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Staying
alive The rising cost of crude oil, which recently hit a record-high of over $55 per barrel, is the big thorn in our economy that threatens to spoil the country’s chances of staging stronger economic growth this year. Rising oil prices have the adverse effect of pushing prices of goods and basic services higher, crimping consumer demand, cutting corporate profits and eventually pushing the economy on a downturn. A recent study conducted by the Asian Development Bank (ADB) showed Asia as a whole is likely to suffer a 0.5 percentage point reduction in its gross domestic product (GDP) should oil prices stay at above $40 next year. On the other hand, a sharper GDP decline of 0.9 percentage point would likely hit Asia should oil prices stay at the current level of over $50. The same ADB study showed the Philippines will most probably suffer a 1.5 percentage point cut in GDP should oil prices remain at over $40 per barrel, and a three percentage point fall should it stay above $50. One obvious economic indicator of how oil prices have threatened to erode whatever economic gains we have posted early in the year is the fact that inflation – as measured by the Consumer Price Index – has gone up to a five-year high in September and will likely stay over the government’s four-to five-percent target for the rest of the year. Unhappy bee I am happy for Jollibee Foods Corp. and its happy bee for having achieved recognition locally and overseas. But I am concerned that its recent earnings performance is an indicator of things to come not only for the food business but also for most companies and the Philippine economy in general. Jollibee was the very first company to report third quarter net profit, and it was a measly six-percent year-on-year rise despite the over 20-percent hike in its gross sales. The company noted that its net profit grew at a lower-than-expected rate despite the fact that it recently implemented an across-the-board price increase. Production cost was the main culprit given the rising oil prices and the recent sharp uptick in prices of raw materials, particularly chicken, which is one of its main offerings. More worrying is the fact that Jollibee’s performance is an indicator of consumer spending strength. Thus, the third quarter profit level gives us a hint that things may turn out worse in the coming months should production costs continue rising. Run-away power rates As if escalating oil prices is not enough, we now have run-away power rates ravaging our economy. The National Power Corp. is imposing another round of increases early next year on top of what has been made earlier. The escalating Napocor power rates are becoming "confiscatory" in nature. Some say a big part of the power rate is "taxation without representation." But we should not be complaining since this is the price we have to pay for enjoying the generous and widely acclaimed move made by Mrs. Arroyo when she imposed a cap on the Purchased Power Adjustment (PPA) as she was preparing for the May 2004 elections. The government subsidy for the artificially low power rates enjoyed by the public the past three years before the May presidential elections has to be recovered. And since Congress is allergic to increasing taxes, what better way to recover this power rate subsidy than through Napocor. Threatening credit rating downgrade Perhaps one of the unavoidable things to come is another credit-rating downgrade from any of Moody’s, S & P or Fitch – or all of them. Apart from scaring investments, a ratings downgrade will have that harsh effect of raising government’s borrowing cost by half a percentage point, which will translate to a billion pesos in added expenditure. Unfortunately, we cannot afford higher interest on our loans at this time considering that the Philippines is the second most aggressive borrower in the region, next only to highly-developed and recovering Japan. Forever waiting As Filipinos try to stay alive in an economy mired in a quagmire, nothing much is happening from the government side. Our lawmakers are too engrossed on never-ending investigations that should be best left with the courts. Meantime, the legislative mill is stalled, while critical economic measures remain in limbo. After admitting that the country is facing a fiscal crisis, the Arroyo administration just continued to plod along. Even the appointments of officials expected to shore the government machinery amidst the crisis raised more speculations and eyebrows rather than inspire confidence. What’s in store for the economy? Sadly, more of the risks and less of the gains. It seems the honeymoon is over in so far as the Arroyo administration is concerned. Although many are of the view that this so-called honeymoon never started. And that GMA fettered away the political benefits of her proclamation as the May presidential election winner. ‘Breaking Barriers’ with DOTC Sec. Leandro Mendoza "Breaking Barriers" on IBC-TV-13 (11 p.m. every Wednesday) will feature on Wednesday, 3rd November 2004, Sec. Leandro Mendoza of the Dept. of Transportation and Communications (DOTC). The mass transport system in Metro Manila is the butt of jokes of urban planners in other countries. The three elevated trains running cross Metro Manila cities have ends that don’t connect with any of the other two rails, a gag that is not eliciting laughter with frustrated commuters. On the other hand, who would want to board the PNR trains when the stations are ill kept and the coaches are dingy? The whole network is simply pathetic. Anybody who has traveled to another country, even just within the region, would get the sense that the Philippines has one of the sorriest, most pitiful and most frustrating airports in the world. And to think we even want to be a tourist hub in the region. What is the government doing to rationalize the system of transporting people and goods all over the country? Are plans to put vital infrastructures to support the upgrading of air, water and road transport being pursued and funding being obtained? What are the lessons learned from the past unsuccessful and inefficient infrastructure projects? Watch it. Issues confronting Pagcor on TV "Isyung Kalakalan at Iba Pa" on IBC-TV-13 News (5 p.m., Monday to Friday) ends today the discussion of issues related to Philippines Amusement and Gaming Corp. (Pagcor). Pagcor earned approximately P20 billion last year, the bulk of which went to the government coffers and some amounts used to finance social amelioration programs and for athletes and sports development. The entertainment industry has been growing in many countries worldwide and the Philippines, despite its fragile economy, is no exception. Other countries like Singapore, Thailand and even Japan that were formerly not in favor of legalized gambling are finalizing plans to set up entertainment facilities that will include casinos. Legalized gaming is becoming an integral part of the lucrative tourism business. Opposition to Pagcor from some sectors has not waned despite Pagcor’s contribution to the economy and society in general. Proponents, however, say that without Pagcor, the significant amount it is earning would have gone to the pockets of gambling syndicates and other organized crime groups. Watch it. Should you wish to share any insights, write me at Link Edge, 4th Floor, 156 Valero Street, Salcedo Village, 1227 Makati City. Or e-mail me at reygamboa@linkedge.biz. If you wish to view the previous columns, you may visit my website at http://.bizlinks.linkedge.biz.
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