Worries on the economy

Turkey is now in serious economic trouble. The Turkish Lira has lost almost half its value this year. That’s because politics has interfered with the sound decision making of the Central Bank.

Turkey’s President Erdogan is calling himself the “enemy of interest rates.” He wants cheap credit from banks to fuel growth, but investors fear the economy is overheating and could be set for a hard landing.

Turkey may be half a world away from us, but its troubles can give rise to contagion effects. Investor fears of what’s going on in Turkey has already driven down many currencies, including the Philippine peso. Investors are dumping emerging market currencies in favor of a safe haven in the US dollar. 

The depreciating peso is just one of the economic challenges we must deal with today. There are those in government who downplay it by saying a “cheap” peso is good for increasing our exports and for OFWs. Sheer whistling in the dark!

Our peso has been on the decline for some months now, and so has our exports. Last month, a crack showed up on the OFW remittance front as well.

OFW remittances for June this year is down 4.5 percent YoY (May 2018: +6.9 percent YoY), dragged by the decline in flows from Middle East countries like Saudi Arabia, UAE and Kuwait. First half 2018 growth was +2.7 percent (H1 2017: +4.7 percent YoY). This year OFW remittances growth forecasts will have to be downgraded too.

Host governments have been changing policies covering migrant workers and reported abuse of our workers has increased. Our government has been repatriating OFWs from Middle Eastern countries. POEA data for 2017 showed a decline in the number of workers deployed to the Middle East.

If this becomes a trend, we are in deep trouble. OFW remittances had been the strongest of two pillars holding up our economy. The other one, the BPOs, could also be in trouble as investors worry about the impact of TRAIN 2 (TRABAHO) on their finances.

But we go on as if there isn’t anything to worry about. Government, understandably, believes the economy is booming thanks supposedly to Build Build Build.

Private sector analysts are probably drinking the same Cool-Aid the government economic managers are drinking. After the official GDP growth rate was pegged at a disappointing six percent, it is fair to wonder how all those analysts came up with 6.5 or higher prior to the announcement.

Private analysts are supposed to provide critical analysis to protect their investors. Even on BBB, analysts have long been buying BS and using it as the basis of rosy economic projections.

Then there is Harry Roque, an economics illiterate. Contrary to his statement that six percent is high naman, that barely keeps us in place. We need do eight percent or higher to keep pace with our high population growth rate. Saying we are among the top performing economies means nothing unless our growth is eight percent or higher.

Inflation is the economic problem that government must address credibly. Government economists, including those from the BSP, were terribly blindsided, failing to predict the current high inflation rate.

In a Senate hearing, a DOF official was forced to admit they failed to compute for the indirect effects of TRAIN 1. Sen. Bam Aquino rightly pointed out: “There are times na ‘yung indirect effects are larger than the direct, because ‘yung indirect can go exponentially in all products…”

Also missed was the impact of high food prices on the inflation rate. Agriculture hardly grew in the last quarter and was a major cause of high inflation. The Duterte administration fumbled the rice situation when it allowed NFA to show empty warehouses, designed to manipulate the public mind on rice stocks.

Let us not forget the agriculture secretary saying the successful campaign against rice smuggling also caused the rice shortage. Having said that, he still failed to understand that government’s monopoly on rice import is at the root of our problems. The smugglers are doing us a favor. In Tawi Tawi, which allows smugglers, the price of rice had been lowest in the country.

As for Build Build Build, the economic managers overdid the propaganda about a golden age of infrastructure when they didn’t have the staff to work on complicated projects. Then there’s the strict government procurement process… right of way gridlock, and much delayed Chinese loan promises.

BBB is almost guaranteed to disappoint. Of the P8 trillion BBB projects, only P1.274 trillion worth of projects came with studies and only P800 billion have detailed engineering studies.

As one knowledgeable source details: “The Mindanao Railway (project) is far from a low hanging fruit, more like a bud. Preliminary study for Tagum-Davao-Digos Railway rushed in late 2016; a confidential ADB study (2018) found cost 3x higher and traffic 1/10 of claimed. So they shifted funding to China, who could not care less about economic viability. 

“Looking at project development cycle, I can confidently predict no more than 100km rail line completed by 2022 (vs 1,900 km promise of DoTr). My brief scan of BBB in June has 60 percent on DoTr list under project development – meaning feasibility study phase. Earliest these could be tendered is two years after.”

The two Cabinet members responsible for much of BBB, Villar and Tugade, do not seem to have what it takes to deliver beyond press releases.

 Then there is the ever widening current account deficit and lackluster FDI compared to ASEAN peers. To top it all, there is increasing political risk with a president who just says anything that comes to mind, destabilizing things even more.

The bright spot is the intellectual bravery of the economic managers who spoke out their fears on the impact of the draft charter call for federalism. They placed their jobs on the line because if they didn’t, we would all be in rather deep economic and political doodoo.

Boo Chanco’s e-mail address is [email protected]. Follow him on Twitter @boochanco.