REACTION PAPER ON

INFLATION’S POLITICAL DIMENSION

Two Major Points from the Article

Supply Chain Disruptions

“Higher commodity prices have been attributed mainly to weather-related supply chain
disruptions”, as explained by BSP Governor Amando M. Tetangco, Jr. 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
Department of Agriculture, National Food Authority as well as 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”.

Every person either from what class or what generation would say that all things are
getting more and more expensive in the Philippines. The value of peso is depreciating on
the other hand. The number of things we can buy in Php100 pesos is relatively smaller as
compared to the old times. The persistent increase in prices of basic commodities in a
country is a clear sign of inflation. And this is what the common people always complain
about. There could be several reasons for such.

It boils down to the supply chain of products in the country. Supply chains have become
longer and more complex and the severity and frequency of disruptions seems to be on the
rise. If the supply chain is disrupted, a snowball effect is likely to happen. Natural disasters
and extreme weather conditions are mostly blamed to impede supply chains but these are
not the only threats. Factors such as oil dependence, information fragmentation, political
unrest, cyber crime have also posed serious risks.

In the case of the present inflation, it has been recognized by the administration that the
past typhoons in the region have led to the increase in prices of basic commodities.
I agree that there is no way to avoid natural disasters in our country. The degree or
damage can’t be exactly pinpointed at the onset of the disaster. Even if the weather
forecast states the amount of rainfall or the graveness of a typhoon before it actually
reaches the area, reality will only sink in after the disaster. Our country has been known to
have severe floods and landslides during typhoons and no matter how we prepare for it,
there is a direct and indirect effect in terms of supply.

Our country is rich in agricultural products specifically rice. Since rice is our staple food, the
supply of it should be sufficient enough for the people. We also have several plantations of
pineapple, mangoes, banana, coconut and others. These products are very much in
demand not only locally but internationally. Imagine the effects a strong typhoon may bring
to these agricultural products. Farmers can prepare and probably save some products but
most of them will be damaged by the disaster. Once damage has been done, the supply
chain within and outside the country will be hit. Other countries which expect these
products as part of their regular supply will automatically feel the shortage. The effect
accumulates one after the other, that’s why it’s called snowball effect.

For example, 6% of US all production relies on supplies from the Philippines that would
mean 21% of US production can suffer indirectly from supply-chain problems. Direct trade
links are broken immediately after such disaster and may cause shortages. Supply
restrictions from these nations spread further affecting the global economy.

Another example was the March 11 earthquake and nuclear plant leaks in Japan. Japan is
known to supply equipment and materials in many of the industries such as automobile and
semiconductor industries. There was a slow production in Toyota cars in Thailand during
that time. Even if the manufacturing industry is not situated in Japan, the supply of those
products was still affected.

In the economic analysis setting, the supply chain disruptions have a direct and indirect
impact on the supply and demand of products and services within a certain country and
much so in the global economy. All movements and measures administered by the
government will have an effect on the economic development and assessment.
Conclusion

Supply chain disruptions do exist so the government should do some measures to lessen or
eliminate its bad effects. Anticipating any disruption is one of the best ways to fight it. The
country needs to assess the vulnerability of the country and try to prepare in “what-if”
situations. Investing on technology is another method to be considered, just like what the
administration did for PAGASA. They invested on new equipment to better facilitate
monitoring of weather conditions. Most importantly, proper monitoring of supply for every
product is significant. Being able to identify the threats and trends, past and present
trading situations, and such related scenarios would decrease the degree of impact.

Populist Measures

“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.

As specifically identified by economists and experts, populist measures are used by the
government to combat ongoing problems. Many experts agree that it is a just temporary
solution and do not have long term effects that’s why it is normally called “band-aid”
measures.

The difficulty of weighing which is a better option lies on those in authority. They have
scrutinized, studied several possibilities and asked for expert’s assistance. Still, the decision
of implementing a measure which should be generally for the benefit of the Philippine
people can’t be completely agreed upon by all.

The present administration made some populist measures in 2011. They had wage increase
for private sector employees, a reduction of value added tax on oil and even controlled the
prices of basic commodities in order to raise ratings and eventually win the hearts of the
people. Likewise, previous administrations did the same. Former president Gloria Arroyo
postponed power purchase adjustment collections owed to independent power producers
which resulted to higher debts of Napocor.
In my image though and I believe others would agree that populism has emerged clearly
during the Erap administration wherein he used his popularity to win the votes of the poor
people. His platform revolved around helping the poor and the poorest in the country and
promising to alleviate poverty. Majority of the poor people called “masa” believed in him.
Despite being accused, convicted and sentenced, the people still put him into public office
once again. This just proves that populism appeals to the general public.

