With the new inflation numbers being released and the Philippine peso trading above 53 to the dollar, there is some understandable gloom and doom on the local scene. We can offset these negatives by talking about the bright economic growth outlook that has not changed. In fact, we can find several other measures of the economy that merit satisfaction.
However, on one hand, it is proper and important to look at the immediate impact of all of these factors, good and bad. Inflation hits the poor the hardest, and a weaker peso aggravates inflation. The rising tide of economic growth is not lifting all boats.
But, on the other hand, even short-term conditions (rising food prices) and the longer-term situation (income and wealth inequality) are only considered “cover of the book.” And you cannot judge a book by its cover. Further, the foundations of a nation’s economic system are more critical in the long run.
Comparisons between nations are often silly and useless except that using your own country as some sort of benchmark that you are familiar with helps you understand a bigger picture.
India is the second-largest nation in the world by population. It has a relatively strong military and is a vibrant democracy. India’s foreign policy is independent with a wary eye on both the United States and China. Gaining independence about the same time as the Philippines, the country has struggled with the same social and economic problems as we have now and in the past.
The Philippines is facing a 5.2-percent annual inflation rate while India just posted an inflation rate of 4.897 percent. Philippine annual economic growth is 6.8 percent, while India’s is higher at 7.7 percent. Despite the fact that India’s population is nearly 10 times that of the Philippines, its per-capita GDP in purchasing power is $6,093 versus the Philippines’s $7,236.
We are experiencing food inflation at 6.1 percent even as Indian food prices are rising at about half that number. The poverty rate in both countries is about 22 percent by international standards. Using these “cover numbers,” it would seem that, regardless of huge differences, like between potato curry and pork adobo, both nations are economically in the same boat.
However, when you start turning the pages of the book, the story is different.
Government policies that react to short-term needs and conditions are important but are often wrong in the longer term. There is not much that we can do about that except to hope that decisions are being made with a clear view of the future. Yet, it all comes down to that biblical injunction about building your house on bedrock and not on sand.
A warning sign is the government debt as a percentage of the economy. India’s 68 percent is manageable; the Philippines’s 42 percent is better. We are concerned here about our negative 0.8-percent current account to GDP. For India, it is negative 1.9 percent. But things can change quickly with some changes in spending and policy.
However, the foundation of any economy is its banking sector, and India is in crisis. The most recent figures show that India has the second highest—behind Italy—bank nonperforming loan rate in the world at 11.6 percent. Philippine banks have a 1.8 percent NPL as of March 2018.
A country’s economy rests on the foundation of a sound government financial condition and a strong banking system. Regardless of short- and medium-term economic performance fluctuations, those two factors are the most important for the future.