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At the threshold of stagflation

1st June 2008, 11:08 am

LINK: ‘Note Verbale‘, Manila Times (Sunday-Career Section) – 1 June 2008 Issue

In economics, stagflation has been defined as a state or period of a slow moving or moribund economy coupled with high unemployment and rising prices.

They say that the term, which combined stagnation and inflation, was first used by a former British politician and minister, Iain Norman Macleod in a 1965 speech to the parliament. But stagflation, they say, was only acknowledged as a serious macroeconomic condition in the seventies after it had stricken many countries. Before that time, the generally accepted Keynesian economic theories of twentieth century British economist, John Maynard Keynes, assumed that inflation and stagnation are not likely to occur at the same time.

In economics, inflation pertains to the general and progressive increase in prices of goods and services. Inflation is like the cholesterol resident in the human body; it can either be good or bad.

Economists would say that mild or manageable levels of inflation have beneficial effects because it stimulates economic growth or keep the economy active. In the short-term, it encourages people to spend more now in anticipation of higher prices in the future. Borrowing money is more likely because there are less incentives to save. Expected inflation could drive the conversion of savings to take the form of investments than to see the purchasing power of these savings depreciates with inflation.

Inflation is often associated by experts with the excessive money supply circulating in the economy. And the tasks of handling, controlling and regulating this scenario fall on the lap of governments through central banking and its monetary policies. Thus, it is almost predictable for government to increase interest rates during periods of inflation to moderate money supply.

But unpredictable and high inflation rates are like bad cholesterols that could lead to a cardiac arrest of the economy. The uncertainty discourages people to invest and save. Predictably, workers would demand for higher wages to cope up with the rising prices of goods and services, which in turn lead to higher inflation. The currency may then lose its value and the normal workings of the economy is eventually jeopardized.

Having a declining economy, high unemployment, and unmanageable inflation all at the same time in a scenario called stagflation is surely unfortunate.

Many analysts say that the global stagflation in the seventies could be attributed in part to the inflation brought about by the abrupt increase in the price of crude oil. For those old enough to remember, the Organization of Petroleum Exporting Countries (OPEC) met in Tehran in 1973 and doubled the price of oil from US$5.50 to US$11.00 per barrel because, among other reasons, of the desire of the then Shah of Iran for more foreign exchange to acquire more military hardware.

Increases in crude oil prices this year are unprecedented. In December 2006, per barrel price is about US$63. By October 2007, the price rose to above US$90. In January of this year, it reached the US$100 dollar mark, and last May 21, the price breached the US$130 level only after almost five months. Several days after, the price even went up to more than US$135. Unfortunately, there are forecasts that the price could be as high as US$200 per barrel by the end of 2009. Perhaps, it could be more.

It appears that what drives the escalating prices of oil in the world market to unreasonable proportion is not so much about the economic rationale of supply and demand, although it is often used as the justification. Political conflicts and greedy speculations are.

While most people of the world would have to brace for higher prices, growing unemployment, economic collapse, and even poverty and hopelessness, a few others would reap the bounty in due course. For obvious reasons, there is nothing much heard of OPEC, an organization which is expected to ensure the stabilization of international oil market prices, even if this issue is the global talk of the town these days. Regrettably, even if the global oil situation improves and normalizes, it is next to impossible to expect that these prices would ever go down below the US$100 level. The more reasonable expectation is for the price to simply stabilize.

Meanwhile and unless oil prices remain stable, many countries in the world are in danger of stagflation. God forbids what would happen after that.

Tags: economics, economy, finance, inflation, international, money, oil, oil crisis, price, stagflation, unemployment, world
Category: Note Verbale |

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Forced starvation

27th April 2008, 09:01 pm

LINK: ‘Note Verbale’, Manila Times (Sunday-Career Times) – 27 April 2008 Issue

In romance, they say that the easiest way to a man’s heart is through his stomach. And in the life of a nation, the idea is equally true. Depriving the people of the food on their table is a concededly a threat to national security.

