THE recent increase in pump prices and fears about possible interruptions in oil supply caused by tensions in the Strait of Hormuz underscore the economic and political threats we face in 2012 and beyond. On Wednesday, major oil companies again raised fuel prices by as much
as P1 a liter. On the same day, the Department of Energy warned that pump prices would likely go up again soon.
Earlier this week, there were reports of a possible fuel shortage if tensions between Iran and the US escalate. Much to the consternation of Americans, Iran has been conducting naval exercises in the Strait of Hormuz, which is a major sea lane for crude shipped from the Middle East bound for other countries. The blockage of those routes is a serious concern for the Philippines because 80 percent of its fuel supply passes through that area. News reports even mentioned the possibility of fuel rationing if tensions escalate. Rationing, of course, would trigger even more price increases at the pump. That could hamper economic recovery on a global scale and frustrate efforts of countries like the Philippines to realize growth targets.
The link between high oil prices and economic growth is probably well understood by most people. But the precise impact is not so easy to measure. For instance, when the price of oil nearly tripled from $10 a barrel in January 1999 to $27 a barrel in 2000, local fuel prices, said the Department of Energu, rose at a slower pace. As of this writing, the Brent North Sea crude was reported at $112.24 a barrel. Despite the lag in pump-price adjustments, the economic impact from high prices poses a grave threat, one that deserves more attention from President Aquino and other world leaders.
A study in Stanford University is worth perusing. The study shows that in the US, a 33-percent increase in oil prices sustained over two years can reduce GDP by 0.2 percent in the first year and 0.5 percent in the second year. To the layman, the percentages may look small until one remembers that the US economy as of 2010 was $14.66 trillion and was growing at only 2.8 percent. The impact of higher oil prices on the GDP of weaker economies such as the Philippines would most likely be bigger.
Unsustainable policy
The final report is expected to show that the Philippines missed its 2011 growth targets. And in 2012, the current growth targets may be pushed out of reach not in small measure by the added pressure of rising oil prices. That should be a major concern for Philippine policymakers, especially in light of the recent Pulse Asia survey reporting that more Filipinos – 38 percent of the respondents – perceive that the economy worsened in 2011. The survey also indicated that 45 percent of the respondents said the economy in 2011 remained the same as 2010 or, read another way, was stagnant.
President Aquino was elected largely on the promise that he would combat graft and corruption, which he claimed was the requisite to a robust economy. Generally speaking, he has been true to his word – at least in waging campaigns against political rivals but not his friends and allies. But Filipinos have yet to see the economic improvements that are supposed to be the outcome of his good-governance crusade. President Aquino’s survey ratings remain high, but if he and his economic managers are not careful, a deteriorating economy might prove to be their undoing.
Already there is cause for concern. So far, the government’s actions to address economic and development problems have been, to some extent, to shrug its shoulders. But, mostly, the preferred solution is to give dole outs. For example, to mitigate the impact of recent fuel price increases, the government announced that it would release P200 million to continue giving a fuel subsidy to jeepney and tricycle drivers under the Pantawid Pasada program.
The program has major deficiencies, such as the fact that it ignores poor Filipinos in more vulnerable sectors like agriculture and fisheries. Second, the fuel subsidies, which are really a dole out, are unsustainable. Nothing suggests that fuel prices would fall in the future. And so, what would the government do if fuel prices continue rising as it has been? Would it continue doling out more subsidies? What programs of services would be sacrificed to fund more subsidies?
Of course, the government could simply stop the dole outs. For policymakers should be wary about spoiling the public. President Aquino and his team should look at Nigeria, for instance. Nigeria, which has corruption issues and public mismanagement issues like the Philippines, is facing political unrest triggered by the decision to stop fuel subsidies.
Pre-emptive not reactive
More expensive fuel has a silver lining, though. For one, people might change their fuel consumption habits and learn to conserve more. Also, policymakers would be compelled to look for cleaner energy alternatives to fossil-fuel power. For that to happen, though, our government must become more attentive to development and to the economy than it is now.
In particular, the government must pay more attention to domestic unemployment and to the impact of higher oil prices on the economy of countries that import overseas Filipino workers (OFWs). What will happen when more countries can no longer afford to hire our OFWs? If only a few of them lose their jobs abroad, OFWs are expected to remit $18 billion this year. Besides welcoming home jobless OFWs with application forms for start-up-capital loans, what programs are being developed to help them reintegrate into the economy? What opportunities are being created so Filipinos can work here for decent pay instead of working abroad?
