Friday, September 10, 2010


(the “role” of Inflation in Pilipino context)

Our economy was and is, usually encountering a serious bout when it comes to financial anomalies. From the great depression of the 1930s to the recent financial crisis, our country, boasted much of free trade, economic aid, and the like seemingly also felt the side effects in it-especially when it comes to inflation.

Being regarded as a clear and present danger to macroeconomic stability, it seems that due to being pegged to a dollar, contented in foreign dictations, especially from the International Monetary Fund and the World Bank, we end up facing a perennial major challenge despite alleged “recovery”, to the fact that, being pegged to a greater currency like the Dollar also meant feeling the same major problems the Dollar “inflicted”.

Imagine, on the first equation of the study of Lim last 1996 in the writeup “On the Question of a Tradeoff between Sustainable Growth and Price Stability” shows that cost-push and demand-pull factors are important in the determination of the price level. The price of imported goods has the highest elasticity, followed by wages and money supply. But then, how come in realistic setting prices continue to increase whilst growth remains stunted, especially to a masa perspective? Worse as we even felt that the value of peso increases same as the increase in goods, basic services and commodities-leading to a call for a wage increase and shout chants up to the gates of Malacanang in Mendiola like “Itaas ang sahod siyento bente y singko across the board nationwide!” (Increase our wages in 125 nationwide!)

Secondly, speaking of having our Peso pegged to a dollar and an economy dictated by IMF-WB and of course the U.S, controlling inflation becomes much of an idea written in paper with less practice since the government, or rather say the system who controls it acted “Laissez faire” when it comes to economic affairs, letting alone the managers, economists of the free enterprise so to speak, for the sake of their concepts in economic recovery whilst the masa remains as it is.
As history shows much how foreign intervention in regards to our economic affairs really affects much, especially after experiencing “inflation”. In 1982, the economy slows down during this period to average growth rate of 3.6 percent while real GNP growth rate drops to 1.9 percent. These are also products of foreign intervention, from increased debt servicing, having six Pesos equivalent to one Dollar due to our currency being pegged to a foreign currency, and even the anomalies involving politics and social affairs during the Marcos regime; same as in 1983 to 1985, wherein the country experienced a major recession while foreign establishments kept on accumulating profits and sending it to their main bulwarks. The government tried to stop it as a means to control the effects as it could, but the contradiction lies much as according to Yap, the CPSD falls from 6.2 percent to 3.2 percent of GNP while Industrial capacity utilization drops severely as the allocation of foreign exchange impinges heavily on import-substituting industries, exacerbated by a high interest rate policy which attempts to arrest private capital outflows ('capital flight') and counteract the inflationary effects of devaluation. Real GDP falls by 7.3 percent in 1984. Speaking of capital flight, did the government do so? Or not being pursued much on the threat of another serious problem when it comes to foreign investments?

But still, the never-ending crisis, as expected by the people, alongside other domestic anomalies hastens the collapse of the political regime, to the fact that all economic sectors are affected much while the domestic coalition supporting the Marcos regime (the KBL or New Society Movement) sees its financial resources (domestic and foreign) dwindling- worse as rampant corruption, white elephants exposed much, that also contributes to the crisis happened.

These anomalies involving inflation contributed much here to the deterioration of the country, having our system dictated by vested interests with less emphasis in nation building, noticing that the post Marcos crisis, really affected much, even its remnants that until today being still carried by the people. After all, behind the difficult growth and “lutong makaw” recovery lie personal interests, short-lived appraisals and heavy bouts of criticisms every regime faced when it comes to economic affairs and the problems perennially encountered yet left unresolved-to the fact that despite financial reforms we still encountered less economic growth the people hath faced all the time. The people don’t think of numbers inscribed in the business pages, yet they feel the effects, especially when it comes to financial anomalies like inflation very much than the businessmen, or the oligarchs who controlled every interest away from them.