Other politicians like Manny Villar, similarly had made popularity a tactic in winning votes.
He used his money as main machinery to provide good benefits to ordinary people such as
free housing, financial assistance and such ilk. He depicted a “rags-to-riches” image to
influence and encourage people that he can make it happen for everyone. True enough, he
has helped many poor Filipinos. Unfortunately, that wasn’t enough for him to gain the
votes of the majority.

This practice is not only evident in the Philippines but also in other countries. A few months
ago, USA and UK caught themselves in a fiddle over tax havens. According to some, these
populist measures are considered smacks of hypocrisy because they tend to offer good
deals and yet behind that deal is something more serious and might eventually cause a
deeper problem rather than be a solution. Again, it is temporary.

The bottom line is “there is always a catch” with populism. Populist measures are provided
to heed to problems which are of main concern of the government. The intention is good
and there are several advantages both for the common people and for the government but
all these are temporary measures. Doing good in the beginning raises trust and confidence
but eventually a bigger damage or a more serious condition might happen.

At present, one very good example of a populist measure is the Conditional Cash Transfer
(CCT) Program which was set to target poor household beneficiaries. This program aims to
effectively reconcile social assistance policies with investments in human development.
Giving cash to poor families under certain condition that the families will commit to
empower themselves and help bring future generations out of poverty is this program’s
main goal. The idea of reaching out to these poor families through this program is indeed a
big help to alleviate poverty. And thinking of the children’s future is a long term goal.
However, how to effectively and efficiently implement the program is a big question.
The government has allotted a big budget to sustain the program. The Aquino
administration has proposed a much bigger budget of P62.6 billion in 2014 for the
conditional cash program. The said amount will cover 4.3 million poor households which is
higher than last year’s 3.9 million. As reiterated by the president in the last SONA, the
administration would like to focus on achieving growth that will be felt by the majority of
the people. The administration feels that if poverty rate will decrease through this program,
it will eventually complement the economic efforts being made by the government. Even if
the country is considered the fastest growing Asian economy in the first quarter of the
year, the poverty incidence remains high.

The one reason why the administration has decided to push for this program is the fact
that majority of the general public always say that they do not feel any improvement in
their lives despite the growing economy of our country. Over the news, the administration
would continuously boast on the better economic conditions of our country which even
other nations concur with including the positive credit ratings given by well known company
analysts. Do ordinary people care about that? I don’t think so. People in general care more
about the food they need to eat, the money they need to spend and the house they need
to live in. This attitude being brought about by poverty has become part of the Filipino
culture. They only see what directly affects them and do not care about the bigger picture.
So, when government provides assistance, then they feel that their problems are being
addressed. Therefore, this conditional cash transfer is a way to make them feel that they
are given attention.

Most of the experts would agree that this program is beneficial but still they recognize the
fact that this will not give a long term effect. No matter how noble the intention of the
government is, we have to come to terms that we can’t control the people’s decision on
how they would want to use the money. We can’t force them to follow the conditions being
stated by the government. At one point, some of them will just put the money to waste.

On the other hand, you can’t stop thinking that perhaps channeling more funds to other
programs such as agrarian reform which could sustainably boost farmers' incomes and
productivity or educational program which could be an investment for the children’s future
would turn out to be more beneficial and long term.
Although these cash transfers are not directly contributing to the country’s GDP, the
amount would be utilized by the families to buy and pay for their needs, thus it will be
categorized under consumption.

In terms of economic analysis, these populist measures might give way to immediate
solutions to economic issues likewise they could lead to the sudden decline in the economic
status of one’s country. Therefore, analyzing which is the better option should really be
taken into consideration prior to any major decision.

Conclusion

Populist measures could generally be a part of one’s governance. Putting emphasis on

implementing programs based on the need of the majority is definitely a must in one’s
administration. I totally agree that the majority, meaning the common people should be
given utmost importance in making major decisions for the country. But considering them
only for the purpose of winning votes or getting their sympathy is a different story. It is the
administration’s responsibility to make everything better, from the standard of living, to the
investment, to the economic status and to other matters related. Indeed a difficult task to
achieve. But focusing on populist measures alone should not be the priority. Setting
priorities and putting every aspect into proper perspective is the best approach. True
enough programs which are quick to be implemented aren’t long lasting while programs
which may take a long process turn out to be more enduring.

“Never make a permanent decision on temporary feelings.” – unknown