For several weeks, news reports on the inevitable rice crisis and the constant rise in the prices of basic food commodities have been persistent. If there is any consolation at all, this country is not alone.

Experts note that the world is actually facing a food crisis that could reach a boiling point. In Haiti for instance, people held angry and violent protests against their government because of soaring food prices and cost of living.

In a recent survey, pollster Pulse Asia revealed that 71 percent of Filipinos consider themselves as poor, with two out of every three Filipinos believing that the economy has deteriorated in the last three years despite the phenomenal economic growth being proclaimed by the government.

Something is obviously wrong with the country’s food production policies. It begins with the lack of serious national land use plan where certain areas would be deemed as protected areas devoted solely for food production. Any agricultural land is expected to give way to the demand of commercialization, industrialization and urbanization at any time. The economic prosperity of localities especially in rural areas is seldom measured in terms of bountiful food production. Lands are better left idle because landowners still gain from speculative pricing. And even with the introduction of the agrarian reform program, lands are still under the control of a few.

Hardly would this country find among the ranks of the youth who would be interested or attracted to pursue a career in agriculture. Students would rather pursue a course or a skill that would land them a job overseas at once. It is difficult to expect children of farmers to carry on the same tasks. But in a country highly populated by young people totally disinterested in farming, who would be expected to take care of producing the food on their table in the future?

It is indeed a Herculean task to convince the youth of today to become farmers. Typical farmers here are typecast as being poor. Typical farming, next to begging perhaps, is the last alternative for economic survival. Every small farmer is imposed the burden of finding viable support for farm inputs, credit facilities, fiscal incentives, support services, and against unfair competition and trade. There is no reason therefore to blame the Filipino youth for not looking at farming as an option for their future. These are just among the problems, there are more.

But despite the gloomy state of agriculture, the country is still fortunate for its very rich natural resources. Even at this time when the country is stricken with hunger, the food shortage is apparently not yet the result of inadequate food supply but the affordability of food on the table of many Filipinos. This is due to the unrelenting escalation in prices of staple food, basic commodities, and fuel prices when family income remains the same. Raising wages to cope up with rising prices would drive prices higher. Prices need to be raised because capitalists need to protect their profits.

The root of the problem that drives the vast majority of Filipinos to forced starvation is the systemic uneven distribution of wealth, with the rich getting richer and the poor becoming poorer, and not the adequacy of food production or supply.

For instance, people line up for their daily rice requirements to partake of government supply not because there is no rice in the market but because the price government offers is the only rice that they could afford. It is a case where people get hungry because they could not afford their family requirements within the limits of their earnings.

It is easier for people to understand and sacrifice if the earth no longer produces the food that they need because everyone is similarly situated. But in a situation where starvation is forced because people do not have the wherewithal, a social volcano is just waiting to break loose.

Tags: economics, food, hunger, land, Philippines, poor
Category: Note Verbale |

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A look at agrarian reform

19th August 2007, 12:21 pm

LINK: ‘Note Verbale‘, Manila Times (Sunday-Career Section) - 19 August 2007 Issue

Agrarian reform is not a new concept.

In the second century before Christ, Tiberius Sempronius Gracchus, a Roman politician, proposed a law known as lex Sempronia agraria for the government to confiscate huge tracts of land being held by the latifundia, the wealthy upper class owning large estates, for homeless soldiers. In those times, Roman soldiers were required to serve the long duration of a military campaign and left their farms in the hands of their wives and children, who would lead a life of bankruptcy and forced to sell their lands to the latifundia. Upon their return, these soldiers joined the mob of thousands of unemployed roaming around the city of Rome because they had nowhere to go. This advocacy of Tiberius eventually led to his death after a violent confrontation with the conservative faction of the Roman Senate.

Many advocates hold the view that agrarian reform is a condition sine qua non for the development of successful economies.

And Taiwan is almost always seen as an ideal model. They say that Taiwan’s progress was greatly influenced by land reforms (agrarian reform followed by urban land reform) that led to narrow the gap between the rich and the poor.

