It’s stagflation, stupid

The Marcos administration has waged a credible war against corruption that has resulted in some big fish, senators included, landing in jail. The same administration has also done a credible job of bringing corrective remedies to flood control projects. There have also been serious attempts to bring assistance to those suffering from hunger and extreme poverty.

In spite of all these and other attempts to help a poverty-stricken population, the performance approval rating for this administration remains very low. Several attempts are being experimented to try and achieve a much higher approval rating. For example, the administration’s trouble shooter Vince Dizon, who was assigned to correct the DPWH problems, has now been moved to the transportation sector to ease the transport woes of the ordinary commuter.

I predict that all these will not attain its objective of improving the administration’s trust ratings. I think this administration needs to learn a lesson from the administration of past US president Bill Clinton. During Clinton’s campaign for the presidency and his term as president, his administration had only one directive which was summed up in the slogan, “It’s the economy, stupid.”

The President must realize that if the economy continues in its present state, his approval rating will never increase significantly. This is the reason that the overwhelming majority of the population, especially the lower class, will continue to ignore even impeachment trials and corruption scandals, with their attention focused primarily on how the state of the economy is affecting their lives. The problem of the economy right now is not simply “concerning” but is actually approaching a critical period.

One of the most serious challenges that any economy can experience is stagflation. This is particularly dangerous because it combines three economic problems: rising prices, slow economic growth and increasing unemployment. Under normal circumstances, inflation is often associated with a growing economy where consumers have more money to spend and businesses are expanding their operations. However, stagflation creates a different and much more difficult situation.

Prices continue to increase even when economic activity becomes weaker and people’s purchasing power declines. For developing countries like the Philippines, the threat of stagflation could lead to an economic depression. The Philippine economy depends heavily on imported petroleum, food commodities, raw materials and other essential products.

Consequently, international conflicts, oil price increases, supply chain disruptions, currency depreciation and global economic uncertainty can directly affect domestic prices and production costs. The important question is not simply whether the Philippines is experiencing inflation but whether the country could enter a long period in which inflation remains high while economic growth slows down.

Understanding stagflation can help the Philippine government develop policies that can protect businesses, workers, consumers and the overall economy. Stagflation is a combination of two terms: stagnation and inflation. It refers to a situation where economic growth becomes weak or nearly stops. Businesses experience declining demand, investments become limited, production slows and employment opportunities become fewer. Inflation, meanwhile, refers to the continuous increase in the general prices of goods and services, reducing the purchasing power of money.

This combination called stagflation means people are experiencing a more expensive cost of living while the economy is failing to create enough opportunities for them to improve their financial or livelihood situation.

Stagflation is a very rare economic situation. Among the historical examples when this happened was the 1973 oil crisis when the oil embargo was imposed by oil-producing countries. However, this is not a common economic occurrence.

The average Filipino is having difficulty looking for a decent job while at the same time is suffering from the continuing increase of prices of basic commodities. The government must take some immediate action to alleviate the lives of the average Filipino. One way of stabilizing or increasing the value of the peso is to either convince or mandate wealthy Filipinos to bring back their funds from foreign countries to the Philippines. If the wealthy business sector refuses to bring back their money, then the government must take drastic measures.

The business sector is urging Congress leaders to remove insertions in the proposed 2027 budget. This is a laudable proposal. But the business sector must also put their money where their mouth is and show their patriotism and love of country by bringing back their foreign-based funds and investing in productive enterprises in the Philippines.

During its remaining term, this administration must take the following steps: it must expand irrigation and agricultural modernization; improve farm-to-market roads and cold storage facilities; increase renewable energy investments; improve access to financing for small and medium sized enterprises and it must somehow eliminate corruption, especially in government procurement and implement anti-corruption measures.

Instead of raising taxes, additional funds can be raised by eliminating corruption in revenue-generating agencies like the Bureau of Internal Revenue and the Bureau of Customs.

The Philippines must not wait before stagflation becomes a full blown economic crisis before taking action. Prevention, responsible economic management, stronger domestic industries and public accountability are far less costly than recovering from a prolonged period of economic stagflation.

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