“One of the saddest lessons of history is this: If we’ve been bamboozled long enough, we tend to reject any evidence of the bamboozle. We’re no longer interested in finding out the truth. The bamboozle has captured us. It’s simply too painful to acknowledge, even to ourselves, that we’ve been taken. Once you give a charlatan power over you, you almost never get it back.”—Carl Sagan
In this issue
Economics Validated: The War on TNVS and Boracay, Duterte-Kuwait Feud Escalates the War on OFW and Falling Popularity Spurs Rice Liberalization!
-Validating Economics through Real Events: The War on TNVS
-Validating Economics through Real Events: The War on Boracay
-War on OFWs: Duterte-Kuwait Feud Escalates; Middle East OFWs at Risk
-Rice Liberalization: Surprise! When Duterte’s Political Capital is at Stake, He Uses the Markets!
Economics Validated: The War on TNVS and Boracay, Duterte-Kuwait Feud Escalates the War on OFW and Falling Popularity Spurs Rice Liberalization!
Validating Economics through Real Events: The War on TNVS
By putting on price caps, the National Government attempted to exercise absolute control of the operations of the Transport Network Vehicle Service industry.
And the likely implications as I wrote were… (See The Grab TNVS Experience: BAD Public Policies Cause BAD Behavior April 25, 2018)
Thus, the unintended consequence of the NG’s price caps has been to reduce supply through diminished driver interests to service passengers AND from penalties for conducting such actions.
This sordid episode implicitly suggests of a TNVS driver’s revolt against LTFRB’s price caps. The drivers unwittingly vented their gripes on Grab’s customers.
Economic theory transforms into reality…
From the Inquirer.net (LTFRB’s suspension of Grab travel charge hit, April 28, 2018): “These changes allegedly threaten the sustainability of their services, with more drivers supposedly forced to leave due to these regulations, claimed members of the TNVS Leaders’ Council composed of 38 groups operating in Metro Manila. In a press briefing, Melissa Redulla of Prime Transport Group said the fares, which were now lower without the travel charge, were unfair to the drivers given their expenses, which include fuel, mobile data connection and their vehicle’s amortization or rental, commonly known as “boundary.” Glenn Jacobe of the Tiger City Philippines Transportation Alliance said that before the suspension, he earned around P4,000 to P5,000 after 20 trips. Now, he only got around P2,000 for the same number of trips, he said.” (bold added)
And it would not just be about demand and supply, but about safety too: “While they welcome the destination-masking feature, the groups also expressed apprehension for their safety if they would not be able to see where their passengers were headed to. “When we’re all out there on the roads, there is nobody to protect us,” Redulla said. “It’s just a little tool that can save us from danger.”
Bullseye! Need I say more?
Nevertheless, to reiterate the ramifications of these draconian interventions: First, the economic interests of the TNVS industry will be imperiled by the sustained draconian interventions. Second, the demand, supply and credit chain links of the industry will also endure reduced economic activities. Third, quality of service to consumers will deteriorate further. Lastly, a key outcome of the intense politicization of the industry should be the worsening of the behavior of stakeholders.
Validating Economics through Real Events: The War on Boracay
Let us turn to the war on tourism, in particular, the war on Boracay
As I wrote, the arbitrary closure and flagrant property rights violation will lead to repression, corruption and other moral ills [The March to a Neo-Socialist State: Duterte Administration Opens a War Front against Jollibee and PSE, Escalates War on Boracay and UBER-GRAB! April 10, 2018]
So enterprises will not only lose income, they will be harassed, harried, fined and or coerced to spend based on the whims of regulators and or shell out ‘under the table’ money to authorities.
Once again the transformation of economic theory into reality.
From the AFP/Inquirer (Under high security, Boracay shut to tourists, April 26, 2018): “About 600 policemen were deployed, with some performing life-like drills, including riot officers battling bottle-hurling protesters and mock hostage taking of sunbathers – all before startled locals. “It looks like we are at war,” Jessica Gabay, a grocery seller, told AFP late Wednesday. “Maybe the authorities are doing this to instill fear so people will follow the rules.”
From the Inquirer: (Boracay cops told: Don’t sleep in hotels April 28, 2018) “Enjoy the beach and the sunset, but don’t act like tourists, Philippine National Police Director General Oscar Albayalde warned police officers deployed to enforce security measures at the world-famous site. The police should never sleep or enter the hotels and other business establishments even if they had been invited by the owners, Albayalde said on Thursday. They might get blamed “They can instead sleep on the beach … to avoid any [malicious speculations],” the PNP chief said, adding that the police might even be blamed should anything go missing in the establishments…Critics have accused the government of “overkill” in its high-profile security simulations and of sending an overwhelming police force in Boracay to suppress possible protest actions from residents and workers who had lost their jobs because of the six-month closure order.
