Releasing pressure

Allowing transport groups to raise rates is often likened to opening a Pandora’s Box. There is fear that fare hikes would trigger a series of events that includes labor wage hikes and even spiraling inflation. One need not be reminded that just before the May polls, this constitutes a nightmare for administration candidates.

A fare hike per se does not actually always start a domino effect on the cost of other basic services and goods as past experience has shown. Actually, there are other pressure points that matter more at this point in time.

First, there has been a steady increase in the prices of food recently. Even without the Avian flu or the pig holidays, livestock prices are on the rise. Beef, for example is 35 percent more expensive today than two months ago. The cost of fish, vegetables and processed goods is likewise higher.

Second, the business environment is in a wait-and-see mode over the way the elections campaign is progressing. They are averse to any wage hike, whether in basic salaries or the cost-of-living allowances (COLA).

And lastly, there has been no change in the minimum wages of laborers for a long, long time. With the cost of basic commodities on the rise, and the perceived burden of transport rate hikes, the demand for a wage hike is getting stronger.

Given the increases in the prices of pork, chicken and canned goods, any across the board wage adjustment at this time will surely jack up inflation. And fast.

Inflation Pressures

Based on the rule-of-thumb of some economists, every P12 in additional daily wage would tend to increase the inflation rate by 50 basis points, while a one-percent increase in transport fares would push inflation by only about two basis points.

Labor groups have been demanding a P125-increase in daily wages across the board since 2001. Transport groups, on the other hand, are currently pressing for a P1 to P2 fare hike citing the historic high prices of fuel and the continuing escalation of spare parts costs.

The last time fares were allowed to increase was in 2000 when the Land Transportation Franchising and Regulatory Board (LTFRB) agreed to a 50-centavo hike for the first five kilometers. The price of diesel at that time was only at P12.60 per liter; it is now at P18.

The depreciation of the peso, on the other hand, is adding pressure not only to oil product prices but also on the cost of imported spare parts. The dollar was at about P50 only few years back; it is now more than P56.

In the face of all these, it would be folly to completely ignore the woes of the transport and the labor sectors. For one, the cost of crude oil has been steadily climbing, the value of the peso progressively slipping, and there is really less to buy with the take home pay of our workers and jeepney drivers.

Other Overriding Factors

While drivers and workers have less to bring home to feed the family, economists are quick to point out that giving in to demands for a fare hike and a salary increase would push inflation up by 5.5 percentage points, bringing last month’s 3.4-percent inflation rate precariously close to a double-digit figure.

The government, particularly the central bank, is committed to keeping inflation within a four- to five-percent band. If the central bank sees that the target is threatened, it would not hesitate to raise its overnight rates, which would mean higher cost of borrowing.

If borrowing becomes costly and problematic, companies would be constrained to grow and no new jobs created. Or worse, businesses would retrench more workers. Thus, economists aver that granting transport and wage hike will go to naught because in the end, the economy will falter, and the country and its people will end up as bigger victims.

The argument in favor of increasing the daily salary may further dim if one would put this into the context of labor cost in neighboring countries. Of course, China where workers are willing to slave for a salary of $50 to $75 a month is not a good basis of comparison.

Temporary Rather Than No Relief At All

We are seeing a typical times, where crude oil is now way over $30 per barrel when it should normally be anywhere within the $22- to $26-per barrel band. Oil experts are saying that bringing back trading prices to the $26 level is not wishful thinking.

If we are to believe CB Governor Buenaventura, the peso is also abnormally undervalued because of the volatile political situation and should be back to normal level after the dust of political battle settles. Based on fundamentals, the peso is felt as being unrealistically too far away from the Thai baht in terms of value.

In the face of these abnormal times, the needs of our workers and jeepney drivers are real. To ease the pressure, why not consider some temporary relief until the overall situation normalizes.

For example, why not grant the fare hike with the proviso that it will be rolled back when crude prices drop. Workers, on the other hand, may be given temporary emergency COLA in lieu of a wage hike. Again, should the situation normalize, this could be re-adjusted.

The suggestions may sound too simplistic. But maybe a temporary relief now is much better than no relief at all. The risk that the social pressure will blow up in our face at a more inappropriate time is too real.

Health Card Industry On TV

‘Isyung Kalakalan at Iba Pa’ on IBC News (4:30 p.m. and 10:30 p.m., Monday to Friday) ends today with an update on complaints about inability of some private health maintenance organizations or HMOs to comply with their commitments. With several HMOs closing shop and leaving millions of unpaid debts to doctors and hospitals, thousands of health cardholders are uncertain whether their health cards will still be honored when medical emergencies occur. What is the government response to these issues? Watch it.

‘Breaking Barriers’ With MMDA Chairman Fernando

‘Breaking Barriers’ on IBC (11 p.m. every Wednesday) will feature Bayani Fernando, Chairman of the Metro Manila Development Authority (MMDA), on Wednesday, March 24, 2004.

The demand stress of a fast-growing Metro Manila population continues to strain the metropolis‚ basic infrastructure network. Priorities of the various local government units within the area do not necessarily coincide with each other. And conflicts occur when the MMDA and the different local government units respond to day-to-day and long-term problems.

Is the MMDA in its current structure still effective in performing its mandate? What changes are needed to align the role of MMDA to the changing demands of the metropolis? Should the public elect the head of MMDA? Watch it.

Should you wish to share any insights, write me at Link Edge, 4th Floor, 156 Valero Street, Salcedo Village, 1227 Makati City. Or e-mail me at [email protected]. If you wish to view the previous columns, you may visit my website at http://bizlinks.linkedge.biz.