RP crisis: The poor to be the hardest hit
By Michael L. Tan
MANILA: No doubt, the Erap resign movement is gaining momentum, but there is a tendency to overrate the clamor for resignation. The large crowds last Saturday at the Edsa Shrine are still a long way off the people power mobilization of 1986. And the eLagda campaign on the Internet to try to gather signatures calling on Erap to resign has reached only 72,000 as of Tuesday, a long way off the target of one million.
Many Filipinos continue to pin their hopes on President Joseph Estrada, or Erap, because they don't see the connection between his being President and an economic crisis. Erap's propaganda mills have been more effective in depicting the crisis as a class war, of the rich wanting to get rid of Erap because he is for the poor.
So the peso's value continues to slide downwards but really now, there are many Filipinos who have never even seen a dollar bill. Then there's another segment, fairly large if we are to believe the estimates of 6.5 million Filipinos working overseas, who see a boon with the peso's decline because they live off dollar remittances.
Little is said about how government is intervening to keep the battered peso afloat, and how this will have adverse effects in the long run. The Central Bank, Bangko Sentral ng Pilipinas, has to dip into our dollar reserves -- that's money overseas workers called katas ng Saudi, katas ng Japan, katas ng seaman and whatever other katas you can think of -- and to pump this into the market as a way to stave off even greater peso devaluation. (Quick lesson in economics: If the supply of dollars exceeds demand, then the rise in the dollar exchange rate slows down.)
Besides dipping into our foreign reserves, the government has had to increase interest rates, a way of getting people to keep their money in the banks.
The rich, including many opposed to Erap, are reaping gains from all this. Think of it this way: if you had a million pesos, which is small change or mere balato for rich Filipinos, putting that money in a time deposit offering 12 percent annual interest (and this is low, I hear) gives you, without having to do anything, P10,000 a month.
Put in P10 million, again a small amount compared to mahjong bets these days, and you get at least P100,000 a month just from the interest.
Meanwhile, the average Filipino worker slaves away to earn a pittance: P6,000 a month for minimum wage earners in Manila, much lower outside the capital. That amount disappears quickly as you deduct costs of transportation, groceries, the children's school needs, rental and utilities.
Of course, the government has made sure about getting its cut -- taxes duly deducted from the paycheck. Yet government gripes all the time about not having enough money. The reason is that big businesses are often the most efficient at evading taxes. The government has run a deficit of P82.9 billion as of September.
So it has to borrow money from the public. In the last month alone, the government has sold some P16 billion worth of short- term cash management bills (a fancy name for government IOUs). These yield high interest within the short term.
Soon, the government's going to cough up the money to pay these back. How will they get the money? By borrowing more at high interest rates.
What's happening then is that money is going into these lucrative high-interest yielding accounts and treasury bills. That also means money isn't being invested to create new businesses and new jobs. We may not be in recession but we're certainly stagnating.
Where does that leave Erap's loyal supporters, the masa? Well, they're being exhorted to save what they can. If they're lucky enough to have a job, and by an additional miracle have some money left after expenses, then this goes into a regular bank account that yields 3 or 4 percent, and the interest is in turn taxed.
Many wage earners know they can't depend on their salaries and will think of going into business. But wait, how can you borrow money from banks when interest rates are so high and when you don't have collateral? You can't, period. Which is why you end up with small-time buy-and-sell businesses funded by usurious loans.
It's not just small business people who are affected. In their manifesto calling on Erap to resign, the Chamber of Real Estate Builders' Association griped about the high cost of borrowing money, and says Erap reneged on a promise to hold interest rates down.
I'm going to end with a bit of political meteorology. Several radio commentators are now referring to the crisis as typhoon Jueteng, (illegal gambling) but this suggests the crisis will be short.
A better metaphor is the monsoon, which wreaks havoc through continuous heavy rains that stretch out for days. These regular monsoon rains are not always accompanied by strong winds so people tend to be lulled into complacency.
Yet, we have seen how monsoon rains turn out to be the most destructive, slowly eroding the land and finally triggering landslides. We're going through a political monsoon right now, the economy taking a slow but dangerous battering. And as with landslides, the poor will be hit the hardest when disaster finally strikes.
-- The Philippine Daily Inquirer/Asia News Network