Oh by the way, some Boracay workers lodged a protest at the Supreme Court: ABS-CBN Boracay workers challenge island closure at Supreme Court, April 25, 2018 “Workers from Boracay island on Wednesday challenged the legality of President Rodrigo Duterte's order to close the top tourist spot, a day before its 6-month shutdown begins. Represented by the National Union of People’s Lawyers, Boracay workers filed a petition seeking to halt the government-mandated closure aimed at cleaning up the renowned beach destination.”
More on repression and corruption in Boracay, from the Inquirer: (ID controversy in Boracay lingers, April 27, 2018): The Boracay Task Force had announced that only residents were allowed to swim in Station 1 of White Beach here, which was heavily guarded by police and the coast guard. INQUIRER.net spotted foreigners at the resident-only swimming area. Two staff of a posh residential resort here told INQUIRER.net that those were not tourists but residents of the islands staying at their establishment. The staff, who requested anonymity for lack authority to speak, said some of their guests had long-term reservation and were issued residential identification required to go in and out of Boracay…The issuance of Boracay resident IDs was embroiled in controversy after it was alleged that the IDs were being sold.
Aside from politics, the war on Boracay will affect economics, which will not be limited to Boracay. [The March to a Neo-Socialist State: Duterte Administration Opens a War Front against Jollibee and PSE, Escalates War on Boracay and UBER-GRAB! April 10, 2018]
The tourism industry directly accounted for 8.2% and indirectly 19.7% of the 2016 GDP (World Travel and Tourism Council 2017 report) and is about to get some nasty drubbing, in almost all aspects, output, earnings, investments and jobs. And the coming slowdown will certainly spread to the economy.
The initial chain effects, as reported by the Inquirer, (Aklan seen to suffer from 6-month closure, April 25, 2018): Aklan Gov. Florencio Miraflores said the province-wide state of calamity would stem from the impact of the closure on Malay town, where Boracay belongs, and 16 other towns, whose income largely depended on tourism money. Miraflores said the province had been feeling the brunt of the imminent closure of the island. “Workers of Boracay come from the whole province and (many) businesses in Aklan are linked to (Boracay’s) tourism industry,” he said. Only days before the closure of the island to tourists, suppliers of meat, vegetables and fruits have already reported a 50-percent drop on orders because big hotels and restaurants in Boracay were not replenishing their food stocks in anticipation of the closure. Government hospitals in the province were also expected to incur a deficit of P240 million in six months as the bulk of its operational funds came from terminal fees paid by tourists at the Caticlan port on the mainland of Malay and the Cagban port in Boracay.
Watch the credit flows (slowdown in credit demand and the rise of bad debts and insolvencies)
More from the Inquirer: (DTI seeks P300M for Boracay plan, April 24, 2018): “Meanwhile, Sen. Win Gatchalian said that the closure would not only lead to a loss of jobs, but also weaken the demand for electricity given that businesses in Boracay account for 41 percent of the franchise area of Aklan Electric Cooperative Inc. (Akelco). From a high of 28 megawatts (MW), Boracay’s energy demand will drop to a mere 4 MW during the closure period. This would lead to surplus of energy, the cost of which would be passed on to consumers in Aklan, Antiqueand Capiz. “That would be an unconscionable burden to put on Visayan power consumers, who already have to suffer through high power rates during the summer,” said Gatchalian, noting this would result in a total of P178 million in additional charges in the next six months. To address this, the senator urged Akelco to invoke force majeure in its long-term power supply agreements (PSAs) with various generation companies, which would allow the firm to temporarily keep from acting on its obligations in cases beyond its control.
Weak demand should lead to lower, not higher prices. That would be unless there exists a price control legal mechanism between the power supplier and the government as implied in the report.
Nonetheless, in the assumption that there is; the price increases from a legal pass-through would affect areas covered by Aklan Electric Cooperative Inc by weakening demand. And higher prices would lead to a slowdown in demand which should extrapolate to a downshift in economic activities. Electricity prices will eventually fall.
Will an arbitrary act from a political leader be considered a “force majeure”?
As you see can see, that’s another bullseye for economics!
