There are some naysayers who warn that the Philippines may struggle given the recent negative developments in the world economy and the political turmoil in Turkey and Venezuela.
The tit-and-tat imposition of trade tariffs between the United States and China is adding tension to the global economy, while some “disappointing” domestic figures of late have bolstered the fears of cynics that the growth of the Philippine gross domestic product is about to slow down.
Amid these volatilities, we should take stock of our current situation. The Philippine economy still grew 6.3 percent in the first six months of 2018, and while the inflation rate has risen close to 6 percent, prices are nowhere close to the all-time high of over 62 percent in September 1984.
I have personally experienced the hyperinflation rate and the interest rate of 40 percent in the mid-1980s and how these affected Philippine businesses. Business confidence shrank and many investors fled the Philippines. Several companies were forced to shut down because of the high cost of materials and the banks’ prohibitive borrowing rates. Many jobs were lost and very few companies managed to survive that economic environment.
The Philippines has gone through worse times and what the nation is currently experiencing, I believe, are just blips in the economy. The rising inflation and the ensuing response of the Bangko Sentral ng Pilipinas through increased interest rates are minor movements that do not necessitate radical policies.
Governments that resort to such radical policies and abandon economic fundamentals have seen their respective countries suffer. Venezuela is one classic example of a mismanaged economy. The American nation is in its fourth straight year of recession, with double-digit decreases in the GDP. The inflation rate, according to the International Monetary Fund, is expected to reach one million percent this year.
As a result, about 2.3 million Venezuelans have fled their country since it plunged into crisis in 2014. Lack of food forced many of them to leave. Venezuela, a major oil exporter, experienced an economic free-fall after low crude prices significantly trimmed its revenues.
Over in Turkey, the inflation rate zoomed to almost 16 percent while the current account deficit widened. The Turkish lira has plummeted about 40 percent this year after investors expressed concerns over the monetary policy of Turkey President Tayyip Erdogan. A growing political and economic dispute with the United States has also put pressure on the currency.
The developments in Venezuela and Turkey and the trade war between the US and China are rattling the world financial markets and causing volatility, but these should not be an excuse to rock the boat here, so to speak. Our financial ratios are still fine considering the instability in certain parts of the world.
We should watch carefully these global developments and stay calm at the same time. The Philippines has kept its economic fundamentals intact and I believe there is no reason to institute drastic measures while the storm is brewing outside our shores.
I agree with the assessment of Finance Secretary Carlos Dominguez III. The economy may have underperformed compared with the official target range of 7 percent to 8 percent, but the 6-percent growth in the second quarter was a mere “exception that does not indicate a medium-term trend.”
Domestic demand, he says, remains robust. “Investment flows grew in the first half of this year. Our exports of goods and services recovered to a double-digit growth of 13 percent in the second quarter from 6.5 percent in the previous quarter,” he adds.
Government spending in support of social services and infrastructure projects increased to 19.5 percent in the first six months of 2018, which, according to Dominguez, represented the highest first-semester expenditure effort since 2003.
The government’s revenue effort improved by 1.47 percentage points to 17.12 percent in the first six months, also the highest first-semester revenue effort since 1946. The tax effort of 15.23 percent is also the country’s highest first-semester tax effort, he says.
The Philippines, thus, is still doing fine. We just have to ride out the financial storm and hope it passes quickly.