Fallout from greed


The economic data from a certain perspective looks good mostly for an economy gradually increasing its debt sourcing where equity would have normally been the more preferred route to raising capital. We are borrowing more and more for our economic expansion.

Simply look at the number of bond flotations.

“The problem with a surplus in BoP and an incredibly high GIR is that these mask the weaknesses in exports, a critical economic driver reflective of manufacturing output, employment and inclusive development.

Two economic indices that few track religiously relative to the crusted gross domestic product (GDP) and inflation rates that’s been in vogue seem to show positive upsides.

We think the upsides are illusory but let’s look anyway. These appear better when taken in isolation of the kind of serious clowning that we’ve been witnessing from the legislature so allow us to view the economy without these incredibly disruptive lawmakers.

For one, the positivity in these indices augur well for a brief strengthening of the peso — a welcome respite given the extended impact of a weak peso on our dollar-denominated importations of fuel products which have been, for the most part, rising. A stronger peso makes us think the pump prices are cheaper since we can purchase more with the same amount of cash.

For another, since our agricultural managers have shifted from relying on domestic farmers to supply rice and have instead decided to fatten traders’ pocketbooks by substantially importing to temper domestic prices, the strengthening of the peso, even if only briefly, gives the illusion of proactive agricultural management.

Supply at least has caught up with the rather consistent demand for a household staple and that has effectively tempered the mix in the basket of goods that comprises the inflation formula. We think that the situation is still largely illusory but at least it gives Department of Agriculture Secretary Emmanuel Piñol an opportunity to do what he does best. He can call another press conference and brag.

Finally, the two indices substantiate current liquidity levels giving off a hologram of an economy awash with cash. To the pseudo-“ekonomista,” that can be pointed to as the reason for the high price of tomatoes and fish in the wet section of a community market.

The first index is the economy’s balance of payments (BoP). This refers to the equation between net inflows and net outflows of money as a result of our transactions with other economies. A surplus means that an economy may be experiencing net positive inflows from income earned overseas plus inflows from foreign exchange operations and earnings from foreign currency deposits.

By itself, the equation is benign and it would be folly to judge the measure either positive or negative, specifically, the surplus or deficit in the BoP without understanding the surrounding context in which an imbalance occurs.

Let’s look at the data.

The BoP has recorded surpluses in the last five months. When the BoP reflects a surplus then that means a positive level in our gross international reserves (GIR). This simply means that there’s a lot of dollars or foreign currency in our national cookie jar. There’s enough liquidity there for importations and the repayment of foreign debt.

The problem with a surplus in BoP and an incredibly high GIR is that these mask the weaknesses in exports, a critical economic driver reflective of manufacturing output, employment and inclusive development.

Those last three have been sorely compromised by the stupid infighting within the legislature that created an impasse on the budget, practically delaying government spending that would have increased domestic productivity so that both the BoP and the GIR do not race wildly ahead of domestic output and export growth.

The other index that creates an illusion because of the greed of our lawmakers in insisting on a pork-fattened budget is the 41 percent year-on-year shrinkage of the fiscal deficit that under normal conditions would be a good thing.

When a fiscal deficit is created by the failure to spend for productive infrastructure because of congressional avarice then GDP suffers and the fallout from the greed of our legislators takes its toll on the public.

Now that can’t be good.