And because everyone believes in free lunches, the government through the DTI is appealing to Mr. Duterte for a bigger safety net courtesy of taxpayers. From the same article: “Various stakeholders in both government and the private sector are looking for ways to soften the impact of the looming 6-month closure of popular tourist spot Boracay Island. Efforts vary from being reactionary and proactive as more than 30,000 jobs would be displaced by the government decision. These efforts include the Department of Trade and Industry’s (DTI) request to get P300 million to provide different forms of support for workers who might be affected by the closure.”
Let us get it straight. In the name of the environment, the NG punishes every non-political stakeholder in Boracay regardless of their culpability. Deprived of the due process, they were brazenly stripped of their property rights and their rights to conduct voluntary exchange.
Then, the economic hardships resulting from the dislocations of such oppressive act will be charged to NATIONAL taxpayers and currency holders. In short, everyone but the political class will be made to pay for Boracay’s environmental sins.
And through arbitrary rule (an EO on Boracay’s “State of Calamity”), the Duterte regime has implanted a centralization based total political and economic control over the island.
Isn’t this how socialism works? Hasn’t Boracay been all about establishing a neo-socialist state?
And spurned by the populist rhetoric to implement land reform in Boracay, where the DFA claims there is no more land reform area in Boracay, Mr. Duterte has opened the gauntlet for a massive land reform program in Mindanao! Though he says that this about “military and government land”, what should stop him from seizing private property, considering his actions in Boracay?
War on OFWs: Duterte-Kuwait Feud Escalates; Middle East OFWs at Risk
Last January, opened a new war front against OFWs.
Reported abuses and deaths on OFWs have incited the Duterte administration to impose a ban on their deployment to Kuwait last January. Mr. Duterte initially mulled and threatened to expand the ban to cover the entire Middle East. However, a grizzly death by an OFW from the hands of her employer reinforced Mr. Duterte’s unilateral actions.
Though Kuwaiti officials appealed on such actions, the leadership rebuffed their requests. Mr. Duterte required that the Kuwait officials come to terms with his administration through a Memorandum of Understanding (MOU).
Both camps were nearing a deal when reports emerged that Filipino officials sprung or “rescued” several distressed Filipino household service workers from Kuwaiti homes. A video went viral which further infuriated Kuwaiti officials. Though the Foreign Affairs honcho apologized over the video, he adamantly maintained that “it was the necessary move at the time”.
The Philippine envoy was first summoned, then was ordered expelled by Kuwaiti officials. Of the three DFA officials ordered arrested, two had been detained.
The Palace initially broadcasted the resolution of the kerfuffle.
But the expulsion of Philippine envoy prompted the National Government to summon the Kuwait official.
Events escalated from then.
The Palace hinted initially at a “solomonic” solution. Nevertheless, Mr. Duterte first urged the 260,000 Kuwait based workers to return home and was followed up by his rescission of the proposed MOU.
The diplomatic row with Kuwait officials is actually an indirect war against OFW. The OFWs will suffer most from the ruckus and not Mr. Duterte and Kuwait politicians.
Similar to the war on Boracay and the war on drugs, such antagonistic unilateral foreign policy have been predicated on a fallacy of composition. Mistakes of a few have been justified to punish the rest.
By establishing a perceived moral and economic high ground, Mr. Duterte seems to believe, because he had acquired negotiating leverage over Kuwait, this signified an entitlement for him. Such entitlement entails that wherever Filipinos existed, he had the free hand to impose his socialist whims.
This action as I previously wrote will foster unintended consequence [Why Duterte’s Gambit on the Kuwait OFW Ban will Boost USD Peso!February 20, 2018]
If the root of the problem is unresolved, populist solutions like the Kuwait OFW ban will only translate to social-economic disaster. What such prohibition would do instead is to create or spawn a black market for OFWs.
With OFWs operating underground, accounts of abuses will only bulge or multiply!
It isn’t Mr. Duterte who would determine whether OFWs will continue to ply their labor skills to Kuwait. If Kuwaiti officials ignore Mr. Duterte’s ban, the Philippine labor exports will become informal (black market).
Instead, it is the Kuwaiti officials. If Filipinos will be expatriated, then up to 260,000 OFWs may be sent home.
If the Duterte-Kuwait feud escalates, expatriation of OFWs could expand to include allies of Kuwait, such as Bahrain, United Emirates, Saudi Arabia, Oman, and Qatar.
According to Bloomberg, Filipino workers sent home more than $806 million from Kuwait last year, a tenth of the $7.8 billion in Filipino remittances from the Middle East, according to central bank data.
Mr. Duterte’s actions have only put the Middle East OFW labor market at high risk
The NG has offered the Japan-China-Russian corridor as alternatives to the Kuwait labor market. That should be a growth area and not a substitute, especially when the domestic private economy is being compressed from the combination of inflation, taxation, regulation and its crowding out by the NG.
