Economy Not That Bad Despite Critics’ Claim
Criticisms in a democracy are always welcome to help the government uplift the lives of many Filipinos, especially it's our battle against Covid-19. But if they are destructive and offer no feasible solutions to the current health crisis, critics should not get in the way of the government’s efforts to solve the nation’s problems.
Amid this challenging period, we need the cooperation of everyone to overcome the unprecedented threat to our way of life. Instead of adding fuel to the fire as President Duterte describes the potshots against him and the government, everyone should help the administration in its quest to strengthen our economy and provide for the needs of our people.
The government is doing its best to overcome the pandemic and its debilitating impact on the economy. The economy may have shrunk in the second quarter of the year but we are nowhere close to past financial crises, where investors lost confidence and the peso depreciated rapidly against the US dollar.
I would commend our economic managers and Bangko Sentral ng Pilipinas (BSP) officials for doing a good job in keeping the impact of the health crisis on the economy manageable.
We can take consolation in the fact that while the pandemic left a cavity in our second-quarter growth performance, we have solid fundamentals that continue to shield us from price volatility and external risks.
Economic stability is more important than any other measure of growth, and what else can better represent stability than the foreign exchange rate and the inflation rate. The peso, which effectively drives all costs of commodities, has been stable and strong in the past few months, which means the value of the money we have is steady, ensuring our capacity to purchase essential goods. Based on the stable foreign exchange rate, we can better predict and manage our business expectations and household expenditures. The peso is trading between 48 and 49 against the US dollar in August, compared to between 50 and 51 in March at the onset of the coronavirus pandemic.
Inflation was also relatively steady, settling at 2.7 percent in July 2020, which was within the BSP’s target range of 2 percent to 4 percent for the whole year. Along with income growth, the stability of the peso against other currencies and the low inflation rate have the most meaningful impact on the quality of living in the country.
While it may be true that the gross domestic product contracted 16.5 percent year-on-year in the second quarter, the stable currency and inflation rate give our people access to food and other essential products and services at affordable costs.
We would not have achieved this stability if we allowed our fears over the coronavirus to paralyze our financial markets, as well as our manufacturing, logistics and trade sectors. The key is to keep the economy operational while we observe strict health protocols and targeted lockdowns to contain the spread of the virus.
A serious economic crisis happens when there are not enough commodities in the market to meet the demand of the population, resulting in hyperinflation and the loss of value of the local currency, like what is happening in Venezuela.
We are far from that situation, as the government and the Bangko Sentral ensure that the financial system and the food chain are not disrupted even during this most challenging period.
Unlike the previous crisis in the mid-1980s, the situation this year is marked by the stable exchange rates and consumer prices. Between 1983 and 1986, the per capita income in the Philippines shrank 18 percent. This was complicated by the excessive inflation rate and peso devaluation. The situation was so dire that the government declared a debt moratorium in 1983 after the then-Central Bank ran short of foreign reserves.
As a result, foreign investors fled the Philippines. The peso was devalued by nearly 100 percent in 1984, while the annual inflation rate averaged at double digits, hitting over 60 percent in 1984 and 24.9 percent in 1985. The situation was so severe that in Negros Island, people suffered from starvation.
Again, we are nowhere near that situation despite the health crisis this year. The BSP has more than adequate gross international reserves to service our foreign exchange needs. The GIR was approaching the $100-billion level, settling at $98 billion as of end-July 2020, representing “an ample external liquidity buffer which can cushion the domestic economy against external shocks.”
However, we should not be complacent about our economic stability, given the gravity of the health crisis, which according to the World Health Organization may linger for two more years.
As our BSP officials and economic managers remain alert to spot any sign of economic anomaly, businesses can focus on making their operations up and running while our health authorities do their best to isolate communities with high infection rates. This strategy will work best for the economy and our people, who need to continue working to be able to feed their families.
The government needs all the support it can get from all sectors amid these trying times. Criticizing it for the sake of criticism is not helpful and will not advance the people’s interests.