Matagtag na Republika

Buencamino writes political commentary for Action for Economic Reforms.  This article was published in Business Mirror August 15, 2007 edition, p. A10.

In November 2005, Mrs. Gloria Macapagal-Arroyo went to San Juan, Batangas to preside over the “symbolic inauguration of an electric power substation and eight bridges.”

The peso, at that time, had gone up to P54.80 to the dollar, up from P56.20, and Mrs. Arroyo was quick to claim credit for that.

She brought the good news to the crowd at the symbolic inaugural. She said, “The country is now reaping the gains of fiscal stability…the peso has climbed to a five-month high of P54.80 against the US dollar compared to last month’s P56.20…the government realized a P37 billion savings in debt servicing.” [Translated from the vernacular.]

Then, as now, Mrs. Arroyo wants us to believe a rising peso is the same as a “strong peso.” It is not.

A rising currency in a weak economy is just a bubble. A strong currency, on the other hand, is one that is tied to a strong economy.

“A strong economy,” Filomeno Sta. Ana III of Action for Economic Reforms explained to me, “is one where high levels of growth and investments are sustained over a long period, resulting in job creation, rising living standards, and poverty reduction.”

He added, “Our present growth is not investment-led. It is mainly consumption fueled by OFW remittances.”

“But what about the stock market?” I asked.

He replied, “We want long-term, productive investments, not the hot money that has made the stock market boom. The Philippines now is attracting the type of investors who are interested only for the short term.”

“But why aren’t long-term investors coming on the heels of hot money investors?” I asked.

Sta. Ana enumerated the reasons why.

“We have poor infrastructure and low infrastructure spending.

We have rules that are uncertain, reversible, and discretionary (PIATCO, ZTE).

We have high-level, massive, and unpredictable corruption.

We have an unresolved fiscal problem as GMA rewards allies and bribes others with incentives, gives generous subsidies to allies for her political survival, and allows her friends to get away from paying taxes.

We have an uncompetitive exchange rate, with GMA herself endorsing an overvalued peso that is bad for the real sector.

We have peace and order problems.”

Mrs. Arroyo is now beginning to reap the “gains” of the “strong peso” courtesy of hot money and OFW remittances.

Last week, she was forced to take steps to help out exporters.

This paper reported, “ACTING on the request of the Department of Trade and Industry, the Department of Transportation and Communications (DOTC) has ordered the suspension of wharfage fees until the end of the year to help exporters cope with the strong peso.”

Wharfage fees “is the amount assessed against cargoes for the use of the sea, wharves/piers or any other port facility.”

I checked the income statement of the Philippines Ports Authorities (PPA) to see what, more or less, it collects in wharfage. The PPA website only had financial statements for years 2004 and 2005 but the figures there give us a ballpark figure of how
much those wharfage dues are today.

Under PPA revenue, we have: Wharfage dues P1,212,839,623 (2005) 1,218,816,476
(2004). I don’t know if the break to exporters also includes the following services associated with use of ports: Port Dues/Harbor Fees 306,399,231(2005)
316,186,859(2004)? Dockage – Berthing 285,238,346(2005) 288,981,326
(2004)? Port Usage Fees 167,239,777 (2005) 169,281,471 (2004)?
Storage Charges 152,919,273 (2005) 141,648,505 (2004)
Dockage – Anchorage 49,965,656 (2005) 58,426,699 (2004)?
Pilotage 28,051,945 (2005) 24,068,321 (2004).

As you can see, we are talking real money savings here for exporters, even if it’s only until December.

However, an expense saved by exporters is income lost by PPA, a government corporation. And the government is experiencing revenue shortfalls, right?

Meanwhile, the bagong bayanis are also screaming for relief. They want a special exchange rate for OFW remittances. They even set-up a website, Patnubay.com,
to rally support for their cause.

Of course, the Bangko Sentral, will not be foolish enough to tier our exchange rate. But the point is the bubble peso, or the “strong peso”, as Gloria Arroyo prefers to call it, is causing more pain than comfort.

So I’m certain Gloria and her economic advisers are wracking their brains for a “quick fix” to the remittance problem of “less bang for their hard-earned buck.”

What we need is a strong peso, the product of a strong economy, not a bubble peso that could burst at any time hot money leaves our shores or countries stop importing our laborers.

What would happen to the peso bubble if the sub-prime lending crisis in the US leads to a global financial crisis and hot money retreats from our shores?

Wouldn’t that cut a leg off Gloria’s “matatag na republika” (Strong republic)? Won’t that make her republic “matagtag” (bumpy) instead of “matatag” (strong)?

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