Yes, the government would be forced to do good if and when that threat materializes. But people would appreciate it more if the government anticipates problems by taking bold and creative solutions now to address tomorrow’s problems.
as P1 a liter. On the same day, the Department of Energy warned that pump prices would likely go up again soon.
Earlier this week, there were reports of a possible fuel shortage if tensions between Iran and the US escalate. Much to the consternation of Americans, Iran has been conducting naval exercises in the Strait of Hormuz, which is a major sea lane for crude shipped from the Middle East bound for other countries. The blockage of those routes is a serious concern for the Philippines because 80 percent of its fuel supply passes through that area. News reports even mentioned the possibility of fuel rationing if tensions escalate. Rationing, of course, would trigger even more price increases at the pump. That could hamper economic recovery on a global scale and frustrate efforts of countries like the Philippines to realize growth targets.
The link between high oil prices and economic growth is probably well understood by most people. But the precise impact is not so easy to measure. For instance, when the price of oil nearly tripled from $10 a barrel in January 1999 to $27 a barrel in 2000, local fuel prices, said the Department of Energu, rose at a slower pace. As of this writing, the Brent North Sea crude was reported at $112.24 a barrel. Despite the lag in pump-price adjustments, the economic impact from high prices poses a grave threat, one that deserves more attention from President Aquino and other world leaders.
A study in Stanford University is worth perusing. The study shows that in the US, a 33-percent increase in oil prices sustained over two years can reduce GDP by 0.2 percent in the first year and 0.5 percent in the second year. To the layman, the percentages may look small until one remembers that the US economy as of 2010 was $14.66 trillion and was growing at only 2.8 percent. The impact of higher oil prices on the GDP of weaker economies such as the Philippines would most likely be bigger.
Unsustainable policy
The final report is expected to show that the Philippines missed its 2011 growth targets. And in 2012, the current growth targets may be pushed out of reach not in small measure by the added pressure of rising oil prices. That should be a major concern for Philippine policymakers, especially in light of the recent Pulse Asia survey reporting that more Filipinos – 38 percent of the respondents – perceive that the economy worsened in 2011. The survey also indicated that 45 percent of the respondents said the economy in 2011 remained the same as 2010 or, read another way, was stagnant.
President Aquino was elected largely on the promise that he would combat graft and corruption, which he claimed was the requisite to a robust economy. Generally speaking, he has been true to his word – at least in waging campaigns against political rivals but not his friends and allies. But Filipinos have yet to see the economic improvements that are supposed to be the outcome of his good-governance crusade. President Aquino’s survey ratings remain high, but if he and his economic managers are not careful, a deteriorating economy might prove to be their undoing.
Already there is cause for concern. So far, the government’s actions to address economic and development problems have been, to some extent, to shrug its shoulders. But, mostly, the preferred solution is to give dole outs. For example, to mitigate the impact of recent fuel price increases, the government announced that it would release P200 million to continue giving a fuel subsidy to jeepney and tricycle drivers under the Pantawid Pasada program.
The program has major deficiencies, such as the fact that it ignores poor Filipinos in more vulnerable sectors like agriculture and fisheries. Second, the fuel subsidies, which are really a dole out, are unsustainable. Nothing suggests that fuel prices would fall in the future. And so, what would the government do if fuel prices continue rising as it has been? Would it continue doling out more subsidies? What programs of services would be sacrificed to fund more subsidies?
Of course, the government could simply stop the dole outs. For policymakers should be wary about spoiling the public. President Aquino and his team should look at Nigeria, for instance. Nigeria, which has corruption issues and public mismanagement issues like the Philippines, is facing political unrest triggered by the decision to stop fuel subsidies.
Pre-emptive not reactive
More expensive fuel has a silver lining, though. For one, people might change their fuel consumption habits and learn to conserve more. Also, policymakers would be compelled to look for cleaner energy alternatives to fossil-fuel power. For that to happen, though, our government must become more attentive to development and to the economy than it is now.
In particular, the government must pay more attention to domestic unemployment and to the impact of higher oil prices on the economy of countries that import overseas Filipino workers (OFWs). What will happen when more countries can no longer afford to hire our OFWs? If only a few of them lose their jobs abroad, OFWs are expected to remit $18 billion this year. Besides welcoming home jobless OFWs with application forms for start-up-capital loans, what programs are being developed to help them reintegrate into the economy? What opportunities are being created so Filipinos can work here for decent pay instead of working abroad?
Yes, the government would be forced to do good if and when that threat materializes. But people would appreciate it more if the government anticipates problems by taking bold and creative solutions now to address tomorrow’s problems.
Comments
Post a Comment