LOURDES Torres, 57, sells cheap hunger busters a stone’s throw away from the Bangko Sentral ng Pilipinas (BSP). And come 2016, none of President Benigno S.C. Aquino III’s men will get her vote.
“Didn’t it get worse? I think it’s the worst it’s ever been,” she said about the economy in Filipino, taking exception to rising consumer prices. “I’m a mother, too, so I can feel the impact everyday.”
“I think the government should do something about it,” Ms. Torres said, adding that the government has already lost her vote.
It is easy to imagine Ms. Torres as one of the respondents in the latest Social Weather Stations (SWS) survey that saw national government satisfaction ratings falling to a fresh all-time low for this administration.
Her thumbs-down could easily have counted toward the “poor” mark the administration received for “fighting inflation” -- its third worst-rated indicator, better only than the ratings on its perceived performance in “resolving the Maguindanao massacre with justice” and “ensuring oil firms don’t take advantage of oil prices.”
The nationwide survey, conducted on 1,200 adults from June 27 to 30, showed that public satisfaction with the general performance of the Aquino government fell to a fresh all-time low last quarter, with declines recorded across all indicators.
The government’s mark for fighting inflation fell to a -18 “poor” rating in the latest survey from a +4 “neutral” rating from an earlier survey in March. The SWS classifies net satisfaction ratings of +70 and above as “excellent”; +50 to +69, “very good”; +30 to +49, “good”; +10 to +29, “moderate”; +9 to -9, “neutral”; -10 to -29, “poor”; -30 to -49, “bad”; -50 to -69, “very bad”; and -70 and below, “execrable.”
For J. Prospero E. de Vera III, University of the Philippines Vice President for Public Affairs and public administration professor, the correlation between rising prices and the political prospects of the Aquino government is all too obvious.
“Of course there is a correlation, because in the survey, it also shows that if you ask the electorate what is the most prevalent or number one problem in the country, it is the high cost of living,” Mr. de Vera said in a phone interview.
“[The respondents] talk about inflation because it’s an issue that they face on a day-to-day basis.”
The government has been seeing elevated inflation in recent months -- cited by the BSP as reason for pursuing a tighter monetary policy, including a hike in interest rates it previously had not touched for two years. Rising food and utility prices stoked inflation to 4.9% in July, the fastest pace recorded since October 2011.
The country’s economic managers blamed the bad weather -- with the economy still reeling from the impact of super-typhoon Yolanda (international name Haiyan) -- for the inflation headache.
MANDATE
Sought for comment on public satisfaction with the way the Aquino government is dealing with inflation, BSP Governor Amando M. Tetangco, Jr. explained higher commodity prices “have been attributed mainly to weather-related supply chain disruptions.”
“The government is working to address these concerns already.”
BSP Deputy Governor Diwa C. Guinigundo echoed this view.
“Philippine inflation is now largely driven by supply bottlenecks particularly in food products, so various government agencies like the DA (Department of Agriculture), NFA (National Food Authority), as well as DTI (Department of Trade and Industry) have addressed this issue through more support to agricultural sector, as well as timely importation of food commodities like rice,” he said.
Mr. Tetangco asserted that the BSP will continue to deliver on its price stability mandate.
“As for the BSP, we are also mindful of price increases in specific commodities, especially as they contribute to overall market inflation expectations, so that the latter do not lead to second-round effects,” he said.
“We will adjust policy settings as needed to protect the national government inflation target over the policy horizon.”
‘POPULIST MEASURES’
As rising prices remain a fact on the ground, however, the question that arises is whether the government will turn to populist measures to combat one of the most stubborn drags to its popularity -- inflation.
“The basic instinct of any government is to think of ways of keeping power so when faced with bad PR, ‘populist measures’... will be the natural reflex,” Security Bank Corp. economist Patrick M. Ella said in an e-mail.
History is rife with cases of politics influencing fiscal and monetary policy making. In the US, politicians had been known to zero in on inflation in a bid to win the population’s approval over an issue close to their stomachs. One notable example is when US President Gerald Ford came up with a grassroots-focused campaign called “Whip Inflation Now” (WIN).
Mr. Ella noted that “President Ford and his predecessor, President (Richard M.) Nixon, lived in inflationary times, so rising prices was one of the main political and economic issues of the day.”
“The record of history is clear: politicians tend to favor or shower electorate with ‘gifts’ like price controls or subsidies or wage hikes when facing bad PR,” Mr. Ella said.
“Nixon did this, Marcos did this.”
HAPPY FOR A WHILE
Bank of the Philippine Islands economist Nicholas Antonio T. Mapa said, however, that such measures rarely result in long-term benefits.
“Short-term fixes to win back popularity rarely result in long-term gains,” Mr. Mapa said separately via e-mail.
“We hope that this administration would refrain from doing so as this would undermine the growth we’ve seen so far.”
Mr. Mapa noted that the government had in fact even contributed to the elevated inflation outlook, as it pursued one ostensibly populist objective.
“Inflation is spiking in large part because of a populist measure that the administration stubbornly chased and this is the issue of rice self-sufficiency,” Mr. Mapa said.
“I understand that it is wildly popular to chase after this goal given that it’s our staple food. However, from an economist point of view, it would not be an efficient use of our scarce resources...” he explained.
“Now, the government has decided to abandon rice self-sufficiency altogether,” Mr. Mapa noted.
“Had we simply gone away from the populist measure of chasing rice self-sufficiency and imported enough rice -- commensurate to the true needs of the country -- then we would not be saddled with this sort of price acceleration,” he asserted.
“In short, this shows how populist measures can make a couple of people happy, but only for a while.”
CUT TAXES
Mr. Ella noted, however, that there are instances when populist measures can actually benefit the economy.
“Some populist measures like price controls or hiking minimum wage or increasing oil subsidies... never work,” he said.
“But if it’s something sensible like lowering tax rates, which spurs the supply side of the economy, this has a long track record of working and across history and countries.”
Metropolitan Bank & Trust Co. Research Head Ildemarc Bautista agreed.
“Revising the tax scheme on personal income tax to afford some tax relief to lower income groups appears populist,” Mr. Bautista cited as an example.
“However, the argument for restructuring is based on solid economic arguments that the current tax rates are in fact regressive and penalize the lower income groups because the tax brackets are not adjusted for inflation.”
Several bills seeking to reduce individual income tax rates are pending with Congress.
“Either the brackets ought to be regularly adjusted upwards or the tax rates be revised downwards or do something in between to factor in inflation,” Mr. Bautista suggested.
“These will in turn benefit the lower income groups and would be thus labeled as populist, but the logic for the revision remains sound.”
This goes to show, Mr. Bautista said, that “there are some populist measures that are in fact grounded in good economic theory, so it is not necessarily true that there is a dichotomy between populist measures and good economics.”
Small-time vendor Ms. Torres can only agree. -- with reports from Daryll Edisonn D. Saclag and Mikhail Franz E. Flores
source: Businessworld
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