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Buy red onions, save the peso

Editorial

The Philippines has many economic concerns not least of which is the weather. Call it bad luck or a normal weather pattern, the last thing we needed was another major storm blowing through, damaging crops and agricultural infrastructure.

The global food situation is fragile right now and may get worse with Russia announcing over the past weekend that it will suspend indefinitely its involvement in the internationally-brokered deal that allows Ukraine to export grain from its Black Sea ports. London Wheat Futures traded on the ICE or Intercontinental Exchange reached a 12-year high in May 2022 at the $400 level and was trading prior to the Russian announcement at $300, having decreased by 25 percent from the high price.

Public and pundit attention is focused on the three primary components of our economy’s performance: economic growth, inflation, and the peso-dollar exchange rate. Just as crucial is the “balance of payments” both financial and trade related, which computes if money is flowing in or out of the country. Then the government’s financial health must be factored in by looking at the budget deficit, which is much more important than the size of the government debt that gets the headlines.

Inflation is the one issue that is most prominent in the news as the price of basic commodities and other consumer goods is most obvious to the public. It is also the one factor that in the age of globalization, the government is probably least able to influence effectively and sensibly. The immediate solution is always price control; and/or provide government subsidies.

Price controls inevitably lead to shortages of goods, and subsidies inevitably lead to harming the government’s fiscal health. Both are solutions to the question “Why doesn’t the government do SOMETHING?” No to inflation.

While not the absolute “inflation solution,” a currency with a higher exchange value to the US dollar is important. Philippine inflation is closely correlated to the global price of crude oil especially in the past 20 years. In fact, you will have extreme difficulty finding any economy that does not see inflation flowing along the ups and downs of the crude oil price, both short and long term.

For example, when oil was priced at $40 per barrel in 2020, Japan’s inflation rate was negative 0.5 percent. With an oil price of $100, Japan’s inflation is 3 percent. Indonesia had an inflation rate of a little over 2 percent as 2022 began and oil was $80. Oil near the $100 level and Indonesia’s inflation is running at seven-year high of 5.95 percent. In 2019, Vietnam had 2 percent inflation and was paying $60 for oil. Now its inflation is running at 4.3 percent.

However, the price of oil is also dependent on the currency exchange rate and here, there is a problem. A starting point to look at the currency rate is January 2008 prior to the global debt crisis. Since then, the Japanese yen has depreciated against the dollar by 55 percent, the British pound by 33 percent, and the Philippine peso by 42 percent.

Japan wants a less valuable yen to help spur exports and hopefully economic growth. But that is not the situation for the Philippines.

Last week Finance Secretary Benjamin Diokno said the government is open to the possibility of the peso touching the 60-level against the US dollar, but he said interventions will continue to prevent the local unit from overshooting that level.

Tell the world you are going to “defend the currency” at a particular level and you may prompt an “attack.” Then again it may encourage Filipinos both here and abroad to convert to pesos by believing 60 is the most you are going to get for your dollars.

But one thing is certain. We are importing way too much, and we must as individuals do everything we can to “Buy Local” to support the peso. Maybe everyone wants white onions. But local onions keep our money at home.

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