Gasoline prices have skyrocketed and it looks like more bad news is coming. Finance Secretary Carlos Dominguez III is quoted as predicting the economic impact of the Russia-Ukraine War:
- Inflation. Oil and food prices are expected to go up as Russia is the largest exporter of natural gas and wheat while Ukraine is the fourth largest exporter of corn;
- Interest Rates. Interest rates will likely go up, but this would be more likely due to the Fed’s tightening of monetary policy;
- Investments. Investor risk aversion and global policy uncertainty can lead to capital outflows and can cause fiscal distress;
- Fiscal spending. The government will need to find the means to increase funding in social protection programs to support vulnerable citizens and critical sectors.
Jeepney and tricycle drivers and vehicle owners have already felt the jump in gasoline prices. Transport fare increases are sure to follow. The same for cooking gas as housewives will discover when they next have their tanks refilled. The price of rice, vegetables, poultry, meat will go up with higher freight cost. And don’t forget electricity, a good deal of it is produced by oil-fired plants.
As if that were not enough, the peso has been depreciating. Last Friday, March 11, the peso guiding rate was ₱52.269 (morning session) vs. ₱50.974 two months ago at the start of 2022. In addition to oil, we import rice, sugar, corn (for livestock), wheat, etc., etc. Already, demands have begun for an increase in the minimum wage, something that will predictably escalate as we near Labor Day.
We pay for all these mainly from OFW remittances. Filipino workers in Ukraine are obviously jobless but, with hope, economic slowdowns in other countries won’t cause large-scale layoffs of our OFWs. In any case, with rising import cost and possibly lower foreign exchange receipts, we need to do something to avoid another 1983 crisis when the country ran out of dollars.
No one under 50 years old knows how similar our present situation is, only worse, to the 1960s before Martial Law and the 1980s when events were building up to EDSA.
To begin with, there were already problems in Mindanao. There was also insurgency everywhere else and anti-Marcos leftists were strong in academe and in the media. The Vietnam War was raging and student activism was at its height in the US, notably at U.C. Berkeley.
In February 1970 (during the “First Quarter Storm”) there were daily protests and marches at the US Embassy and Congress over Philippine involvement in the Vietnam War, inflation, supposed fascism, etc. I was driving home (in a tux, too) from a Management Association of the Philippines formal at the Manila Hilton and ran into the tail end of a police-demonstrator battle. Tear gas was in the air, broken glass littered streets, electric wires swung from above. It was bad. Matters escalated and in February 1971, activists took over U.P. Diliman, proclaiming the week-long “Diliman Commune.”
One thing led to another. In August 1971, President Marcos suspended the privilege of the Writ of Habeas Corpus in the wake of a bombing at Plaza Miranda during a political rally (reputedly masterminded by Senator Benigno Aquino, Jr.) and declared Martial Law in September 1972.
Typhoon Rita (baptized Gloring by PAGASA) in July 1972 didn’t help any. Pampanga and Tarlac were badly hit and with the entirety of Central Luzon under water, it was reported that one could reach Lingayen Gulf from Manila Bay by boat.
Then in 1973 there was the First Oil Shock when oil prices quadrupled and later, the Second Oil Shock of 1979 when the already quadrupled oil price more than doubled. Today’s five-peso increase in gasoline prince is large but is just about an increase of seven percent vs. the 300 percent or so increase in 1973 and a further 100 percent in 1979. Further dislocation accompanied the expiration of the Laurel-Langley Agreement in 1974 when America lost parity rights, i.e., to enjoy the same privileges as Filipinos.
Now with the Russia-Ukraine War, Secretary Dominguez is warning us of what may come, a repeat of events past.
With the first Oil Shock, oil producing countries had dollars running out of their ears. The money was with international banks that therefore began scrambling for borrowers. They targeted developing countries with loans at such attractive terms that countries like the Philippines went ahead and borrowed. In our case, government borrowed to finance infrastructure projects.
With the Second Oil Shock and the consequent worldwide economic slowdown, developing countries began to find it tough to meet debt interest and amortization. The formerly open-handed international banks became tight-fisted and started cutting foreign loan exposures. The first victim was Mexico who declared a “debt standstill” in 1982.
The Philippines had been having Balance of Payments deficits that had to be covered by the international reserve held by the Central Bank. The reserve obviously dwindled as export receipts fell and borrowing became difficult. The last straw was Sen. Benigno Aquino’s assassination in August 1982. Two months later in October 1982, we followed Mexico and declared a debt standstill. This was followed by a long period of adjustment with high interest rates, rapid peso depreciation, inflation, and great hardship all around.
Covid seems to be saying “adios” and with good fortune peace may soon return to Ukraine and nothing may happen in North Korea and other hot spots. If so, BBM, Isko, Leni, Manny, or Ping may have an easier time than President Ferdinand E. Marcos. Just the same, a review of economic history would be helpful.
Comments are cordially invited, addressed to [email protected]
SIGN UP TO DAILY NEWSLETTER