Wednesday, August 03, 2005

What the Eagle Saw

Eagle Watch - if you weren't there, you missed something. Entitled "From Crisis to Crisis", the quarterly briefing ran from 9 am to 1130 am (followed by lunch). The briefing consisted of a presentation by Benjamin Tolosa (Ateneo Political Science Department) on Philippine politics, one by Cielito Habito (Economics Department) on the economy, and one by Diwa Gunigundo (BSP Deputy Governor) on monetary policy during a political crisis.

Benjie's presentation was a polished, organized reflection on our political predicament, with a self-explanatory title: "The crisis as opportunity: from political stalemate to reform." One take-home message: discussions of fundamental policy shift (Charter Change) should not be confused with discussions of the suitability of the President and her accountability for alleged high crimes. No "forecasts" on the political side were given - with which I agree: such will just be exalting someone's (or some group's) "gut feel" on the future of this administration.

Ciel's as usual was an incisive critique and analysis of the state of the economy. Entitled "Are we poised for take-off?", one may guess that the answer is No; and he presented figures to corroborate this. Despite a few positive signs, we see: economic growth slowing down, declining investments, exports and imports also slowing down, inflation up, unemployment and underemployment up. Forecasts for 2005 based on simulations from the Ateneo Macroeconomic Forecasting Model are as follows:

GDP growth : 4.5% to 5.3%
Inflation: 8.0% to 9.0%

Meanwhile the impact of EVAT implementation (conservative scenario) is a merely 0.3% uptick in the inflation rate (coincidentally identical to the forecast of BSP, according to Diwa Gunigundo). Meanwhile expect as much as an 18% decline in the deficit/GDP ratio (i.e. from 4% to 3.2%).

Finally Diwa rounded up the briefing with an excellent presentation of BSP policies with respect to inflation targeting (which it began in 2005). He pointed out that a rigorous, by-the-book methodology has been adopted by the BSP; unfortunately inflation targets are off due to supply driven shocks, particularly on oil prices. Currently the BSP is pre-empting any adjustments on inflation expectations by "mopping up excess liquidity" through mild interest rate increases and moderate hikes in the reserve requirement.

My own take on this? All is not well, but we are not about to fall into the abyss. The outlook could be better, but there are many positive points to build upon. We can choose to be part of the solution; just a very small example - pay your taxes, because tax revenues are the key missing ingredient in our deficit troubles. Or we can spread a message of doom and gloom and contribute to governance paralysis - thus becoming part of the problem. We need stable institutions and a sober citizenry to insulate our economy from the vagaries of politics. I just hope we as a nation have this level of maturity.

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