IN a free-market economy like ours, “subsidy” is a defeatist word. It implies that free-market forces, to a certain extent, are not working.

But during a crisis, subsidies may be used to minimize, if not avoid, the impact of violent disruptions in economic fundamentals, which will consequently affect adversely the general population, and especially the marginalized sectors.

When the crises of surging oil and food prices hit the world, the impact triggered swift and serious changes in our economy, fueled inflation and sent the value of the peso vis-à-vis the dollar to a drastic drop.

There are several factors that aggravate these crises. First, we don’t know how long these will last. We don’t even know if we have reached the bottom.

Second, who would have thought oil would reach $130 a barrel? Experts are now predicting $200 and nobody is saying they are stupid, because they were also the ones who forecasted $130.

Even the well-to-do are feeling the impact of weekly increases in fuel pump prices, but the heaviest toll has been on the millions of ordinary wage earners, the market vendors and those in the rural farming and fishing communities.

Taking out taxes on petroleum prices could only do so much, and it helps the wealthy more than the majority of the people. Fares on public transportation could not be raised enough to cover the rising prices of fuel. Wages, despite recent adjustments, could not catch up with the higher cost of living without discouraging investments and threatening the livelihood of the intended beneficiaries of wage hikes.

Under this situation, it is understandable that the government will resort to subsidies. Public welfare is at stake. It would be easy if government coffers had ample resources to help everybody cope with rising prices without sacrificing other vital programs like infrastructure, health and education.

Alas, we are not in such an ideal position. We have just begun narrowing the fiscal deficit, and we continue to depend on borrowings not only to finance our capital expenditures but also to keep the government operating.

And this brings us to the issue of priorities. The recent crises brought to light the convoluted state of our subsidy programs. There seems to be no clear direction in terms of what and who to subsidize; and then which make up the basic criteria in setting up and implementing subsidy programs, taking into account a situation where demand is huge but the resources are very limited.

The question of who should be subsidized does not need more than a moment of pondering. We must bear in mind that at least 30 percent of the Philippine population live beneath the poverty threshold. They are the first to suffer from crises like the recent rice shortage, high food prices and high electricity bills.

The other question of what to subsidize does not require much thinking, either. When worse comes to worst, people can live without gasoline and even electricity, but they can’t live without food.

Thus, it is obvious that food should be No. 1 on the list of priorities. Energy, in the form of fuel for transportation and in the form of electricity, follows as No. 2.

With this simple but very clear priority list, policymakers should be able to prepare, and implementing agencies should be able to run, an effective and realistic subsidy program to cope with the food and energy crises. We have to find the optimum, and that is to stretch the peso!

Still, let us remember that subsidies cannot be the ultimate solution to the problems of high food and energy prices. They are just temporary measures designed to address immediate needs.

The long-term solutions will require more resources, more preparation and continuing implementation that will produce long-lasting benefits.

One such solution is to increase agricultural production and, thus, prevent rice shortages, which, by the way, are an embarrassment considering that we used to lead in rice production in Asia.

Another solution is to attract more investments in oil exploration, development and production, which will increase our chances of discovering domestic reserves.

All these, I must say, are the permanent solutions that we seek to end our dependence on imported food and energy. 

You may send your comments/feedback to mbvillar_comments@yahoo.com.

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