(STAR) By Lawrence Agcaoili - Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco Jr. believes that the Philippine economy was left relatively unscathed by the “financial crisis” that led to a global economic slump.

Tetangco said fiscal and monetary reforms adopted by the government helped cushion the full impact of the global financial crisis.

“To a large extent, the Philippine economy was relatively unscathed by the global crisis because of underlying cushions in the form of a critical mass of reforms and in the form of sustained macroeconomic policy prudence,” Tetangco said.

Unlike other economies, he explained that the Philippines avoided a recession due to several measures adopted by fiscal and monetary authorities.

“I don’t know about the other countries but what we are seeing is that we avoided recession while a number countries in the region registered negative growth rates,” he added.

Philippine economic managers through the Cabinet-level Development Budget Coordination Committee (DBCC) see the country’s gross domestic product (GDP) expanding between 0.8 percent and 1.8 percent this year from 3.8 percent last year.

Tetangco said the economy’s resilience was evident in 2009 as the GDP expanded by 0.7 percent in the first three quarters of the year amidst contractions in other jurisdictions, including in the Asian region. 

He pointed out that the economy continued to draw strength from strong domestic demand and solid macroeconomic fundamentals. 

At the height of this crisis during the last quarter of 2008, he said the BSP endeavored to prevent such a meltdown in financial markets and a freezing in the credit markets from occurring.

“We ensured monetary policy was appropriately accommodative. We ensured there was sufficient and evenly distributed liquidity in both the peso and dollar funding markets,” the BSP chief said. 

The BSP’s Monetary Board started adopting liquidity enhancing measures in November 2008 and started its easing cycle in December through the reduction of key policy rates.

In all, the board slashed interest rates by 200 basis points until July this year to a record low of four percent for the overnight borrowing rate and six percent for the overnight lending rates.

“We can maintain the current policy stance for some time. The consensus view is that inflation could remain well behaved, held back by the presence of spare capacity and relatively weak demand,” Tetangco added.

With these measures, he said, lending activities continued, domestic financial markets stabilized, and the banking system remained sound.

According to him, the domestic economy is on the rebound but there is a need for more reforms to fully achieve the country’s potential.

In the area of monetary policy, Tetangco said inflation targets would continue to be our guide in policy-setting.

“This means we shall continue to be watchful of other key developments especially in terms of liquidity growth, capacity utilization and the state of the financial markets. We would continue to exercise vigilance over inflation developments, in line with our mandate of promoting price stability,” he said.

He added that the central bank would also continue to support external policies including a market-determined exchange rate and the review of foreign exchange regulatory environment to help further insulate the economy against global risks.

The BSP, according to Tetangco, is confident that inflation would stay within the projected level of 2.5 percent to 4.5 percent this year, 3.5 percent to 5.5 percent in 2010, and three percent to five percent in 2011.

Inflation eased to a year-to-date average of 3.2 percent as of end-November from 9.4 percent in the same period last year. The consumer price index is expected to range between 3.7 percent and 4.6 percent in December.

The BSP chief said the appropriately accommodative monetary policy made possible by the benign inflation environment helped to make sure that the generally sound banking system was able to perform its critical function of intermediating funds to the productive sectors of the economy.

“This positive confluence of events allowed our economy to continue to attract foreign investments and to grow even during this deep global crisis,” Tetangco said.

Most economists and analysts believe that the world economy exited recession in the third quarter of 2009 and is set to grow at a pace of around three percent next year.

“After two years of what has been characterized as the deepest global recession in over 60 years, we are now witness to clear signs that the crisis is ending and that the global economy is on the cusp of a recovery,” the BSP chief said.

While the global recovery is underway, Tetangco reiterated that the “great crisis” has left real scars that may take some time to heal.

He added that there continue to be risks including the shape that the global recovery, the timing and quality of exit from easy monetary policy by the major central banks, the fickle investor sentiment towards emerging markets, and the potential capital reflow to the region.

“The cautious nature of the global recovery would have implications on the strength of Philippine economic growth,” he said.

A sluggish upturn in global economic activity, according to the BSP chief, would present a downside risk to the domestic economy through its impact on exports and investments.

Economic managers see the country’s GDP growing at a faster rate of between 2.6 percent and 3.6 percent next year.

Singapore-based DBS Bank Ltd. sees the Philippine GDP accelerating faster at 4.8 percent next year on the back of strong consumption brought about by robust remittances from overseas Filipino workers (OFWs).

“The economy will continue to plod along on the back of global recovery,” the investment bank stated in its Economics Markets Strategy for Q1 2010.

DBS sees private consumption expanding by 4.8 percent next year from 3.4 percent this year. Merchandise exports on the other hand would expand by 19 percent next year after contracting by 25 percent this year.

