oil price

A full-blown economic storm

The perfect economic storm is now upon us.

As our political leaders as recently as this week continued to get caught up in the whirlwind of controversy surrounding the former president Gloria Arroyo, a storm of a different kind had been brewing on the horizon.

A few weeks ago, I had warned that the country was sailing right into this tempest almost unaware as its political class seemed more enamored by internal rather than international events. Finally, the stiff economic headwinds that I had been speaking of have finally turned into a fierce global contagion emanating from the US and Western Europe and spreading into Australasia.

The US is already half-way into a lost decade. Recent economic figures point to a prolonged slow recovery, and the likelihood of another recession now imminent. Western Europe is gripped with the bailout woes of the PIIGS economies with Italy now looking more likely to default. A bailout would require Germany and France, two of the largest economies, to undertake austerity measures of their own.

Even after Democrats and Republicans signed a deal to lift the debt ceiling, credit ratings agencies downgraded their outlook for the country as fixing their fiscal house in the long run seemed unlikely given the highly contentious nature of the package required for this almost ceremonial task. The tsunami has now hit Asian markets with East Asia and Australia taking a battering today.

China which has its own version of the sub-prime mortgage crisis developing with town and village councils saddled with loans resulting from its stimulus program could now find its growth slowing to below sustainable levels. And of course, the uprisings in MENA are continuing to raise the price of oil.

The Philippine government which was responsible for restraining growth in the fourth quarter of 2010 and the first quarter of 2011 with its self-imposed fiscal contraction will now wish that it had done more in those periods to foster growth to protect it from the global economic slowdown that now seems apparent.

What is at stake here are the remittances from overseas and the exports of goods (electronics, cars and machinery) and services (tourism and business processing) that have propped up our economy. With demand collapsing in the global economy, don’t expect these flows to materially rise in the coming years.

Secondly, the flow of investments or hot money would in a period of uncertainty normally seek safe havens. Unfortunately, the traditional safe haven of US treasury may no longer be as reliable as before. This could lead to significant depreciation of the greenback which will hit our competitiveness in global markets even more.

Thirdly, the PPPs which the government was hoping to augment its meager 2.5% of GDP spend on infrastructure (5% is the benchmark) could be threatened as investment funds now re-calibrate their tolerance for risk. The emerging market of Asia would be an alternative to the ailing Western economies, but that is no guarantee. With global demand easing, the need for foreign investments to expand production capacity diminishes.

Finally, what is to become of the government’s 7-8% growth target (minimum of 5%) on average for the next five years? It is more likely that global events will weigh down on the prospects for this. The government will have to work harder now to maintain fiscal and economic stability.

The Daily Roundup: 7 February 2011

Communists mull truce declaration

The Communist Party of the Philippines (CPP) announced Sunday that it is planning to declare a ceasefire to coincide with the forthcoming resumption of formal peace talks between the Maoist movement and the government.

The CPP, in a press statement published online by its information bureau, urged the government to declare a similar ceasefire.

The CPP, which holds direct control over its armed wing, the New People’s Army, and far-left coalition organization the National Democratic Front, wants government troops “to be confined to barracks during the ceasefire period” and suspend their military operations.

Read more at ABS-CBN News

DFA orders Cimatu: Skip Egypt and return home” by Jerry E. Esplanada

Special envoy Roy Cimatu is “no longer proceeding to Egypt” as earlier ordered by the Department of Foreign Affairs (DFA) to assess the situation of more than 6,500 Filipinos in the Middle East country where massive protests are calling for an end to President Hosni Mubarak’s 30-year rule.

Assistant Foreign Secretary J. Eduardo Malaya, also the DFA spokesperson, Sunday said Cimatu had “completed his mission in Afghanistan and is on his way back home.”

The DFA had earlier asked the former Armed Forces of the Philippines chief of staff to look into the plight of overseas Filipino workers (OFWs) in Egypt.

