The Manila Times : A strong economic team SO far, so good!

By Fermin Adriano | The Manila Times

I am heartened by the fact that President-elect Ferdinand "Bongbong" Marcos Jr. (BBM) has formed a strong economic team. The appointment of Arsenio "Arsi" Balisacan as head of the National Economic Development Authority (NEDA), Benjamin Diokno as Finance secretary and Felipe Medalla as BSP governor, will mean that there will be economic policy continuity from the Duterte administration to the incoming BBM administration. Such policy continuity is so critical to allay investors' fears, as the nation faces myriads of economic challenges brought by the Covid-19 pandemic and now, the Russia-Ukraine conflict.

Covid-19 resulted in the loss of jobs and incomes among our workers leading to a contraction of the economy. NEDA estimated that we lost around P3 trillion during the pandemic that halted our march to becoming an upper-middle-income economy by 2023. It is projected that our pre-pandemic economic growth rate can return to normal by 2025 assuming that the economy grows by at least 6 percent or higher for the next three years. Indicators are pointing to this being in the realm of possibility, given the impressive rebound of our economy for the first quarter of this year. The trend is likely to continue as we open further the economy, choked in the past by the series of lockdowns we had during the height of the pandemic.

The global economic recovery has been derailed by the Russia-Ukraine conflict and along with it, our economic recovery due to the spillover effect of United States and NATO (North Atlantic Treaty Organization) sanctions against Russia. Russia is a major exporter of oil and natural gas; both Russia and Ukraine are major producers of wheat around of global supply; corn, 15 percent; barley, 29 percent; and sunflower seed oil, 70 percent. The blockade imposed by the Russian navy in the Baltic Sea against ships carrying agricultural exports from Ukraine, combined with the embargo on Russian oil, natural gas and other products, the supply of these vital commodities in the world market has dropped abruptly which has led to prices of these commodities and substitute products to spike since the conflict began.

Stagflation

The generous fiscal stimulus provided by governments of developed economies to their citizens during the pandemic, the opening up of the global economy which released pent-up demand dampened by the pandemic, and the rising prices of oil, oil by-products and essential agricultural commodities have triggered inflation. Inflation rates in developed countries have seen new highs of between 5 percent and 9 percent since the conflict began. As various governments exert efforts to manage inflation, they will resort to austerity measures to check its further rise. The shortfall in the supply of oil and agricultural products caused by the Russia-Ukraine war, which pundits expect to be protracted, will maintain the pressure on prices of agricultural commodities.

Should there be a contraction in demand due to the adoption of austerity measures by various governments while accompanied by an upward trend in prices, we will be in a situation which economists describe as "stagflation." The term is a combination of the words "stagnation" and "inflation." Normally, inflation is accompanied by economic growth because inflation means greater demand for goods and services. But in the case of "stagflation," high inflation barely exhibits the desired economic growth due to the rise in interest rates as the primary tool to control inflation

Recently, the World Bank president, David Malpass, warned that the Russia-Ukraine conflict could trigger a global "recession." A "recession" is a phenomenon when economic activities are in decline leading to reduced demand, closures of business establishments, and the loss of incomes of both the owners and workers of industries because of limited buyers of products/goods and services.

Need for a highly competent Agriculture secretary

The efforts of the incoming economic managers will go to waste if they are unable to properly manage the rising prices of oil, agricultural and food commodities. Food and non-alcoholic beverages, 1 out of the 11 items used to measure CPI — consumer price index — or inflation, contributes 43 percent of our overall inflation from the period 2001-2021,our calculation based on the presentation I made at the Bangko Sentral ng Pilipinas forum and using official data from the Philippine Statistics Authority. During the pandemic, it reached a staggering rate of 48 percent!

No wonder then that incidences of stunting, malnutrition and hunger are continuing to be high in the Philippines despite the populist propaganda that we have limitless agricultural resources to attain food self-sufficiency in the country. As I noted in previous essays on the topic, the incidence of stunting among children 5 years old and below is around 29 percent, pre-Covid-19. This is one of the highest in the Asean region. Incidences of hunger are rising, where 4 out of 10 Filipino households suffered from hunger pre-pandemic, and rose to 6 out of 10 at the height of the pandemic. Protein deficiency is 47 percent among children between 13 and 17 years old!

It is obvious we cannot solve the problems of stunting, hunger and malnutrition if we cannot adequately address the high prices of food. While high prices may be a boon to producers because of profit margins, it is a huge burden to the ordinary Filipino consumers. And yet the irony of it all is that the policy of maintaining high prices of agricultural commodities has not resulted in improving the plight of the vast majority of our poor farmers and fishermen. Only a few who have transformed themselves into commercial producers and successful traders and it is no wonder, they are the most vociferous objectors to any measure that will bring food prices lower.

The current constellation of economic and political forces in the global economy makes it imperative that our next agricultural secretary be technically competent, both in the field of agriculture and its economics, to be aligned with the policy thrusts of our incoming economic managers. Our economic managers will be preoccupied with the tasks of managing our debt and credit standing to ensure access to much-needed foreign borrowings to weather the current economic crisis, generating tax revenues to finance our development needs, keeping our inflation rate at a manageable level to ensure healthy economic growth, and accelerating our economic growth and recovery after being stymied by the Covid-19 pandemic.

The next Agriculture secretary will have to ensure adequate supply of nutritious and quality food at affordable prices. He or she will have to promote the growth of the agriculture sector to generate more jobs and incomes to farmers and fishermen. He or she will have to contribute to the improvement of the nutritional well-being of ordinary Filipino consumers because the ultimate objective of development is to improve the plight of every citizen in the country. And he or she will have to modernize the sector to ensure that while it attains higher productivity and growth, it will not be detrimental to our environment.