This country’s BOT (balance of trade, the non-financial component of its BOP (balance of payments), is in deep trouble. There are two reasons for this. They can be discerned from recent statements of the Governor of the BSP (Bangko Sentral ng Pilipinas) and the Director-General of Neda (National Economic and Development Authority).
First, the data from the PSA (Philippine Statistics Authority). This country’s merchandise trade incurred a deficit of $19.1 billion—imports totaling $51.8 billion versus exports totaling $32.7 billion—during the first half of 2018. In June alone the deficit was $3.35 billion. The first-semester trade deficit largely made possible a $3.71 billion Philippine BOP deficit in the first seven months of this year. The seriousness of the BOP situation becomes apparent when it is pointed out that $19.1 billion represents about one-fourth of this country’s current GIR (gross international reserve).
The first reason why the Philippine BOT is in trouble is that the continuing decline in this country’s merchandise export trade is taking place against the backdrop of an import binge associated with the Duterte administration’s Build Build Build program, which the Philippine economy’s managers have declared to be irreducible. They have in effect been saying, never mind the burgeoning trade deficit, the infrastructure-related imports have to come in. That is surely a formula for economic disaster.
The second reason why this country’s BOT is in deep trouble is that the economic managers (1) are not overly concerned about the chronic trade imbalance and (2) have nothing to offer by way of a solution to the imbalance. In the meantime the Build Build Build imports continue to pour in and the trade gap continues to widen.
This is what Neda’s director-general, Dr. Ernesto Pernia, has to offer as a solution: “[In improving our export market moving forward], creating a broader market base for exports through effective trade facilitation and by effectively utilizing existing free trade agreements as well as forging new ones.” This is hardly the stuff of export trade energization.
And this is what BSP chief Nestor Espenilla Jr. has had to say about the increasingly toxic BOT situation: “The higher cumulative BOP deficit for (the first seven months of the year) may be attributed partly to the widening merchandise trade deficit for the first half of the year that was brought about by the sustained rise in imports of raw materials and capital goods to support domestic economic expansion.” The trade deficit was brought about by the sustained rise in imports of raw materials and capital goods? How about exports? The trade deficit was not brought about by the sustained decline in exports?
A sense of non-urgency among the economic managers regarding the worrisome merchandise trade gap coupled with a non-negotiable posture regarding the Build Build Build import program—that is bad new for this country’s BOP. And, by extension, for the exchange rate of the peso, whose depreciation adversely affects the inflation rate and the cost of servicing the Philippine external debt.