In his article entitled: “Five Lessons for Land Reformers: The Case of Taiwan”, author Fred Harrison enumerated the factors that led to the country’s agrarian success.

Harrison first pointed out the proper allocation of land resources combined with the diligence of hard working population. With the reform, Taiwanese farmers began to plant second and intervening crops that doubled their income. In ten years, houses were rebuilt with tile roofs and cement floors and electricity extended to the countryside. The means of transport also improved from the rusty bicycles to motorcycles to automobiles. With each change, new industries were born.

The second lesson, according to Harrison, is not to displace agricultural labor until the industrial sector has developed enough to begin to demand it. At the start of the reform, Taiwan banned the importation of large farm tractors. Agriculture experts argue that mechanized equipments that were only meant to save man-hours in production are not needed in a country with manpower surplus. Harrison said that large landowners can make more money by displacing tenants and mechanizing. But displaced farm tenants have no place to go but to the edges of cities where they cluster in urban slums and where they have to be fed on the bounty of those working.

The third lesson, Harrison relates, is that a land reform which upgrades the economic condition of the peasantry provides an important political power base for the government that engineers the reform. At the time agrarian reform was introduced, majority of the country’s population were peasants. He observed that in Taiwan the central government enjoys much political authority but below this level the regime is quite democratic.

Akin to the third, Harrison pointed out that land reform was imposed on the landowners, who naturally opposed it, by a central government strong enough to do it.

And to make land reform permanent, Harrison noted that facilities for marketing, supply, and credit were adequately supplied and extended so that farmers are not driven back into the clutches of the former landlords. Taiwan did this through the cooperative system and peasant organizations to do away with the influence of the landlords who were also controlling or connected to rice mills, banking, farm input supplies and marketing. Tax systems were made conducive to the farmers.

The Philippine agrarian reform experience is far from this.

The land distribution scheme of Republic Act No. 6657 is set to expire in 2008. Between the years 1972 to 2005, 3.7 million hectares were distributed to more than 2 million agrarian reform beneficiaries. And the combined agriculture, fishery and forestry production growth rate is only 1.8% in 2005 as reported by the National Economic and Development Authority (NEDA). In terms of employment creation in the same year, the agriculture sector had only a 35.6% of the total pie

While agrarian reform is openly declared as a center-piece program of government, there is no showing that it would perform as an engine of economic growth for the country. Even with their own lands, small Filipino farmers remain to be among the poorest of the poor.

And it seems it would never be, simply because government has a thousand and one priorities.

Tags: agrarian reform, CARP, economics, farm, farmers, FIlipino, government, land, poor, rich, social justice
Category: Note Verbale |

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The youth as an economic indicator

25th March 2007, 08:11 pm

LINK: ‘Note Verbale‘, Manila Times (Sunday-Career Section) - 25 March 2007 Issue

At least 38 percent of the world’s inhabitants are below 25 years old.

The United Nations reported that majority, or almost 85 percent of the world’s youth, live in developing countries, with approximately 60 percent in Asia alone. Conversely, this meant that industrialized nations have a relatively smaller proportion of the younger generation, which they say is attributable generally to lower birth rates and longer life expectancy.

In a report entitled ‘An Aging World: 2001’ prepared by Kevin Kinsella and Victoria A. Velkoff under the auspices of the US Census Bureau, Italy, Greece, Sweden, Japan, Spain, Belgium, Bulgaria, Germany, France, and the United Kingdom were identified as the first ten countries considered as the ‘world’s oldest’, or with a high percentage of population 65 years and over.

The report also estimated that the ‘world’s youngest’ countries like Bangladesh, Pakistan, Philippines, Guatemala and almost all the countries in Africa would have less than 5 percent of their population belonging to the 65 years old plus category by 2015.

From these data, there seems to be a disturbing relationship or pattern between the relative size of the youth population and the state of a country’s economic progress and development. Countries whose population is dominated by young people appear to have greater tendency to be mired in poverty, particularly when government starts neglecting them.

