The forthcoming political exercise, barely three months from now stands to be economically crucial to our country. The next president regardless of political affiliation will have a tall order of maintaining if not surpassing the respectable growth rate of our economy the last five years. An approximate 5- to 6-percent GDP growth average has been achieved under President Aquino's term annually since 2010. Although much of these can be attributed to consumption spending, which in truth does not need additional stimulus, the high trust rating presumably drawn from perception is something the next administration should see as a challenge that is tough to duplicate. The outbound regime has proven that people's trust on leadership rates high among people's priorities regardless of how the country should be governed; and that goes the same way with the other sectors of the political economy.
The high trust rating presumably drawn from perception is something the next administration should see as a challenge that is tough to duplicate.
Although lately there has been a shortfall in the government's prognosis of the amount of growth the country intends to achieve, the 5.8-percent growth rate in 2015 is still within the decent target (government target was incredibly high at 7 to 8 percent for 2015), in fact, one of the highest in the ASEAN, next to China and Vietnam. The coming national balloting is a positive indicator of growth for the current year, not because of the anticipation brought by the change in leadership but by how the next chief executive intends to administer the bureaucracy relative to its objective of sustaining the current growth rate which has been the trend the past few years.
Election, whether local or national, has that natural propensity to pump-prime the economy. The injection of funds coming from the candidates by way of election spending creates an income channeled to the jobs, directly or indirectly related to the election. Most of these jobs are temporary in character like printers, poster installers, watchers and checkers. Election expenses mitigate the unemployment problem temporarily.
The injection of funds coming from the candidates by way of election spending creates an income channeled to the jobs, directly or indirectly related to the election.
Complementing this is the national elections scheduled in May this year, seen to provide another boost to private and government spending. Note that the election years in 2004, 2007, 2010 and 2013 saw GDP grow by 6.2 percent, 7.2 percent, 7.3 percent and 7.2 percent, respectively against an average of 4.4 percent for non-election years, according to former Economic Planning Secretary Cielito Habito. Added to this is the fact that election creates an injection of fund equivalent to P10 billion. Considering the current peso-dollar value and inflation rate, it is expected that the coming political exercise, when it goes full gear, may generate an income equivalent to P15 billion as this will be a battle among five aspiring presidents and several vice-presidents, while other candidates vie for local or national public positions.
The amount of P15 billion which is expected to be generated from election spending is equivalent to the 2015 budget or appropriation for the Armed Forces of the Philippines, particularly the Philippine Air Force. The Air Force, with total enlisted personnel of approximately 16,000, is sustained by a budget that is equivalent to election spending, which is P15 billion. Imagine how many jobs and amount of investment can be generated by this year's election expenses to our economy, as this amount is roughly equivalent to .01 percent of our $284.78-billion GDP in the year 2014. This volume despite an instantaneous injection of fund will not be inflationary, considering that it is not a sustained injection of money to the system. It will last for only a few months and "it will end sooner than expected."
For an inflation to manifest its dire consequence, it must be a sustained increase in the prices of all or nearly all of the commodities in the market. Expectedly, the greater majority of the marginalized sector of the economy should get the full benefit of this seasonal windfall coming from election spending.
Low-interest climate
Despite a low-interest climate, the expected influxes of investors and borrowers that will herald the sustained growth of the local economy seem to have been sluggish. Current annual interest rates range from a high of 14 percent to a low of 2 percent on short-term loans. Others do charge lower interest rates because the obligation is secured by collateral.
By any standard, prevailing interest rates are historically lower than before but qualified borrowers and investors still refuse to take advantage of the interest windfall for reasons not economically but politically related. Some would rather hold their horses until a new administration sets in, while others prefer to be on an observation mode.
Prevailing interest rates are historically lower than before but qualified borrowers and investors still refuse to take advantage of the interest windfall for reasons not economically but politically related.
The Bureau of Treasury reports that it has an earning that breached the P100-billion mark and has double edge effect in the local financial market. The gains from the earning which presumably have been made from the bond-sinking fund they have invested on, were gains from engaging in derivatives transaction. If these were liquidated without being traded in the derivatives market, the bureua would not have earned that much. In fact, this area of investment was down 8.3-percent to P37.67 billion from last year's P41.08 billion.
As it is, the opposing party, recipient of the trade of this instrument has lost in the trade in that period, unless he plans to hold on the instrument for sometime. But with the way the interest rates have moved the last few months, it will take some time for the opposing party to recover lost investment. That is how derivatives trading work: the gain of one is a loss of another, at least at a certain point in time.
The credit, however, should go to the treasury department since, despite the relatively slow-moving position of the bourse practically in the entire 2015, the government still has managed to gain from the its investment in the shares market.
Emmanuel J. Lopez, Ph.D. is an associate professor at the University of Santo Tomas and the chair of its Department of Economics. Views reflected in this article are his own. For comments email: doc.ejlopez@gmail.com