e like the style
of Bangko Sentral Gov. Armando Tetangco. On re-ports that growth slowed down
during the first quarter to 5.2 percent, from 7 percent during the same period
last year, Tetangco said the slower expansion would dampen inflationary
pressure."
"The slowdown can provide some relief to inflation as it
reduces pressure from the demand side," Tetangco said, noting that inflation
reached an almost three-year high of 8.3 percent year-on-year in April. The
cooling down could give the central bank the elbow room to meet its target
inflation of 3-5 percent for this year and 2.5-4.5 percent for 2009.
That said, we are wondering if the central bank could succeed
in taming the inflationary pressure. The rise in prices is of the cost-push
type. Crude oil has risen to over $130 a barrel, with its cascading effects on
the rest of the industries. The prices of food, which make up the biggest share
of household expenditures, are rising every day. Demand management through
tighter monetary policies could prove only marginally effective.
The BSP's constitutional mandate is to maintain price
stability by keeping watch over the expansion of credit. This is only one of the
tools available to government for influencing economic activity. The spending
side is in the hands of the political departments, and the statements from the
Palace are not comforting.
The Palace line is that the 5.2 percent slowdown is a minor
pause in an otherwise sustained expansion. Officials said the country would
return to the inner track next quarter. We hope they are right, but
realistically they only seem to be whistling in the dark.
The first quarter slowdown took place across the board.
Agriculture, manufacturing and services were all down. Exports and imports were
also down.
On the demand side, personal consumption also slowed down.
The biggest drop, however, was in government consumption expenditure. In fact,
government consumption suffered a contraction by 1 percent, against a 10 percent
expansion last year.
Given these figures, we can already see the government trying
to spend its way out of the slowdown. Gloria Arroyo has staked out the economy
as the ground where her administration will stand or fall. She will open the
taps to give the impression of a strong final kick as she exits.
This early, we are offering our sincerest sympathies to Tetangco.
