of Filipinos (nearly 7 out of 10) are having sleepless nights due to soaring commodity and raw material prices.
At least for now, inflation appears to be President Ferdinand Marcos Jr’s Waterloo. It was rated poorly by 1,200 Pulse Asia respondents who were polled between September 17 and September 21.
For 60% of respondents, controlling inflation was the top pressing national concern. While 42% disapprove of the administration’s performance in dealing with this problem, only 31% are in favor of it. Ferdinand Jr.’s -11 approval rating on his handling of inflation ranked lowest among 13 issues listed in the Pulse Asia poll.
Inflation, which is the measure of rising prices for food, clothing, housing, electricity and other essential commodities, soared to 6.9% in September, the worst in four years, according to the Philippine Statistics Authority (PSA).
Although the term “inflation” is unfamiliar to many Filipinos, it is generally felt across all geographies: 81% in Mindanao, 71% in Visayas, 68% in Metro Manila and 56% in Luzon . The latest unemployment rate published by the PSA makes the situation more alarming. On Thursday, the PSA reported that the country’s unemployment rate in August was higher than the 5.2% posted in July, but lower than the 8.1% posted a year ago. In terms of absolute numbers, this simply means that a total of 2.68 million Filipinos were out of work in August. This figure was higher than the 2.6 million recorded in July 2022, but lower than the 3.88 million in August 2021.
Anakpawis representative Ariel Casilao says jeepney drivers incurred additional fuel costs ranging from 8,000 to 20,000 pesos per month; farmers over P8,000 for land preparation and irrigation, and fishermen P3,800 for their 16-day month of fishing.
Foreign and local analysts point to the soaring dollar as the root cause of all the turmoil the global economy has seen. The continued hike in Federal Reserve interest rates has had a significant economic impact, particularly in emerging markets.
With the US dollar stronger than it has been for two decades, its role has become even more immense in the global economy and international finance. The simplest explanation for this comes down to the Fed. When the US central bank raises interest rates, as it has done since March, the dollar becomes more attractive to investors around the world. In any economic climate, the dollar is considered a safe place to park your money. In this tumultuous climate of global pandemic and war in Ukraine, investors have had more incentive to buy dollars, usually in the form of US government bonds. While a strong dollar is a nice perk for Americans traveling abroad, it has caused headaches in the rest of the world.
How are the Philippines faring? According to experts, the Philippine economy is fundamentally sound and the current crisis is not a reflection of a weak local economy.
“It’s not because there’s anything wrong with us here,” Ruben Zamora, head of Metrobank’s institutional hedging division, said in an interview with Rappler. “His [all] about the strong dollar.
Zamora believes that the peso is stronger than the currencies of our neighbors, especially those of China, Japan, Korea and our other trading partners: “There is a measure for this real effective exchange rate – a measure which compares currencies not only against one, the US dollar.
Zamora refers to the real effective exchange rate (REER), the weighted average of a country’s currency against an index or basket of other major currencies. These weights are determined by comparing the relative trade balance of a country’s currency to that of each country in the index.
“We’re fine, we’re fine,” Zamora said. He explained that, relative to the US dollar, all other currencies look bad. From the perspective of the REER, the peso resists the US dollar unlike other currencies. According to Zamora, this means that hiring a business processing service (BPO) in India would be cheaper. “That’s how competitive or cheap the peso is if you need to outsource. India looks cheaper than the peso because the rupee has depreciated more than the peso.
Zamora is convinced that the Philippine economy is resilient enough to withstand the crisis. He also allays fears of a global recession and its impact on the local economy, saying domestic demand is resilient as the country does not necessarily depend on dozens of goods exports. “We benefit from flows on BPOs and remittances,” he said. “They have proven resilient even in [the worst of] time.”
He mentioned that while BPO revenue has not grown as rapidly over the past two years, there has been no contraction in the number of exports. “We have a growing leg [or] moving forward – tourism. I can’t find an empty hotel room for Christmas anymore. We are in the revenge spending phase.
US hedge fund manager Eric Jurado echoes Zamora’s optimism: “A very strong dollar is good overall. I don’t see any terrible effects. It sort of balances out globally. This means that goods imported into the US are cheaper to buy, so US companies selling imported goods in the US domestic market should see their margins strengthen. What this means for the Philippines, Jurado said, is that “BPO services will be more attractive and volume revenue will increase. Value chain electronics exports will be cheaper and volumes will increase. OFW remittances will result in increased sales in the greater economy.
How long will the crisis last?
If the cause of our economic problem is external in origin, as some analysts postulate, there could be a reprieve ahead. As quoted by Bloomberg, market veteran Ed Yardani reveals that the Fed will raise interest rates only once in November before stopping. Could this be the end of the global monetary bloodbath?
However, this forecast does not correspond to what the market expects: an increase of 75 basis points in November, then 50 in December. Some pundits even expect the Fed to hike rates another 25 basis points in early 2023 before finally pausing, with the fed funds rate hovering around 4.5%. The Fed funds rate is currently between 3% and 3.25%. Many fear that the way things are going, the world is headed for a recession.
External economic threats are like typhoons crossing borders and wreaking havoc in their path. The world suffered from the Great Depression, Suez Crisis, International Debt Crisis, East Asian Crisis, Latin American Debt Crisis, Asian Financial Crisis and the Great Recession. During these episodes of financial contagion, many countries simultaneously experienced economic downturns. In each of these events, the global crisis was preceded by high growth rates before collapsing in the year of financial turmoil.
The Philippines has withstood typhoons over the years. We have seen devastated cities crumble to see them rise even better from the rubble. In the same vein, we have also been plagued by economic difficulties – the worst of which were those we experienced during the last years of the dictatorship under the regime of Marcos Sr. – and we came out of them better.
The stock market contrarian will tell you that no one loses in the market unless you cash out. It’s the battle cry of non-conformists “buy when there’s blood in the streets”. The credo is that nothing stays in a free market system. It is a cycle well represented in the wheels of commerce logo. When you’re down there’s nowhere to go but up. – Rappler.com
Val A. Villanueva is a seasoned business journalist. He was a former business editor for the Philippine Star and the Gokongwei-owned Manila Times. For comments, suggestions, email him at email@example.com.