Read more at Philippine Daily Inquirer

House body to ask Heidi Mendoza on $5M in UN Funds” by Gil C. Cabacungan Jr., TJ Burgonio

Former state auditor Heidi Mendoza will be the star witness in a new probe in the House of Representatives that seeks to track down those who pocketed United Nations funds for Filipino soldiers deployed overseas.

Muntinlupa Rep. Rodolfo Biazon, chair of the House defense committee, told the Inquirer that Mendoza would be asked to share details of her findings on the $5 million that the UN had paid the Philippines for sending its peacekeeping forces abroad.

Mendoza’s scheduled appearance on Wednesday is an offshoot of her testimony on Feb. 1 at the House justice committee hearing on the plea bargain agreement struck by the Office of the Ombudsman with former military comptroller Carlos Garcia, who was originally charged with plunder.

Read more at Philippines Daily Inquirer

Conservative goals favored

RETENTION of growth and inflation goals adopted at the start of the Aquino administration’s term will likely be recommended to economic managers meeting this Friday to finalize 2012 targets, senior officials said.

The growth assumption for next year, said Finance Assistant Secretary Ma. Teresa S. Habitan — also a member of the Executive Technical Board (ETB) that advises the interagency Development Budget Coordinating Committee (DBCC) — will “most likely be the same as in the medium-term plan.”

Central bank Assistant Governor Ma. Cyd T. Amador, another ETB member, said the current 2011-2012 inflation target of 3-5% would also “not be changed.”

Read more at Business World

Palace wants RH, whistle-blower’s bills prioritized” by Delon Porcalla

The bills that will promote reproductive health and the protection of whistle-blowers are among 17 measures the Aquino administration wants prioritized, an official said yesterday.

“The priority legislative measures we have crafted are consistent with the President’s social contract with the Filipino people. We want to ensure that this administration succeeds in addressing this with the help of Congress,” Executive Secretary Paquito Ochoa Jr. said.

He said the 17 bills that President Aquino will present to the Legislative-Executive Development Advisory Council (LEDAC) ”are in the final stages of preparation. We are not just submitting a list of measures, but the bills themselves, which have been studied by the lead agencies involved.”

Read more at The Philippine Star

CBCP to DOH: No more condom distribution on Valentine’s Day” by Helen Flores

The Catholic Bishops’ Conference of the Philippines (CBCP) appealed yesterday to the Department of Health (DOH) not to give away condoms to couples this Valentine’s Day.

Fr. Melvin Castro, executive secretary of the CBCP’s Episcopal Commission on Family and Life, said the distribution of condoms would only send wrong information especially among the youth that it is alright to engage in early sexual intercourse as long as it is safe and protected.

The DOH, under the leadership of former Health secretary Esperanza Cabral, handed out free condoms on Valentine’s Day last year as part of its campaign to curb the increasing HIV/AIDS cases in the country.

Read more at The Philippine Star

Mining investments miss target in 2010 — MGB chief” by Kathleen A. Martin

INVESTMENTS in the local mining sector fell about $244 million short of the government’s target last year due to delays in various projects, the Mines and Geosciences Bureau (MGB) said late last week.

We missed our target due to Didipio, Pujada, Nonoc, Intex, and partly from (sic) Siana and Taganito…projects,” MGB Director Leo L. Jasareno told reporters via text late Friday.

Specifically, some $955.85 million worth of investments came in, against a $1.2-billion target for the year.

Read more at Business World

Risk from oil-price speculators cited” by Cai U. Ordinario

IF the turmoil in Egypt continues, Washington-based think tank Peterson Institute for International Economics (PIIE) warned that oil-price increases will continue and may exceed the $103-per-barrel level recorded last week.

In a commentary, PIIE senior fellow Mohsin S. Khan said while the possible closure of the Suez Canal will make the 2 million to 3 million barrels per day that pass through the canal more expensive, this will not cause prices to increase that much.

But the National Economic and Development Authority (Neda) isn’t too worried and predicted a worst-case scenario for inflation to rise to no more than 5 percent.

Read more at Business Mirror