How's the Philippine Economy?

The papers report the following:

Mutual Funds are UP: First Metro leads the pack with a yield of 18% (year-to-date)with the others, not too far behind. It simply means that an investment made at the start of the year would have already earned 18% of its original value, by now.

The Philippine currency is UP: The peso is close to breaking below PhP 48 to a dollar.

The Stock Market index is close to attaining an all time (Pre Asian Crisis level).

What does it actually say? The continued success of the country's Mutual Funds will most probably lure more foreign (short term investments) into the country. With the american mutual funds market hitting an average of only 10% for the entire 2006, more hot money can be expected to come in. If this momentum continues, coupled with a sustained increase in OFW (overseas foreign workers) remittances, and the absence of a sharply negative occurence in all the other sectors of the economy, the US dollar will most likely continue to decline.

Does it mean that the economy will largely be better off? Probably.

An increase in remittances will hopefully translate to better quality of life for the country's poor. And with the elections in the offing, politicians are expected to spend a lot of money, which will hopefully translate to better livelihood for small printing presses, provincial radio stations, people employed by the political parties, etc..

Though it is largely prohibited, the election season will probably see a rise in the infrastructure projects. It is very likely that more roads benefitting the small farmers/entrepreneurs will be built this year, giving the lesser privileged more hope, at the very least.

Let us hope that the elections will generally turnout to be peaceful. Unrest that may follow, can turn the country into a "No mans land".

One thing is for sure, though, the dollar earners (exporters, BPO firms, etc.) are not very happy with the continued decline in the value of the US dollar.


Tax Amnesty: Gimme a break!!!

As a way of cleaning its books and as an attempt to get a one time windfall, the Philippine government is implementing a Tax Amnesty measure. In the said program, the government aims to make PhP11~32 Billion.

According to Businessworld:
" to redeem themselves and begin dealing with tax collectors with a clean slate as the Senate yesterday approved a bill granting a "general, one-time" tax amnesty for delinquent taxpayers who wish to settle their dues with the government.

Time is running out however, for the next stage in the lawmaking process - deliberations with the House of Representatives to craft a final bill - with a senior House leader indicating the tax amnesty could still be months away.

House Bill 2933, sent to the Senate in October 2006, was unanimously approved but after several amendments including increasing the tax amnesty rate to 5% from 3%. The rate will be charged on a taxpayer’s net worth as reflected in the statement of assets, liabilities, and net worth required of those who want to get a tax amnesty."

Some sectors may find the attempt worthy of commendation. Afterall, if successfully implemented, it will result to added revenue for the government and even renew the authorities' contact with companies and individuals who have been delinquent in the past. Future collection performance may actually improve because of the new measure.

However, is the new law fair? Does it conform with the government's job of administering social justice? Most Filipinos are still hurting from the implementation of the E-VAT (Expanded Value added Tax). Every time they pay for their meals and purchase goods, they see the 12% evat being levied upon them. On top of that, employees (most Filipinos) are deducted their income taxes every payday.

On the other hand, the delinquents, the root causes of the country's very low tax collection, the same people/entities who are the grounds for the increases in the Evat (from 10~12%) and the creation of more tax measures, are being offered amnesty on a silver platter.

Tsk tsk...

Argh!!! Can't the government just reduce the income taxes, eliminate most other taxes (they can't impose, anyway) and simply increase it's collection efficiency? How will they do it? Outsource.


Government Failure?

The previous post spoke well of the government for its intervention in a market failure scenario. In the situation mentioned, 70 million (mostly poor) Filipinos were being deprived of proper health care by being forced to buy expensive medicines, in a cartel like (oligopoly) situation.

A follow up to that story, however, will show that the government action to correct market failure is fast threatening to become a classic example of "Government failure".

The Philippine Government created the "Botika ng Bayan" (People's Drugstore) in order to make affordable medicines accessible, especially to the poor. In order to show the strengths of the program, the cheap product prices, printed in colored canvass, stands outside the branches. At present, it has 5,800 branches and by 2007, the goal is to expand to 7,800 local offices.

What fuels skepticism over the project are experiences that include:
  1. Two visits to a branch showed that the outlet was already closed by 7PM. An inquiry with the guard revealed that the branch is open until 10PM.
  2. A third visit to the same branch (12 noon), found the outlet again closed (lunch break?).
  3. A fourth visit (2pm) revealed that the drugstore had run out of a particular brand of anti-allergy medication (among those advertised to be cheap). The staff believes that it will be a while (months) before a fresh batch of that particular brand will be available. The branch had also ran out of "Ventolin"- an anti asthma spray. Can't believe this, I came out empty handed and the meds that I needed were not even rare!!!
Has the project ran out of supplies? Are there stocks in the other branches? If so, why aren't they distributing it to support the outlets that had ran out of it? If not, why? Are they having supply chain problems?

Geesh!!! If I am running an enterprise with 5,800 retail stores, this situation will never happen. Man, profits are derived from sales and the absence of stocks is a grave sin!

Some economists contend that despite good intentions, governments have a tendency to create more trouble than the private sector. Inefficient allocation of resources (stocks) , personal pursuits , lack of incentive to do well, tendency to look at short term solutions and imperfect information are some of the things being seen as the root cause.

For the Botika ng Bayan, whatever the reasons are, it is not serving the population efficiently at this point.

A suggestion: Outsource to the private sector, the distribution of the low priced medicines.


Paralell Importation of Drugs: Administering Social Justice

Friedman will probably agree to the government's importation of cheap medicines when the local drug industry has made prices unreasonably very high for the consumers.
"A report released by the Senate trade and health committees showed, for example, that mefenamic acid under the brand name Ponstan costs P20.98 in Philippines but only P2.80 in India and P1.46 in Pakistan. Immodium (loperamide hydrochloric acid) costs P10.70 in the Philippines but only P3.27 in India and P1.94 in Pakistan."

Let the market dictate. However, in the event of market failures, which happens quite often in small economies, I wouldn't object to measures such as the importation of cheap medicines in order to correct the inefficiencies of the market.

On Biofuels: correct date

The previous post should have been dated sometime in the middle of January. Blogger mistakenly dated it as Jan 1. :-)