JUNE 5, 2009
(STAR) By Des Ferriols - Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco Jr. said yesterday the 2010 elections could stimulate economic activity but the impact would be minimal and unsustainable both on the real economy and the inflation rate.

Low government spending has been blamed for the surprisingly low performance of the economy in the first quarter and officials hoped that election-related spending would provide an added push that the fiscal stimulus plan did not have.

But Tetangco said election spending is only a temporary stimulus and cannot be used as a channel for priming the economy in order to avoid an economic recession.

“The impact of the election is on the economy as a result of increased spending on election materials and even entertainment during the campaign period,” Tetangco said. “These activities tend to support the economy.”

Tetangco said election-related spending also tended to spur slight inflationary pressures but he said these were short-term effects and the impact on consumer prices do not persist.

“Elections do not have a lasting impact on inflation,” he said. “If you look at the curve, there would be a slight increase then it evens out over a short period.”

Tetangco said election spending normally would not bring new money into the system and the campaign-related expenditures only redistribute liquidity that was already in the financial system.

“The only thing is if there would be money coming from abroad and that would probably have an impact but not a big one,” he said.

The Department of Finance earlier said election spending could add about half a percentage point to the country’s gross domestic product and in 2010, the impact was expected to be bigger because there were more parties and individuals running for public office.

The government is still expecting the economy to expand by 4.3 to 4.7 perccent in 2010, taking into account the increase in consumer spending during the campaign period.

The BSP, on the other hand, had made projections that the inflation rate would stay within target this year and in 2010 even with the elections coming up in May next year.

The BSP said it still expected prices to increase by no more than 3.5 percent this year.

“The emerging baseline forecasts for 2009 indicate a decelerating and lower path for inflation, which could bottom out in the third quarter,” the BSP


According to the BSP, the tamer inflation outlook reflected the moderation in global and domestic economic activity, prospects of reduced pressures from world commodity prices, and the impact of the transport fare reduction granted in the first quarter of the year.

Economists have also lowered their projected average inflation rate for this year

from 4.5 percent to four percent, falling within the government’s official target inflation of 3.5 to 5.5 percent.

The BSP conducted a survey of private sector economists and analysts in the first quarter of the year where officials said inflation expectations have actually improved.

Based on its survey of non-government analysts and economists, the BSP said the mean inflation forecast for 2009 was four percent, lower than the 4.5-percent forecast in the survey three months previously.

The BSP said its survey indicated an average forecast inflation rate of 3.9 percent in the second quarter and 1.7 percent for the third quarter.

For 2010, the BSP said the average inflation forecast was relatively stable at 4.9 percent (from 4.8 percent a quarter ago).

“Inflationary pressures are expected to be dampened by soft global commodity prices owing to the severe economic slowdown and continued lack of demand-pull pressures,” the BSP said.

According to the BSP, most economists also expect strong base effects from very high consumer price index (CPI) levels in 2008 when the average rate peaked at over 12 percent in the third quarter.

Chief News Editor: Sol Jose Vanzi

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