June 12, 2019
THE Department of Finance (DoF) has, indeed, done an admirable job of managing economic policy as it pointed out its recent success in controlling inflation, which just a few months ago was running at historically high levels.
But the references made by the DoF to comparative policy actions by previous administrations from more than a decade ago seem curiously diffident, and perhaps unnecessarily confusing to the average consumer.
On Monday, Finance Undersecretary Gil Beltran reported that the current administration needed only 11 months to reduce inflation to below 4 percent, faster than the two previous administrations.
Beltran explained that since 2004, inflation has risen above the 4 percent level four times, twice during the term of former president Gloria Macapagal Arroyo and once during the term of Benigno Aquino 3rd. It took the Arroyo administration 31 months to reduce inflation from 4.1 percent in June 2004 to 3.8 percent in January 2007, and 17 months to lower inflation from 4.6 percent in January 2008 to 3.2 percent in 2009. The Aquino administration needed 13 months to reduce inflation from 4.0 percent to 3.0 percent between January 2011 and February 2012.
The DoF’s report highlighted the present administration’s efforts to reduce retail food prices, which make up a large part of the price “basket” that is used to calculate inflation rates. Under the Duterte administration, importation of some agricultural products has been liberalized, the Agriculture and Trade departments have implemented measures to better monitor and reduce gaps between retail and farmgate prices, and various agencies have been directed to streamline regulations to help make transport and distribution of farm and fishery products more efficient.
What the DoF’s self-congratulations leave out, however, is the rather remarkable fact that it has done much better than simply reducing inflation to “less than 4 percent in 11 months.” It actually took only six months to reduce inflation from a 10-year high of 6.7 percent in September and October of last year to less than half that — 3.0 percent — in April. Inflation did tick upward slightly in May to 3.2 percent, but remains comfortably within the government’s 2.0 to 4.0 percent target range.
So, not only is it a more impressive statistic, it is a great deal more relevant, if the intention of the DoF is to reassure the Filipino people that the present administration has the economy under firm control.
Inflation is the product of many economic factors that the government has little to no direct control over, and the effectiveness of its response to those factors depends on what they are. The two previous administrations faced different economic circumstances than the current one has, which makes comparisons rather pointless.
In 2008-2009, for example, the Arroyo administration was contending with the effects of the global financial crisis; slowing economic growth probably had more to do with lowering inflation than any direct measures carried out by policymakers at that time. Likewise, the Aquino administration was beset by historically high oil prices of more than $100 a barrel for most of 2011 and 2012.
What matters is not what previous administrations did in different circumstances, but what the current administration is doing now under the conditions the country presently faces. Helping the public to understand those conditions and how the country’s current leaders are positively responding to them is a much clearer and more useful message.
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