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Price hikes, higher cost of money seen as war indirectly impacts PH

Updated: Mar 9, 2022

Oil companies implemented Tuesday, March 8, 2022, hefty increases in the prices of gasoline, diesel and liquefied petroleum gas to reflect soaring global oil prices due to Russia’s invasion of Ukraine.

Oil and food prices as well as interest rates are expected to go up while investments are projected to decline in the Philippines in the face of uncertainty caused by the war, but these would be temporary, Department of Finance Secretary Carlos G. Dominguez III reported to President Rodrigo R. Duterte Monday night, March 7, 2022.

He said he was confident that the government would be able to keep inflation within the target range of 2%-4% and attain its goal of expanding the economy by 7%-9% this year.

Dominguez said the war would not directly affect the economy, as neither Russia nor Ukraine is a major trading partner of the Philippines.

“Instead, the Philippine economy will likely be collateral damage. It is as if we are hit by a ricocheting bullet. These indirect shocks are likely to be felt through four major channels — the commodity market, financial market, investments and the impact on our fiscal health,” he said.

Oil and food prices are expected to go up as Russia is the largest exporter of natural gas and wheat while Ukraine is the fourth largest exporter of corn. The two countries’ major trading partners in the European Union are expected to turn to alternative markets like the US and China, thus putting pressure on commodity prices there as well.

Dominguez said, however, that he did not think the Russia-Ukraine crisis would last long. Russia invaded Ukraine almost two weeks ago.

“I would like to emphasize that we do not expect this crisis to last very long. However, there may be some lingering effects. We have seen similar crises in the past, such as in The Gulf War in 1990, the oil price shock of 2008, and also the first Russia-Ukraine conflict in 2014, and we have weathered all of these crises very well,” he said.

“We have experienced crises whose effects were more severe and direct to the economy such as the Asian financial crisis in 1997 and the global financial crisis in 2008. These crises lasted much longer and yet we were able to get through them. Based on these experiences, we are confident that we have the tools and the preparation necessary to help our people through this crisis,” he added.

The economic cluster in the Cabinet, which Dominguez heads, has come up with a comprehensive set of measures aimed at easing the impact of the war on the Philippine economy and the people.

Mitigating measures

Among the measures presented by Socioeconomic Planning Secretary Karl Kendrick T. Chua is the need for the entire country to shift to COVID-19 Alert Level I and the opening of in-person classes in all schools to increase domestic economic activity and offset external risks.

He also cited the need to increase the amount of fuel subsidies to the public transport sector and farm producers; the expansion of the oil buffer stock; the continuation of the promotional fuel discount given by oil firms; promotion of energy conservation; suspension or removal of pass-through fees imposed by the local government units (LGUs) and other entities on truckers; implementation of service contracting in all public transport routes; and promotion of the use of electronic vehicles and the use of active transport (e.g bicycles) as among the measures to mitigate the impact of the oil price hike.

Citing the proposals of the Economic Development Cluster (EDC) of the Cabinet, Chua also recommended increasing the buffer stock for liquefied petroleum gas (LPG) to 15 days from the current seven days; expanding supply and reducing coal price by reducing the most favored nation (MFN) 7% tariff rate to zero until December 2022; and maintaining the coal buffer stock at the current 30 days minimum inventory.

To ease the impact on electricity consumers, Chua said the EDC proposed promoting energy conservation measures including the use of technology for energy savings; staggering the increase in the power generation charge; and allowing foreign ownership of microgrids, and solar, wind and other renewable energy sources.

In the agriculture sector, Chua said the EDC recommended implementing the second phase of the “Plant Plant Plant” program subject to the availability of funds; and providing targeted fertilizer vouchers to farmers, and expanding supply through bilateral discussions with fertilizer-producing countries.

Other recommendations

The EDC’s other recommendations were:

  • The Department of Agriculture (DA) to closely monitor rice inflation, and the National Food Authority (NFA) to closely monitor buffer stock;

  • Help LGUs increase rice buffer stock with concessional loans from the Land Bank of the Philippines (LandBank) and the Development Bank of the Philippines (DBP), particularly in the procurement of post-harvest facilities and warehouses;

  • Accelerate Rice Competitiveness Enhancement Fund (RCEF) implementation and other parts of the national rice production program to increase local production;

  • Facilitate continuous release of Sanitary and Phytosanitary (SPS) import clearance for rice especially for shipments arriving for the lean season starting July;

  • Expand supply and reduce price of rice by extending the MFN 35 percent tariff rate until December 2022;

  • Increase supply and reduce price of corn by lowering the MFN tariff to 5 percent in quota and 15 percent out quota with minimum access volume (MAV) of 4 million MT until December 2022;

  • Import more feed wheat and produce more cassava (as feeds substitute);

  • Expand supply and reduce prices of pork by extending the lower tariff of 15 percent in quota and 25 percent out quota with MAV of 200,000 metric tons (MT) until December 2022;

  • Accelerate release of imported pork from cold storage;

  • Pass the livestock and dairy bill;

  • Remove all non-tariff barriers for pork and fish;

  • Issue the Certificate of Necessity to Import (CNI) for small pelagic fish (e.g., galunggong) valid from the second to fourth quarters of 2022. The supply needs an additional 140,000 metric tons (MT) to fill up the projected supply gap of 200,000 MT;

  • Accelerate the release of SPS clearances for chicken from the National Meat Inspection Service (NMIS) cold storage warehouses to push up inventory to pre-pandemic level;

  • Address the temporary restraining order (TRO) on sugar imports;

  • Allow direct importation by industrial users: implement 1:1 domestic to import ratio;

  • Expand sources of wheat (e.g., India);

  • Support the mass-based Pinoy Tasty Project of the Department of Trade and Industry (DTI) in partnership with the private sector, which offers bread at lower prices;

  • Promote non-wheat flour substitutes such as the Sagip-Nutri flour (made from cassava, sweet potato, monggo, etc), and banana flour; and

  • Reiterate the inclusion of renewable energy (RE) and agriculture in the draft Strategic Investment Priority Plan (SIPP). (Marites Villamor-Ilano/Ventures Cebu)

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