Some militant groups have recently asked President Aquino to stop the rise of oil prices. Fact is, world markets dictate oil prices; a Philippine president can’t have any impact on this. The whole world is suffering due to the conflicts in the Middle East that affect oil supply and future assuredness of supply. That has sent prices up. If he caps retail prices, for instance, who pays for it? It won’t be the people who should pay for it—the users. It will be a subsidy by the government? If so, that’s all the taxpayers who’ll pay whether they use oil products or not. Why should non-users pay for users?
Will it be the oil companies ordered to reduce their profits or even trade at a loss? That’s a good way to send a message to businessmen: don’t invest in the Philippines it may break its promises to you, to provide a free, deregulated market. If they can do it for oil, why not others? The last government did it and ordered pharmaceutical companies to reduce their prices by a whopping 40 percent. Pharma companies aren’t investing. Early in her term, Gloria Arroyo ordered the renegotiation of independent power producer contracts due to public clamor to bring down electricity rates. Her administration forced power producers to accept lower offtakes (the amount of power supply Napocor will buy) than what was previously agreed to under contract. The result? No new and significant investment in power plants despite the urgent need for them. You reap what you sow.
So is this government going to be the same as the old one? Untrustworthy and fickle, pandering to populism? I hope the president will stand firm on his commitment to an open, fair economy as a major platform in his policies. Live with oil prices wherever they lead (back down at the moment), it’s the sensible thing to do.
What I find disturbing is the almost automatic accusation by various politicians and government officials that the oil companies are “gouging the public” for excessive profits. Other companies are charging less than the Big 3 so the Big 3 must be gouging. Well, a couple of points: they’ve invested far more in capital equipment and systems; and, there’s a high level of smuggling (some 20 million barrels were estimated last year). Who do you think is doing the smuggling? The Big 3? I don’t think so, they are the ones who are suffering from unfair competition. It costs you less when you smuggle.
They want their books opened to intense scrutiny against all normal accounting procedure and protections. I note even the Concepcions are calling for this in a one page ad. Are they prepared to open up to an equal investigation of their companies? If so, maybe I’ll support it, I’ll certainly entertain the argument as long as it is considered for all companies. You can’t single out three companies over all others, that’s unfairness of a serious scale. No matter how critical the industry.
What you don’t do is subsidize. The arguments against it are endless. Let me tell you of a few subsidies that haven’t worked.
Let’s start with the fact that it’s been tried before. The Katas ng VAT (Value Added Tax Windfall) was a one-time cash transfer to the poor in the midst of price hikes in oil and other basic commodities in 2007 and 2008. The Arroyo government discontinued the program in 2009. A survey revealed 62.5 percent or 3 out of 5 intended beneficiaries failed to receive any form of subsidy. The rest presumably (I must say that) was stolen. And here we have a government wanting to make the same mistake. Is this a government afflicted with Alzheimer’s?
Then there’s rice. The National Food Authority is in debt to the tune of P177 billion, that was 56 percent of the total government debt last year. On top of that, much of the rice was stolen by unscrupulous officials. According to the World Bank, only around 30 percent of NFA rice actually went to the poorest of the poor and between P3 to P8 was spent just to deliver P1 of rice. Conditional cash transfers administered by the DSWD where the cash can then buy rice on a competitive open market can work far better.
In 2008 and 2009, the overdue accounts of Arroyo’s microfinancing programs amounted to P104.7 million and P189.5 million, respectively. A huge chunk of the funds failed to reach the intended beneficiaries.
Then there was the hypocritical one-time cash-transfer of P500 to households with an electric consumption of 100 kilowatts or less. A more meaningful pro-poor initiative would have been to improve access to electricity. In 2009 government claimed that 97.85 percent of barangays outside Metro Manila had access to electricity but they failed to mention that only 71 percent of households had actual connection to that electricity. Three million households remained powerless despite availability of electricity in their area. This is where the money should have been spent.
The Arroyo administration also distributed Family Access Cards to indigent families. The program targeted only 280,000 (DSWD-approved) food poor families in NCR when there were some 1.2 million food poor families nationwide that weren’t helped. A Commission on Audit report found that the distribution of the Access Cards was an ineffective solution to the food crisis. It didn’t work.
Overwhelmingly, subsidies, even though they seem good in theory, just haven’t worked in practice in the Philippines Yet here’s a government threatening to repeat historical disasters by doing it all over again.
As to price control, that would be the death of an already comatose sector—investment in new businesses. No one, I repeat, no one is going to invest in a country that imposes price controls when there are so many other places that don’t. The President shouldn’t even suggest he might do it. What he needs to do is to assure all investors that the open market the Philippines boasts of remains a fundamental foundation of government policy.
Otherwise, at the bottom of the heap is where we will remain. –Peter Wallace, Manila Standard Today
