"The prevailing uncertainty felt globally has been attributed more to political developments rather than the conventional interplay between supply and demand in the markets."
"The prevailing uncertainty felt globally has been attributed more to political developments rather than the conventional interplay between supply and demand in the markets."The year 2018 hit us with shock and awe, with so many things that challenged the stress threshold levels of many Filipinos, especially breadwinners like me. As we look forward to a new year with, as always, new hope, I choose to reflect on the interplay of economics and politics.
To pluck from the enlightening keynote speech of BSP Deputy Governor Diwa Guinigundo in the Pilipinas Conference organized by Stratbase ADR Institute, the interplay of economics and politics had historically found their common ground in policy. During the most recent global financial crisis, for instance, the lesson became clear that political issues can exert a great influence on policymaking and produce unintended effects. On the flip side, economic policies, if not managed adequately, can lead to popular discontent and thus adverse political outcomes, which in turn impact the economy even further.
The current economic environment seems to be an exemplary case of such interaction. The prevailing uncertainty felt globally has been attributed more to political developments rather than the conventional interplay between supply and demand in the markets.
The repercussions are not to be scoffed at. Economic developments that further dampen stability are in many ways the result of the interaction between economics and politics. Rising popular sentiments had given rise to populist strongmen, and major economies like the UK and the US have taken steps to increasingly abandon their integration to global and regional markets. In particular, the US and China had been involved in a trade war of mammoth proportions, potentially affecting billions of goods.
The root cause of these events is political rather than economic and yet they have a severe impact on the latter. First, such shocks can lead to momentary capital flow volatility and moments of financial market turbulence.
Economic experts have warned our policy leaders many times that protectionist policies, which had been the battle cry of populist figures, can negatively impact trade and growth. The International Monetary Fund predicts that if the trade war escalates further, it could take off 0.8 percentage points—almost 1 percent—of global growth numbers by 2020.
Taken together, all these factors can complicate the conduct of economic policy, in particular those in emerging economies like the Philippines. On the other hand, political factors are even more difficult to predict and can exacerbate the volatility of the operating environment, furthering the cycle.
Concomitantly, the interaction between economics and politics can also be positive, and good economic policy can contribute to strengthened politics. In the Philippines, the fundamental economic story for the last 25 years has been the quest toward strengthening our institutions. These include expanding the role of market forces in the economy by liberalizing key sectors such as banking, telecommunications, transport, and the power sector, among others.
To be fair, steps are currently being undertaken to address bottlenecks in government services. These include automating processes, establishing online services, and improving the public’s transactional interface with government. Reducing the cost of doing business in this manner will of course translate to a more competitive and productive business environment and workforce.
When the country was given investment grade years ago, it announced the bright economic prospects for the Philippines.
Even so, the economic environment globally is becoming more and more dizzyingly complex. For instance, the Fourth Industrial Revolution has brought with it once unimaginable innovations in financial technology such as digital currencies and distributed ledger technologies. While possibly useful for central banking, their broader impact on monetary and other public policies are much less predictable.
The global order has changed. Economies are increasingly interconnected and open, the normal dynamics of demand and supply of goods and services no longer hold dominion over price and financial stability. Non-economic factors, such as policy and technology, are also at play.
Price stability is even more crucial in the context of an emerging economy like the Philippines, where the poorest segments of society should have access to the market. The failure of monetary policy to rein in inflation, for instance, exerts a heavier burden on the poor. Monetary policy thus directly impacts the people’s welfare.
Put this way, it is clear how a comprehensive approach to policy takes into account factors beyond the economic and necessitates a bigger perspective, because good policymaking is about good economics, good politics, and their interaction.
As Congress resumes session this month, there will only be two weeks left to pass the 2019 National Budget and all unfinished business before all politicians become preoccupied with the mid-term elections. The shocking news of the senseless assassination of Congressman Rodel Batocabe warns of the escalating political violence even before campaign period starts.
As we start thinking of the right leaders to elect into power, the following quote from Stratbase ADRi President Dindo Manhit should serve as valuable reminder for all voters:
“Governments, as the pinnacle of power in society, do not operate in a social vacuum. As such, in order to operate and deliver services to the general population, a two-tiered participation is imperative—for the people to engage in political and economic activities and for the people to guard their leaders.
“In turn, the elected leaders should be held responsible and accountable for all actions. As rightful rulers, more so, their leadership and actions should not presuppose a blanket authority that is accountable to ‘nobody.’ They directly answer to the people and institutions they represent and to existing supranational political entities.”