On the other hand, New York-based investment bank Goldman Sachs sees the country’s domestic output growing by 4.2 percent next year from the projected 1.6 percent growth this year on the back of continuing fiscal stimulus as well as robust OFW remittances.


(STAR) By Ma. Elisa P. Osorio - For the first time, and perhaps the last time during her presidency, President Arroyo, placed the entire country under price control after tropical storm Ondoy hit Metro Manila and some surrounding provinces. She regulated the prices of basic goods and services.

Consumers, especially those directly affected by the storm and subsequent typhoon Pepeng were grateful because they no longer had to contend with sudden spikes in prices for at least 90 days. Under the Price Act, the President may freeze prices for 90 days under a state of emergency.

The Department of Trade and Industry (DTI) vigilantly monitored prices. Although it reported many violations, there is no data that a case was filed in court against price control violators.

Shortly after the imposition of price control for basic commodities, the President ordered petroleum companies to roll back prices of petroleum products to pre crisis levels under Executive Order 839.

The move benefitted consumers who were still reeling from the losses they incurred because of typhoons. But it was deemed like a death sentence for retailers of petroleum products.

Issues such as supply shortage and increasing costs for retailers sparked protests over price control. Various business groups demanded the President to reconsider her decision, especially with regard to petroleum products.

The Joint Foreign Chambers joined local industries like the Philippine Chamber of Commerce and Industry (PCCI), Management Association of the Philippines (MAP), Makati Business Club (MBC), and the Federation of Philippine Industries (FPI) in calling for the termination of the executive order.

“We strongly recommend an immediate announcement of a termination date for EO 839 to mitigate the adverse impact of forced loses on the petroleum, risk of future adequate supply industry, and disincentive to future investment,” JFC said in a statement.

“Our members are particularly concerned about the open-ended nature of this price control with no specific “sunset” date which leaves the oil industry and all those who depend on oil products in a state of great uncertainty for the foreseeable future,” the group added.

According to them, Executive Order 839 will result in the reduction in supply to and availability of petroleum products in Luzon as importers will not wish to sell at a loss. Because Luzon comprises 80 percent of the Philippine petroleum market, it will have a negative impact on the capacity and growth of the Philippine economy.

JFC stressed that there is no need to impose a price control on oil firms because “oil companies operating in the Philippines have been demonstrating outstanding corporate social responsibility in various forms during the state of calamity in Luzon and, in particular, in keeping overpricing in check and bringing their damaged facilities quickly back into operational status to ensure continuity of petroleum supplies.”

JFC said that they understand that in some situations there is a need for price control

to prevent profiteering by some unscrupulous firms and “middlemen.” However, they said that it was not the case here.

Aside from refusing to import more oil and oil products, foreign businessmen warned that price control would result in an arbitrage between Luzon and the Visayas/ Mindanao as there will be an incentive to direct currently remaining oil inventories in Luzon to be sold in the Visayas and Mindanao where the prices are higher.

Likewise, with potential forced loses in petroleum sales, there was a disincentive to any further investment in the sector which would affect future supply over the longer term.

Shortly after the President bowed to the pressure and lifted all price controls before the 90 day period. Trade Secretary Peter B. Favila spoke to the media and assured the public that prices will not go up even if the price control was removed.

However, supermarket owners were singing a different tune. Prices of meat items, canned goods and refined sugar went up as the government lifted price controls although supermarkets said they are heeding the call of the government to not take advantage of the lifting of the price freeze saying that they would try to tone down price increases for basic and prime commodities until after Christmas.

“For the sake of those affected by the typhoons that hit our country, we will try to do our best to control increases until after Christmas,” Federico Ples secretary general of the Philippine Association of Supermarkets Inc. told The Star in an interview.

According to Ples, they expected price increase in refined sugar, canned goods and meat items. Ples explained that the government-declared standard retail price (SRP) for these products during the period of price control were too low.

Ples said that supermarkets would do their best not to increase their prices especially with the holiday season. “We have already reduced our margin to only three percent to five percent net.”

Ples added they would sell the commodities at the lowest possible price but they still remained dependent on the manufacturers, distributors and wholesalers. He noted that there was no need to immediately raise prices because the supermarkets still have inventory from the old prices.

For cement, there was a reported shortage and price surge a week before Christmas. The DTI is now investigating the big three cement manufacturers in the country as prices in selected areas went up by as much as P40 a bag and some markets are complaining of shortness in supply.

“We have called the manufacturers to inform them that monitoring reports received from the regional and provincial offices of the DTI in selected areas indicate that the retail price of cement has increased by a range of P10to P40 over the past week and some of the outlets/ hardwares stores do not sell claiming they have no supply,” Trade and Industry Undersecretary for Consumer Welfare Zenaida C. Maglaya said.

Chief News Editor: Sol Jose Vanzi

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