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A stress test for the Philippines?

(Part 1)

Before we start running helter skelter all over the place making all kinds of doomsday pronouncements about the state of our affairs as if the end were near, we should probably pause and take stock of our situation. True, there has been a spike in the price of basic commodities causing a higher rate of inflation than expected over the past two months. The pressure on the peso has also been harder than ever before after the increase in oil prices and the raising of US interest rates. Then there is some uncertainty in global markets brought about by the seemingly unabated trade standoff between the world’s two biggest economies, the US and China.

In the midst of all these disruptions what are we to do? Are we going to sit down as a mature nation and map out the best measures which should be put in place to ensure that our situation does not get any worse?

Or, are we going to act like partisans of any shade or persuasion and start bombarding each other with all kinds of blame for the state we are in? Even worse, are we going to encourage any kind of destabilization to get rid of the “Hitler” in the Palace—as some of the extremists are suggesting or even initiating?

Before we even think of the worst scenarios, perhaps it is best we compare our situation with two of the countries considered most vulnerable to an economic meltdown. First, Venezuela. By almost all accounts, this oil-rich country is already a basket case with an almost useless currency and inflation running in the millions. In addition to a shattered economy which has shrunk considerably, the political divide has spiraled out of control, bringing more people into mass exodus across the borders. This cannot stand for long. Sooner rather than later, something’s got to give. We just hope that if that happens, it will not bring about worldwide contagion.

On the other hand, a month ago when US President Trump ordered the doubling of tariffs on imported Turkish steel and aluminum imports, causing the Turkish lira to tumble by almost 10 percent and prompting Turkish President Erdogan to lash back at the US and its allies as engaging in economic warfare. This came a few days after the US Congress condemned Turkey for the detention of an American pastor on supposed false and malicious charges and immediately after Erdogan won election to an expanded presidency. The embattled Turkish leader’s charge resonated with a majority of the Turkish public. For a while.

But even as some analysts said, Trump’s move was feather light, a slap on the wrist, the lira’s plummeting was somehow credited with the “...pushing down of the currencies of Argentina, India, Indonesia, Mexico, Russia, South Africa and Zambia and raising Italy’s borrowing costs versus Germany to the highest levels since May...,” as reported by a number of business dailies. That prompted analysts and investors, in and out of Turkey, to take a second look at the real state of that country’s economy.

A kind of stress test similar to that of the banking system’s financial tests and, yes, even in the case of critical medical procedures. They were not satisfied, somehow even alarmed, at what they saw. It did not help that the measures taken by the government to somehow temper the lira’s fall was exacerbated by the appointment of his son-in-law, Berat Albayrak, as treasury and finance minister. For some reasons, instead of letting the dust settle, Erdogan pushed even harder. He tweeted about the unconscionable practices of the central bank as he immediately tasked the central bank to raise interest rates—a no-no under any and all circumstances. That was just the start. Albayrak and his crew then moved to initiate other measures to stench the red but to no avail. From hereon, Turkey will be the marker for a possible global growth slowdown which can, in turn, result in inflation and other unintended consequences.

The question is: will Turkey’s spiral result in a worldwide economic contagion similar to the ‘Thai crisis’ in 1998 or even the 2008 Wall Street financial meltdown? Both of which ensnared the Philippines in their webs causing serious economic disruptions with all the attendant problems such a contagion brings. That is what we should seriously look into and prepare for, as citizens of a country facing all the turbulence swirling all over the place.

Most analysts insist that the case of both countries, Venezuela and Turkey, cannot yet, with emphasis on yet, produce a global economic contagion. It will take more than the decline in both countries to produce a 1998 or even a 2008 meltdown scenario. As Peter Coy in the Aug. 20 issue of Bloomberg Businessweek noted, it will take more crisis points to bring the world to a real pandemic. Just the same, Coy contended, the crisis will still be ugly for nations that, like Turkey, are under pressure both internally and externally. In the case of Turkey, the inflation rate is hovering at 16 percent while the lira has already been down by 40 percent as of August.

We are, as of yet, far from being in a similar hole like Turkey. But just the same we should already subject ourselves to an honest-to-goodness stress test especially since the turbulence brought about by the latest round of price increases and decline in the exchange rate has brought a lot of doomsayers and extremists out of the woodworks. But that stress test will only do us any good, moving forward if the administration takes all the necessary measures, many of which we have said in this column, to let the situation settle down and leave our people undistracted by the noises.

The protocol for such stress tests is well known so I invite one and all to check out what their research or even their gut feel suggests as we go over these. In the US, a group engaged in gauging the situation of working families called The Campaign for America’s Future has designed an economic stress test assessing the condition of jobs, housing, health care, and household costs on a state-by-state basis over time. It will be instructive for all of us if we can use the CAF stress test to check on the problems affecting our own families and communities. Better still, the same test shows the way to solutions which maybe useful for our economic managers and their counterparts outside of government to take a look at for possible guidance as we move forward from the turbulence we are currently in.

In Part 2 of this proposed Stress Test for the Philippines (circa 2018) I will excerpt the indicators stipulated therein which “...illustrate the troubles families in America, state-by-state, are facing and the suggested solutions for them to move forward...”

To be continued

Topics: Jonathan Dela Cruz , economy
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