The matter of ageing population, of course, is increasingly becoming a major concern in the world order today, especially for developed countries. But that is another concern altogether. It might be easier perhaps to address this issue when the country is rich than when it is poor.

Obviously, a nation with a larger chunk of its populace being below 25 years old would need to devote more of its scarce resources to address the most vital and compelling needs of the youth to prepare and enable them to become responsible citizens and productive members of society when they reach full adulthood.

It is axiomatic that people who failed to get the right education when they were young would have the least economic and social opportunities later on in their lives. This lack of opportunity then may lead to their own poverty, higher incidence of criminality, more dependency for extended government support, and worse, a breakdown in family ties and the perpetuation of the recurring cycle of doom for the next generation of young people.

As of the last official census, 56 percent of the country’s population is below 25 years old, with those between 5 to 14 years old constituting 24 percent.

According to the World Programme of Action for Youth to the Year 2000 and Beyond, the top ten issues that the youth is confronted with nowadays, that governments should give the highest priority, are the following: education, employment, hunger and poverty, health, environment, drug abuse, juvenile delinquency, leisure-time activities, girls and young women, and full and effective participation of youth in the life of society and in decision-making. And these are equally the same issues that the young generation of Filipinos today faces.

Unfortunately, young people are usually helpless to settle their own predicaments. For this reason, they need their families, their schools, their community, and government to take good care of them during their formative years.

Unless government and society, in general, start paying serious and priority attention to the plight of the Filipino youth, there is little chance for them to become the hope of the Motherland – as everyone believes they would be. Sooner or later, they might just become a part of a bigger problem.

They say that the Philippines is poor nation. Hopefully, it is not because of its youth.

Tags: economics, FIlipino, inhabitant, people, poverty, young, youth
Category: Note Verbale |

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A ‘camouflage’ economy

7th January 2007, 09:15 am

LINK: ‘Note Verbale‘, Manila Times (Sunday-Career Section) - 7 January 2007 Issue

The year 2007 started with some good news about the country’s economic performance.

Among other economic accomplishments, government reported that:

First, the exchange rate of the peso against the US dollar closed at 49.03 in 2006, the highest in nearly six years. And the peso continues to show sustainable strength.

Second, the Bangko Sentral reasonably expects foreign exchange remittance of overseas Filipino workers to post a staggering new record of almost US$12 billion for the year 2006 as soon as all the data are in. And government anticipates a 10 percent increase in such remittances this year. By the way, the figure only reflects remittances coursed through the banking system and formal channels.

Third, the Department of Labor and Employment reported that as early as November 2006, the country had already breached the one million mark in terms of documented deployment of Filipino workers abroad. It represents an increase of no less than 12 percent compared with the previous year.

One need not be an economist to understand that the first was the result of the second and third accomplishments.

There is no dispute that a peso getting stronger each day is music to the ears of government not only because it strengthens the country’s gross international reserves. More importantly, it significantly eases the pressure brought about by the country’s huge foreign debt. It also means lesser peso spent for the import of essential commodities like crude oil.

As of 2004, the Commission on Filipino Overseas estimated at least 8 million Filipinos already staying abroad. By adding the number of Filipinos leaving the country for greener pastures in another land two years after, it is fair to say that there are at least 10 million Filipinos away from home as of the year 2006.

Using conservative and basic mathematical assumptions, if all the 10 million Filipinos abroad had put in the US$12 billion foreign remittance in 2006, it means that each of them remitted only US$1,200 for the year, or US$100 per month. What does this mean then?

First, it could be that Filipinos overseas do not trust the country’s economy enough, or perhaps the way the government manages it, that they would rather have rather leave behind in the country where they stay a substantial part of their foreign earnings. In which case, the receiving country becomes the real beneficiary of the diaspora.

Second, it could also mean that the so-called record breaking foreign remittances in 2006 is just a tip of the iceberg because overseas Filipinos would rather remit their earnings through underground channels than the usual banking system that is perceived to take advantage of the workers’ money to earn more money for the banks.

