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10 things Juan dela Cruz needs to know about economy in ’10

A new year always gives us that feeling that better days are up ahead.
But the most practiced soothsayer will struggle to make any detailed predictions for 2010, especially about the markets.

Thus, what I’m offering here are not jaw-dropping revelations, but a list of some facets of the economy that Filipinos may want to think about this year.

1. Why should I be personally concerned about the widening budget gap? How will that affect me and my family if I were a salaried employee, a businessman or an OFW?

A widening budget gap means less government spending on social services, infrastructure and other services.

The government may opt to borrow more to fund its shortfall to maintain the delivery of its services. However, this could push interest rates or cost of doing business higher. Higher costs of doing business would mean less income for companies.

For Juan dela Cruz, this could mean some adjustments in costs of living and a salary increase may be hard to get.

2. Will the peso-dollar rate go up or down this year?

The general trend will still be favorable for the peso.

The Balance of Payments (BOP) is expected to post a higher surplus, fundamentally supported by OFW remittances, increased capital inflows, and revived exports.

Our Gross International Reserves (GIR) should remain at record levels, adequately covering import requirements.

Other factors that would contribute to the strong peso is the weak dollar in the medium term. We are looking at 46 by the end of the year.

3. Will food prices go up or down apart from seasonal fluctuations?
The calamities during the last quarter of 2009 resulted in an increase in food prices and this may last until the end of the first half if the El Niño phenomenon strikes.

However, food prices are expected to normalize toward the end of the year.

We are looking at a 3.5-percent inflation for 2010.

4. Will the rest of the world recover economically, so much so that they will need more OFWs? Which countries will recover faster?
Yes. The global economic recovery has begun. Strong indicators of rising economic activity have supported the rise in the global financial markets.

However, the United States and the rest of the world are still far away from full recovery, as unemployment remains high and demand has not returned to pre-crisis levels.

Indeed the economies in the region are still quite fragile, but financial stability is slowly being regained.

Asia is leading the economic recovery. Despite the slow recovery, demand for OFW remains resilient.

5. For those wanting to relocate from Manila, where in the Philippines is it good to go to in terms of job opportunities, lower food prices, housing, etc., and still have Internet access, movies etc?

The key cities in the south, mainly Cebu, Davao and Cagayan De Oro, as these are now being eyed as hubs for business process outsourcing offices.

These cities have infrastructure comparative to Manila.

6. By how much can this year’s elections lift the GDP? Which industries in particular will benefit from the polls?

Roughly by 0.5 percent, 2 percent for full year 2010. The services sector, transport and communications, trade and manufacturing are the main beneficiaries of this election exercise.

7. Will the next president be forced to raise taxes to increase revenues?

Without giving much thought, No! There is no need to immediately raise taxes. He only has to plug the tax leakages on the e-vat and enhance revenue collection activities.

These actions could offset the equivalent amount of revenues raised from an increase in the e-vat. However, this would take time and would not get immediate results.

So, personally, I think the next president should raise taxes. This could come in the form of increasing the E-VAT from 12 to 15 percent.
This should allow the new administration to implement its program for the country. How can one implement when there are no funds in the government coffers? I view the country as a patient that is recovering from an illness but still needs medication. Otherwise, the patient could have a relapse. Although, enhancing the revenue collecting measures could do the trick, but increasing the e-vat is the fastest route to progress.

8. Will President Arroyo leave the country better off in June, when she steps down from office, compared to January 2001 when she replaced Estrada?

One may conclude that she will leave the office in a better position than when she started.

But wait a minute. Under her administration, the national debt grew by 107 percent. This is the price for an average economic growth of 4.7 percent under her term compared to Estrada’s 2.3 percent.
Definitely, the growth rate is far better.

However, the proof of the pudding is in the eating. Friends, ask yourselves, do you feel richer today than in 2001?

9. What economic problems will the next president of the Philippines have to face by July this year?

The new administration will be faced by a fiscal crisis as government revenues wane. The need to cure it is almost immediate. He needs the necessary funding to be able to provide the social services, infrastructure and job creation to help alleviate poverty.

Thus, the next president should have bold measures to enhance government coffers, determination to get the job done and the oratory skills to be able to communicate to every Filipino that to be able to alleviate poverty, it involves a lot of pain and suffering, which includes raising the taxes.

10. If I had a little money to invest, where should I place it? In T-bills, bonds or UITFs?

Treasury Bills or T-bills will be on the top of the list, since they are deemed safe and secure. For those who have excess cash and can risk more, there are other investments that one can go for such as longer-dated government issued bonds, stocks and Unit Investment Trust Funds or simply UITFs.

(The author is a financial analyst of Banco de Oro. Opinions expressed in this article are of the author’s and do not reflect the views of his affiliated institution.)

By Jonathan L. Ravelas
Philippine Daily Inquirer
First Posted 22:22:00 02/07/2010

Filed under: Financial Literacy, Kwentong OFW, OFW Corner,

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February 2010
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