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Quick
answer! Which is the worst-performing stock market in
the world for 2008?
Early in
2007 I reached the limits of my patience with
those—including a small but vocal group of Filipinos—who
were telling us that Vietnam was a new economic Garden
of Eden.
Local
journalist Ian Sayson, reporting for Bloomberg, just
wrote an enlightening article which should keep Vietnam
fanatics and apologists under a rock for some time to
come. “The Ho Chi Minh Stock Index fell 1.5 percent to
384.24 today. The benchmark, at its lowest in 27 months,
has lost 59 percent this year,” writes Sayson.
The
Vietnam numbers are staggering. “Consumer prices in the
Southeast Asian nation gained 25.2 percent in May. The
trade deficit tripled in the first five months of the
year.” As a result, “Standard & Poor’s, Moody’s
Investors Service and Fitch Ratings have lowered their
outlook for the nation’s debt to negative.”
Now this
is the kicker: “The government, this week, cut its
growth forecast for 2008 to 7 percent from 9 percent.”
Despite a SEVEN-percent economic growth, the country,
particularly the stock market, is facing a catastrophe.
According to Mark Matthews, Asia-Pacific head of equity
strategy at Merrill Lynch, “There’s no reason why
Vietnam
[stock market] couldn’t fall another 70 percent.”
Vietnam
is certainly an economic system that the
Philippines
should not even think of emulating, but we can surely
learn from its mistakes.
For the
remainder of 2008 the Philippines faces a critical
problem that our government is not addressing:
inflation. There is no question that oil and commodity
prices will fall dramatically. However, it will not
happen soon enough to offset the long-term and serious
damage that inflation can do to the economy—unless
something is done quickly.
The
recent increase in Bangko Sentral ng Pilipinas (BSP)
interest rates was not to dampen inflation no matter
what the media says. That is an untruth, a smoke screen.
The BSP
raised the rates to try to stop the depreciation of the
peso. Yes, indirectly, a stronger peso does contribute
to easing inflation by offsetting some of the increase
in the world’s oil prices. However, nothing—repeat,
nothing—constructive is being proposed or any action
being taken to avoid 2008 inflation numbers from being
as high as 15 percent or more.
Philippine inflation is being caused by high fuel
prices. We cannot do anything to reduce the world price
of oil. We need an immediate and dramatic reduction in
fuel consumption to avoid two real and immediate threats
to the economy: a worsening trade deficit (which is one
of the reasons for a falling peso) and inflation.
We need
financial subsidies for fuel to lower the cost of
transportation and the eventual cost of food and all
other goods.
The
proposal to lift taxes on gasoline for use in our cars
by you and me is foolish and extremely dangerous. In
fact, everything should be done to get us in the
upper-middle class and above to reduce consumption as
much as possible.
You and
I should have a P2-a-liter tax imposed to fund a
P5-a-liter reduction for fuel for public-utility and
cargo vehicles. Number coding in Metro Manila should be
increased to two days a week to force increased use of
public transportation. Instead of reducing the toll on
the North Expressway, the Light Rail Transit and Metro
Rail Transit system fares should be reduced immediately
and more heavily subsidized by government.
In order
to protect its image and political capital, the
government will not face up to the reality and tell the
public how immediate and severe the problem is. The
potential of a 15-percent inflation rate warrants no
less the urgency and response than as a natural disaster
like a major earthquake.
Rehabilitating the Bataan nuclear facility may be the
most ridiculous idea possible. We need immediate
solutions. The government should, for example, mobilize
from the barangay level a car-pooling database and
system to very quickly reduce the number of cars and, as
a result, gasoline consumption in Metro Manila.
Corporations may have to be given financial incentives
to reduce private-vehicle use by their employees.
Other
even more extreme measures may be necessary. These might
include the closing of certain main thoroughfares to
private vehicles on Sundays. It may also take the form
of reducing operating hours of malls during weekdays or
closing completely on Sundays.
Without
this immediate rush of high prices, the Philippine
economy should have reached well over 7 percent growth
this year.
How
serious may the problem be?
This
current inflation, which is caused by factors outside of
the domestic economic system, is the worst type of
economic cancer possible. It may require the most
radical policy “surgery” available.
High
inflation will create an economic meltdown that will
destroy all the gains from the past few years. If
inflation continues higher than 10 percent through the
year, our inflation-adjusted growth will actually be
negative for 2008. The Philippines cannot afford that to
happen, and, to avoid that, we must sacrifice today, not
tomorrow.
Now is
the time for the government to show if it has the
leadership qualities we need in making difficult
decisions. If not, the country may be facing
“basket-case” time again very soon, and that would be a
disaster.
E-mail comments to mangun@email.com. |