But even as replacements, whatever jobs available for locals would be small compared to the Middle East. And it takes time to nurture such newly opened job markets for it to attain its promised potentials.
And as typical socialist, Mr. Duterte thinks that money is free (Inquirer): “To you there in Kuwait, [to] those who are not really household helpers, I now appeal to your sense of patriotism: Come home, anyway there are now many jobs in the Philippines,” the President said, addressing the overseas Filipino workers (OFWs) in Kuwait…I will look for money and I will get all, all the Filipino workers (in Kuwait),” he told about 6,000 members of the Filipino community in Singapore, where he had attended the 32nd Association of Southeast Asian Nations Summit.”
If there had been many jobs that had sufficient pay, OFWs would gravitate to them even without Mr. Duterte’s egging. Looking at his actions, however, more unemployment and more demand for labor exports are the future.
Let the peso be the judge.
And why would the OFWs risk separation with their families had there better options here? Are they so naïve?
Mr. Duterte was even quoted by GMA that “he would "rob a central bank" if needed so that all distressed Filipino migrant workers in Kuwait could go home”
Well, they have been doing that. Again, the plight of the peso tells us that.
At the end of the day, Mr. Duterte’s war on OFW will compound further on the natural constraints of diminishing returns and global economic and political conditions on OFW deployment and remittance flows.
And such political barrier will be a MINUS on US Dollar flows, consumption, savings, and investments, and PLUS for inflation, stagnation and a socialist state.
Rice Liberalization: Surprise! When Duterte’s Political Capital is at Stake, He Uses the Markets!
But not all is bad news.
When inflation hit a high in 2014 in response to the 30%+++ money supply growth, garlic speculation epitomized the public’s inflation concerns.
Today, rice shortages have hugged the political sphere.
First, there was a spat between the NFA and the NG in early April. While NFA rice was allegedly in shortage, non-NFA rice had adequate stocks. The NFA reportedly spread a false alarm.
The fact that Mr. Duterte met with rice traders highlighted the authenticity of a rice shortage. Mr. Duterte even abolished the “policy-making body of the National Food Authority (NFA) to fast-track the agency’s importation of rice” and ordered the NFA to increase its buying prices to competewith the private sector.
With inadequate NFA rice, rice millers in Luzon offered to cover the shortages. That’s free markets in action.
The distortions brought about by the endemic rice protectionism and by the NFAs interventions created imbalances in the production and distribution of rice.
Mr. Duterte appears to have recognized the imbalances created by overregulation and ordered the streamlining of import regulations and the scrapping of rice import quotas.
Though such action is praiseworthy, I see this in the light of political expediency.
His popularity rating went down right? Mainly, because of rising wage and inflation concerns
If his political capital is at stake, this experience shows that he is nimble enough to use the markets to resolve politically economic sensitive issues.
Question is will he reverse this action once prices come down?
Again Duterte’s inconsistencies can be premised on his perceived political popularity.
Take smuggling. Smuggling occurs when gaps or imbalances from a political regime engenders economic opportunities taken advantage of bold entrepreneurs.
Smuggling represents the underground economy born into existence from politically instituted obstacles or barriers.
Since smuggling adds to the supply, such should ease price concerns. The administration has partially liberalized. Smuggling should vanish on its own because pricing gaps will close. The markets should clear those gaps.
But the administration has cracked down on rice smuggling. Also on cigarette smuggling which has surged in response to higher excise taxes from TRAIN (RA 10963)
As a related side note, Indonesia's bootleg booze industry, a product of high excise or sin taxes and regulations, have recently caused 90 fatalities. From the Inquirer: “High taxes on alcohol have spawned a black market for booze among the poor in Indonesia, the world’s most populous Muslim nation, where drinking alcohol is discouraged but not illegal. In 2015, the country banned sales of alcohol from tens of thousands of mini-marts and other small stores after pressure from conservative Muslims.” High taxes act as implicit prohibition laws. Bad policies kill people. Mostly poor people.
Besides, given the distortions brought about by TRAIN, the BSP, the fiscal deficit blowout and by the many other interventions, real economy prices will most likely continue rising.
While deserving plaudits, Duterte’s rice liberalization will only solve part of the problem which will be offset by the other predicaments caused by his other interventionist/socialist policies.
Socialist economies are plagued typically by high inflation. With the government crowding out the private sector, or with consumption activities displacing productive activities, the central bank becomes the main source of funding for the political economy
That’s what CFAs and Ivory league experts can’t see until it happens.
Stagflation is OUR FUTURE.
