Experts assess likely cost of Mideast conflict

By Bernadette D. Nicolas & Jovee Marie N. dela Cruz, Busnessmirror, 9 Jan 2020

HIGHER oil prices, declining remittances and a multibillion-peso bill for bringing thousands of Filipino workers to safety—that might be the cost of the unfolding geopolitical conflict in the Middle East.

Economists on Wednesday said they see a decline in remittances from the regions, aside from the higher oil prices posing a risk to the country’s inflation rate.

This, even after Bangko Sentral ng Pilipinas Governor Benjamin E. Diokno said he does not expect remittances to be hit hard despite recent international developments that began with a January 3 United States air strike on Baghdad airport, killing a top Iranian general.

On Wednesday, Labor Secretary Silvestre H. Bello III said mandatory repatriation has been imposed for overseas Filipinos in Iran, Iraq and Lebanon after the Department of Foreign Affairs (DFA) raised the alert level to 4, following Iran’s retaliation early on Wednesday, unleashing a barrage of missiles at two Iraqi bases housing US forces.

House Speaker Alan Peter Cayetano on Wednesday said President Duterte told him the government needs P20 billion as a standby fund to enable authorities to quickly marshal logistics and forces for the mass repatriation. There are more than 2 million Filipino workers in the Middle East, but those in the most urgent hot zones—Iran, Iraq and Lebanon—number a few thousands. In a worst-case scenario, the overseas Filipino workers (OFWs) in other Mideast countries where US forces are hosted, like Saudi Arabia, may be at risk if the conflict spreads.

Cayetano said lawmakers are still awaiting Malacañang’s formal communication to the House of Representatives, seeking the convening of a special session to set aside funds for an emergency evacuation.

“[I told the President that there is] a P1-billion standby fund under DFA contingency fund. [But he said by] his conservative estimate, the government needs P20 billion as standby fund,” Cayetano said in an interview.

In his speech after signing the 2020 national budget on January 6, Duterte appealed to lawmakers to set aside funds for mass repatriation in case the conflict between the United States and Iran escalates into a full-scale war. This, after a US air strike killed a top Iranian general last Friday in Baghdad, Iraq.

Both the Senate and the House of Representatives have indicated readiness to conduct special sessions—before their official resumption on January 20—to craft contingencies, including the passage of a supplemental budget to quickly fund a massive evacuation of OFWs in the Middle East.

On Wednesday, the Department of Budget and Management (DBM) assured the public that the government has funds to move Filipinos out of danger zones.

Budget Assistant Secretary Rolando U. Toledo said the government can also tap at least P1.89 billion under the newly signed 2020 national budget.

“Of course, yes, we have the money, standby fund ready—the government is ready if there is a need, a call for the repatriation of our overseas Filipino workers,” Toledo said in the Weekly Economic Press Briefing in Malacañang.

Broken down, Toledo said a P1.29-billion allocation is lodged under the budget of DFA, P100
million under the budget of Overseas Workers Welfare Administration, and P500 million as a “free fund” under OWWA.

“So even without the pronouncement of the President, we already have the budget for the repatriation,” Toledo said.

However, since the 2020 national budget was just signed on Monday, Toledo said the government can also use the remaining balance from the 2019 national budget for the repatriation.

“Yes, if there is still a balance for that in the 2019 budget then as continuing appropriations, we can still tap the 2019 budget…,” he told the BusinessMirror.

Should this not be enough, Toledo said there is also a contingency fund from the Office of the President.

However, this would still be subject to the approval of the President.

“We have a P13-billion allocation for that contingent fund, but there are also some earmarked or rather not earmarked, but some programs and projects or activities,” he said.

While the Department of Finance is also looking into other possible fund sources, he said they have yet to figure how much is needed for the mass repatriation.

Toledo explained there is still a need for Congress to have a special session to allocate funds for the mass repatriation, especially if the current funds would not be enough.

“I think the concern of the President is medyo malaki ang kailangan if kulang ’yung nasa GAA [General Appropriations Act], I think there is a need for Congress to have a session again to discuss the needed funds for the repatriation of overseas Filipino workers,” he added.

Remittance declines

Meanwhile, as part of the possible fallout from the mass repatriation made necessary by the conflict, economic consultant John Paolo Rivera said a decline in remittances can be felt if the government implements a deployment ban and pulls out the OFWs for security reasons.

“A decline in remittances have effects on exchange rate and household consumption,” Rivera said in a text message to the
BusinessMirror.

From January to October 2019, remittances grew by 4.3 percent to $27.6 billion, higher than last year’s level of $26.5 billion.

Private-sector economist Calixto V. Chikiamco also sees reduced remittances as a possible effect of the escalating tension.

“War in the Middle East will affect the Philippine economy through various mechanisms: higher oil and, subsequently, transport fares, reduced remittances and repatriation of OFWs, weaker currency, lower exports through uncertainties in the global trading and shipping environment, and possibly tighter monetary policy in view of inflation risks of higher oil and transport prices,” he said.

Despite this, Chikiamco said he still cannot say whether these would significantly dent the country’s first-quarter GDP growth as the situation is still developing.

For De La Salle University economics Prof. Maria Ella Oplas, the possible spike in oil price could hurt economic growth, but this would still depend on how will the
tension escalate.

“Expect oil prices to go up as [they are] doing now. Repatriation of Filipinos in Iraq would mean return of OFWs [some unprepared with no savings]. Hence, NFIA [Net Factor Income from Abroad] in GDP will go down because we have lesser income of Filipinos from abroad. The worse is the unprepared return of OFWs will be an addition to our unemployment,” Oplas told the BusinessMirror.

Anything’s possible–Neri

Former Socioeconomic Planning Secretary Romulo Neri added the possible oil price increase could affect the country’s inflation rate, as well as the import costs.

Asked if he sees the Dubai crude oil price breaching the government’s assumption of $55 to $70 per barrel for 2020, Neri said: “Anything’s possible if conflict
escalates.”

Although the US is the Philippines’s largest export destination as of October, Neri does not see a significant impact yet on the country’s export prospects.

“Maybe not much for the moment. War may even increase demand for electronic components,” he said. Rivera shared this opinion, saying it would still be “business, as usual.”

“In my opinion, not much because of our rate of reaction on such events—although precautionary measures are at place, we play it by ear. I think once tension escalates, significant changes can be felt but, as of now, I think it’s business, as usual. But it’s good that we are preparing for what is about to happen by establishing business with other trade partners,” he said.