Politics can ruin economy

“The worry of everybody, particularly the businessmen, is the local elections in May.”

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The international reserves are at very high levels, fueled by seasonal remittances of millions of Filipino overseas workers.

The peso has crossed P48 to the dollar.

The Bangko Sentral is prepaying a large portion of its foreign debts. This means there will be less pressure to borrow money to pay our foreign debts.

Prepayment will also cut the amount spent on foreign debt service. The money saved can be used elsewhere.

The collections from the expanded value added tax are narrowing down the budgetary deficits.

It is entirely possible, as predicted by Finance Secretary Gary Teves, that the budget may be balanced in two years, without necessarily imposing new tax laws. The EVAT will do it all.

In two years, therefore, the state will have a little more money for capital expenditures, some money for social overhead like education, some money for health care.

The stock market is soaring because of the heavy inflow of hot money. We are not exactly happy about this because the effects on increasing the reserves are temporary.

The investments of the foreign portfolio managers do not create jobs.

By and large, everything looks fine and dandy. But there are looming problems that can halt this growth and bring the country back to the quagmire that this administration sank into.

The worry of everybody, particularly the businessmen, is the local elections in May. President Arroyo will do anything, including dipping her hands into the national coffers and possibly cheat like she did for herself in 2004 to make sure that the House of Representatives remains in her control.

If at least one-third of the House is held by the Opposition, she will be impeached, three years before her term ends in 2010.

Her presidency is the longest under a democracy. She grabbed power from Joseph Estrada in 2001, got elected by cheating in 2004. The cheated term expires on June 30, 2010.

The preoccupation with politics capped by attempts to revise the Constitution in ways not allowed by the Constitution has sunk her image even deeper. But she does not seem to have learned any lesson.

Money will flow during the election this year. People will have additional income. The thing that follows is bigger demand because of additional purchasing power in the hands of the consumers.

But if this demand is not met with additional production, prices will definitely go up. Consumers will complain.

But again, there is a simple solution. Import some more to fill the demand. It’s a pity that our foreign exchange reserves are largely used to import goods we can produce here, notably rice and vegetables.

We use foreign exchange reserves to prepay foreign debts. That is the only positive aspect of having a big supply of dollars.

When times go bad, there will not be enough dollars to import consumption goods. Local production is down. The consequence of this possible is unimaginable.

The reasonable suspicion is she will plunge this country again into a political turmoil that will have very negative effects on the economy in the long run.

The signs are beginning to appear. She has allocated P4 billion to the National Food Authority for the importation of rice. The consumers will be subsidized for the votes they can deliver to her House candidates.

On the other hand, she makes Filipino rice planters even poorer.

At present, about 20 percent of rice consumption is imported. Importation of the staple cereal will continue to increase for two reasons. First is the politics of cheap imported rice at the expense of helping drain the international reserves.

Second is the corruption in importing rice. There is too much to gain in terms of votes. There is much to gain in having a percentage of the value of the imported rice.

The two reasons are both evil. They are corruption.

We have long noted that percentage-wise, the importation of consumption goods increases much faster that imports of capital assets and semi-finished goods that create jobs and produce products.

So what in effect is the Arroyo administration doing? It is subsidizing foreign producers of rice, vegetables, canned goods, garments, you name it. They are imported cheap. They are also smuggled.

Given such a situation, why should a businessman import machinery and equipment, raw materials and other capital goods to expand his business or set up a new one? His own government is driving him out of business.

Politics has obscured Ms. Arroyo’s mind to the reality of increasing incomes in the farms so that there will be higher demand for the products of industry. That demand is now filled by money sent by overseas workers.

She promised to create six million jobs during her six-year term. Neither Malacañang nor the National Statistics Office has said anything about this promise. Not even half of it has been fulfilled.

In a few instances, Malacañang said that employment was up. In terms of number of people trying to eke out a living, that claim is hardly debatable.

The reality is that when a breadwinner in the family is furloughed from his work, his wife and children are forced to make up for the money lost in the loss of a job.

So, the kids become street vendors; they wash and watch cars for a few pesos.

They are all under-employed.

The government admits that.

Many jobs are also lost in the farms because of importation of consumption goods such as rice and vegetables.

The farmers are supposed to be the harbinger of growth, given adequate help from the state. But the Arroyo administration is killing them with unabated importation and smuggling.

The positive signs of an improving economy are passing fancy. But it could be sustained if the President puts her mind to it instead of wasting time on the politics of survival.

Her crisis is: Who should survive first, the country or her presidency? The answer is obvious. She will survive only at the expense of destroying the country.