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Thursday, June 20, 2024

What do we do then?

“The pandemic has scarred us deeply. The Russian invasion of Ukraine is frightening, whether now or in the immediate future. And climate change is exacting a continuing toll on our environment that impacts on our productive capacity”

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Friends have called after reading some of my articles about the economic hardships we face.

“Wala na bang good news?” some asked.

I am just writing about the true situation. I am not blaming anyone, and I believe all of us will agree that it is the external developments, frightening as they are and have been, that have caused the very dire situation we are in.

Last week, the OPEC decision-makers met, and just as the winds have begun to presage winter in the northern hemisphere, they decided to cut their oil production by 2 million barrels per day.

The oil cartel which caused shortages all over the world in the 70s, where coupons had to be rationed to consumers, used to be an oligopoly of Middle Eastern nations led by Saudi Arabia, which alone pumps up 10 million barrels a day, roughly one-seventh of total oil production.

The cartel has expanded since 2016 to embrace what is now called OPEC+ and includes Russia, which also produces close to 10 million barrels a day. Altogether, 40 percent of the world’s oil requirements are supplied by OPEC+ nations.

Now 2 million barrels may seem insignificant versus the totality of oil production but it creates pressure on the US, the world’s largest oil producer, to further ramp up its pumps, especially since mid-term elections are forthcoming a month from now, and inflation is still rising.

The same pressure goes to most other Western nations in the EU.

The reduction causes a huge psychological impact, especially as the winter cold is coming, and will last until March this year when the temperate countries require oil and gas to heat homes and buildings.

For most of the OPEC+ countries, it is simply a matter of sucking more blood out of those who can afford, because recession fears also reduce the price of oil.

For Russia, it is not just a matter of money, but also politics at a time when they are suffering reverses in the long-drawn Ukraine war.

Last Tuesday, diesel in the Philippines went up by 6.85 per liter, quite hefty. Our transport system, mostly dependent on a rent system of operators and driver-rentiers, will see the price adjustment relief given by government disappear.

But oil impacts on practically every other cost. All told, inflation will further rise.

Meanwhile, the BSP has no choice except to use its monetary tools, which basically means raising interest rates. That restricts the flow of credit, which affects business expansion.

It cannot print more pesos while it restricts credit.

But since inflation cum recessionary pressures impact throughout the world, let us not expect so much foreign direct investments to come flowing in.

Wealthy economies will look inward, worried about their own domestic problems, and with credit being expensive, they are not likely to expand overseas.

Pledges will remain pledges.

I cannot fathom how it is to be in the lowest income segment of the population.

Many are unemployed; most are underemployed. They just have to survive on a daily basis, hoping government will give dole-outs as lifeline. But the national government itself will be hard-put to continue the ayuda programs.

Demand is inching downwards, and you need not understand economics to know that. Just see how people scrimp in the groceries and the wet markets. And do not expect shopping, whether on-line or in-store, to swell mightily this holiday season.

People are tightening their belts, not as a matter of choice, but of necessity.

In a consumption-driven economy boosted by OFW remittances, that means our VAT-fueled revenues will also dip.

And with a P13.2 trillion debt, there is not much leeway for further government borrowings. Our economic managers will look at their equilibrium points, given that our reserves are on the decline with rising trade imbalances.

Since my family belongs to the middle class, it means belt-tightening. The lower D and E income classes are what should worry us most. Poverty will rise, and, with it, social tensions.

For the middle class, better to save and hold on to your cash. If you are into stocks, the market is volatile. If you want to buy real estate, the prices are still quite high, but when the recession comes, prices will go down.

On the bright side, the president and this administration still bask in the afterglow of a huge political mandate. But we have seen how popularity vanishes as economic realities set in.

Our trade officials advise us to buy local to prop up the MSMEs. That is correct, and we must do so.

The problem is there is little that we need, other than food, which is locally produced (well, almost).

Until we are able to produce enough from our farms and seas, we will still be a net importer of food requirements. Which is why food production is, and should be, government’s top priority.

LGUs should actively do their part in the effort, not only for their constituent farmers to produce more, but for them to use their resources in helping the farmers cope with rising input costs. Local subsidies can go a long way.

An example is in Isabela where the provincial LGU headed by Gov. Rodito Albano adds 2 pesos per kilo of palay over and above the NFA buying price from their funds.

In the small town of Piddig, Ilocos Norte, Mayor Eddie Guillen has weaned away his farmers from subsistence to high-value crops, but helped them with improved technologies.

The town of Nagtipunan in the mountainous parts of Quirino province earns a hefty income from domestic tourists who marvel at the colorful flowers they tend, evoking in albeit small scale, pictures of Furano in Hokkaido or Provence in France.

In northern Cebu, where antiquated sugar mills produce marginal sugar output, Gov. Gwen Garcia is willing to grant assistance for those who would switch to corn, a much needed input for hog and poultry production.

In both the countryside and the new urban centers, there is so much idle land, whether publicly owned or private. LGUs can coax private landowners to plant short-term crops, such as vegetables, and help them in the marketing.

In short, let us trust our local government leaders to know what is best in their micro-economy.

But let us not waste our precious resources now allocated in the national budget for agriculture in the same old wanton manner.

Let the DA be more focused on the right spending priorities, which means post-harvest facilities like the cold chain, crop insurance, irrigation, fertilizer support instead of farm-to-market roads which wind up as farm-to-pocket of pork-greedy legislators.

Even urban gardening to produce table vegetables, which Sen. Cynthia Villar keeps advocating, is an idea whose time has come, borne out of necessity.

There are vertical hydroponic farms in Navotas in Metro Manila by the private sector, encouraged by the Tiangcos, as well as in Taguig, also in the metropolis, under the Cayetanos.

There probably are more elsewhere. Rich LGU’s should adopt the same.

I do not want to this be a jeremiad of doom. But let’s face it: times are hard, and will be hard for the next year and more.

The pandemic has scarred us deeply. The Russian invasion of Ukraine is frightening, whether now or in the immediate future. And climate change is exacting a continuing toll on our environment that impacts on our productive capacity.

So what can be done?

Do not live beyond your means; put off the spending and save your precious few resources for health and other emergencies.

We are into the winter of our lives.

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