If these first and second assumptions are not correct, then it is possible that no less than 10 percent of the country’s population are unfortunately toiling abroad with their sweat and blood but chose to just close their eyes as they earn pitiful and meager salaries simply to keep the economy of their respective families afloat.

If from the extrapolation earlier shown that each overseas Filipinos only remit US$100 per month, it may be too much to assume that on the average each of them earns at least US$500. But even the amount of US$500 is only about P25,000 per month.

Meanwhile, the continuing appreciation of the peso also diminishes the purchasing power of the families of the country’s overseas Filipinos.

The current situation of the Philippine economy therefore is a great contradiction. Behind the good news is the bad news that the country has a ‘camouflage’ economy, with the harsh realities waiting to unfold in the future.

Tags: economics, economy, employment, exchange rate, growth, labor, peso-dollar, standard of living, wage, work
Category: Note Verbale |

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100 Filipinos

3rd July 2005, 09:50 am

PUBLISHED: ‘Note Verbale‘, Manila Times (Sunday-Career Section) - 3 July 2005 Issue

The population of the Philippines stands at 84.2 million. It is a source of wonder how Filipinos would look like if only 100 of them now live in this planet.

By a simple extrapolation based on available statistics, the profile of the Filipino population would come out in this way:

There would be 51 males and 49 females. 83 of them would be Catholics, 9 Protestants, 5 Muslims and the rest would belong to other faith. 2 of the 100 would be Chinese in origin.

Of the 100 Filipinos, 35 would be less than 15 years old. 61 would be between the ages of 15 to 64. And 4 would be more than 65 years old.

Only 38 of the 61 Filipinos who may be able to work are locally employed, 3 are having their college education, 13 are out of the country to seek greener pastures and 7 remain either unproductive or unemployed. Of those locally employed, 14 are engaged in agriculture, 6 in various industries, and 18 are involved in providing different types of services. 12 are unskilled laborers, 8 are farmers and fishermen. 5 Filipinos would occupy positions as government officials, corporate executives, and entrepreneurs. Only 2 would be engaged in a profession.

Of the 35 who are less than 15 years old, 12 are below 5 years old. 22 of the 23 children who are apt for schooling are enrolled in various primary and secondary schools. Of the 22 pupils, only 2 are enrolled in private schools. But 95 of the 100 Filipinos are literate. Unfortunately, 3 of those under 5 years old are underweight for lack of proper food nutrition.

52 of the 100 Filipinos are registered voters. 31 of the voters would come from Luzon, 10 from the Visayas, and 11 from Mindanao. Of the registered voters, only 39 cast their votes for the 2004 national elections.

Interestingly, 31 of the 100 Filipinos are mobile phone subscribers while only 9 are Internet users. 13 are residents of Metro Manila. 26 are available to serve the military.

From this outlook, the country is certainly a nation of young people, a nation of the working class. While the public school system managed to achieve a very high level of literacy for the Filipinos, it is sad that more than half of those locally employed are still lowly farmers and unskilled laborers. It appears that only those who manage to enter private schools generally become professionals or obtain executive positions.

The agriculture and service sectors comprise the bulk of the country’s economy. Yet, the focus of government in attracting foreign investments is still geared towards the industrial sector. Doing away with imperial Manila might solve the congestion of the population in Metro Manila and other urban centers. But, who knows if it will.

The Catholic Church led the two successful ‘people power’ in EDSA to change the moral decadence in political governance. Judging from the influence of this faith to the people, when would it finally succeed in being an instrument for positive change in the other aspects of the Filipino way of life? Why it has not until this time is enigmatic.

Overall, the above profile of 100 Filipinos seems to be a display of contradiction, mislaid priorities, and a tragedy of sort. Anyone is however free to deduce from these perspectives.

But don’t just be mere fence sitters.

Tags: economics, FIlipinos, people, Philippines, population, profile
Category: Note Verbale |

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At the threshold of stagflation

Forced starvation

A look at agrarian reform

The youth as an economic indicator

A ‘camouflage’ economy

100 Filipinos

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