Excess liquidity

Christmas Day 2024 was rainy.

It was a fitting symbolism.

Bankers and economists have a unique concept called excess liquidity. And excess liquidity or excess cash leads to inflation – and corruption.

So much cash chasing so few goods causes inflation. So much money without a justifiable spending plan leads to corruption.

Inflation was the highest in 14 years in 2023, thanks to high food prices and extreme weather. Inflation, or the rate of increase in consumer prices, averaged 6 percent in 2023, which eclipsed the previous 14-year high of 5.8 percent in 2022.

To control inflation, the Bangko Sentral ng Pilipinas raised interest rates. To discourage people from borrowing for consumption of goods. To encourage them to park their money in banks with higher rates for their excess cash.

Hence, the benchmark 91-day Treasury bill rate rose to 5.40 percent average in 2023 and 5.41 percent in January-October 2024. The 5.41 percent is 4.87 times the cost of money of 1.11 percent in 2021, the last full year of the Duterte administration.

BSP’s vicious rate increases appear to have worked. Inflation went down to 3.3 percent in January-October 2024, almost half the 6.4 percent inflation in January-October 2023.

The BSP’s reverse repurchase (RRP) rate more than tripled, in one year, from 2 percent in April 2022 (2 percent was in effect since November 2020, or for 17 months), to 6.25 percent in April 2023 and further up, to 6.50 percent in October 2023, before settling at 6.0 percent by November 2024.

Can you imagine your cost of capital triple suddenly in less than a year? Or quintuple in just three years? You go bankrupt, di ba? You stop production. You shut down your business. You lay off people. Or don’t go into business at all.

High interest rates, indeed, caused untold misery on the people. Economic Planning Secretary Arsenio Balisacan estimates high interest rates cut economic growth (as measured by the rise in GDP, or the value of goods and services, net of inflation) by a full percentage point. So 2023 GDP growth declined to 5.5 percent after rising a hefty 7.6 percent in 2022, the best growth rate in 15 years.

GDP was only P24.29 trillion in 2023. It should have been P27 trillion, without the high interest rates. The P2.79-trillion difference, assuming each P2 million creates one job, would have created 1.39 million jobs. Or preserved 1.39 million jobs.

Late 2024, the people were surprised by another form of excess liquidity. A bloated budget.

The 2025 national government budget is P6.352 trillion (6,352 billion pesos). A record high and an increase of 10 percent or P584 billion from the previous high of 2024 of P5.768 trillion, which by itself was an increase of 9.5 percent or P500 billion from the 2023 budget of P5.268 trillion.

Higher government spending does not always mean growth. It could produce the opposite effect. In 2022, with P5-trillion NG budget, the economy grew by 7.6 percent, the highest in 12 years. In 2023, the budget rose to P5.268 trillion. GDP growth slumped 2.1 percentage points to 5.5 percent.

Our politicians salivate at the sight of P6 trillion. They resort to finagling.

The premeditated plunder was done through a legislative anomaly called BiCam. A group of senators and a group of congressmen, both ostensibly experts on money, met in secret, on Dec. 11, to decide who should get how much and how in 2025. Bi-Cam is pronounced bi as in bye-bye and cam as in come. So bye-bye to people’s money. Come to the politicians. They have the money.

The Department of Public Works and Highways (DPWH) budget was increased by P288 billion to P1.113 trillion, exceeding the education budget of less than P1 trillion. Under the Constitution, education should get the highest budgetary priority.

The P288-billion add-on is earmarked money, meaning it will go to the concerned senator or congressman. In the US Congress, such a racket is called earmarking. The solon estimates the money he needs and creates an item in the DPWH budget to justify the daylight robbery.

Not even the DPWH secretary can protest or complain.

Otherwise, he will be subject to congressional investigation in aid of legislation. That is how VP Sara Duterte, her dad Digong, her bro Pulong and her husband Mans were cut down to size and made to eat humble pie.

The problem is: the P6.352 trillion is our money.

The Bicam gave the following budget increases: the House of Representatives, from P16.3 billion to P33.67 billion, up P17.37 billion, or an extra P55 million per congressman on top of their standard pork of P70 million per capita; Senate, from P12.8 billion to P13.9 billion, up P1.1 billion, an extra P48 million per senator on top of each senator’s regular pork of P200 million; LGUs, from P66.09 billion to P76.66 billion, an increase of P10.57 billion, an extra P7 million per mayor and governor (as casino play money?).

Most scandalous of all is the huge and horrible increase in unprogrammed funds, or unprogrammed allocations (UAs), from P158.67 billion to P531.67 billion, a whopping increase of P373 billion.

Despite people’s rage, the P6.351-trillion budget will be signed by the President on Dec. 30, 2024, Monday.

One sunny Wednesday morning in December 128 years ago, somebody was shot. He was the wrong guy to face death by firing squad.

Did you know that as Jose Rizal walked to his end at sprawling Luneta Park, his doctor checked his pulse. It was normal!

Rizal’s message to us: in times of oppression and abuse, just appear normal. So the Kingdom and the Power won’t be alerted by the deluge. Deluge, by the way, is another form of excess liquidity.

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