price stabilization measures and its effects on - Philippine Institute ...

More documents

Recommendations

Info

8. Provide a more effective <strong>and</strong> efficient market information system (MIS). The MISmust be strengthened to improve marketing efficiency through effective dissemination ofrelevant information pertaining to production <strong>and</strong> marketing. It is envisioned thatstrengthening the MIS will create a more competitive environment among interestedparties – producers, traders <strong>and</strong> consumers- thus improving their economic welfare.Effective <strong>and</strong> efficient market information will decrease the cost of marketing, thuseasing the pressure to increase <strong>price</strong>s. Furthermore, such information system would bevery useful for facilitating the intra- <strong>and</strong> inter-regional trading of commodities in thecountry which would help stabilize <strong>price</strong>s.An example of this is the Electronic System of Trading Agricultural Products program ofthe National Food Authority (NFA) to help facilitate the transaction of corn buyers <strong>and</strong>producers by reducing transaction cost. Corn buyers normally located in Metro Manila<strong>and</strong> Cebu can transact business with local corn producers located in Mindanao <strong>and</strong>Northern Luzon without spending hundreds of pesos. This program can also be adoptedto other agricultural commodities <strong>and</strong> sectors of the economy.Fiscal <strong>and</strong> Monetary ReformsMacroeconomic management has improved a lot in the Philippines since the Marcosyears. The BSP was made an independent institution. Second, the government had privatized alot of money-losing state enterprises, which had drained government finances. However, thesepolicies are not enough to cushion the impact of economic crisis. More reforms in monetary,fiscal, exchange rate, <strong>and</strong> trade policies should be adopted.1. Institute further reforms in financial markets. Measures to boost domestic savingsshould be adopted by the government. In addition, <strong>measures</strong> to attract foreign investorsshould also be implemented. Attracting foreign investors can be achieved by improvingthe stock market operations through transparency <strong>and</strong> efficiency in <strong>its</strong> operations. Smallinvestors should likewise be protected to ensure the continuity of their participation in thecapital market.The government should try to tap other financial institutions (e.g., insurance <strong>and</strong>pension companies) to boost domestic savings <strong>and</strong> help cater to the long-term investmentrequirement of the country. A neutral <strong>and</strong> unbiased tax system will also encourage otherfinancial institutions to augment domestic savings. The policy of government ofencouraging mergers among financial institutions is a big help in attaining stability in thefinancial system.2. Develop the export sector. The export sector plays an important role in attainingpositive growth in the current account. The performance of the export sector during thefinancial crisis indicates that the development of the export industry as a source of growthin the current account is more sustainable in the long-run than relying on the remittancesof overseas workers.18
With the devaluation of the peso, holding other factors constant, this should makePhilippine exports competitive in the world market. However, during the financial crisis,exporters were not able to take advantage of the opportunities due to the lack of capital<strong>and</strong> other markets that were not affected by the financial crisis. The government shouldhelp develop other markets for Philippine exports to minimize the impact of economicdisturbances. In addition, the government should assist the export sector in improvingthe skill <strong>and</strong> capabilities of their workers to be efficient in the production of their output.Likewise, the government should help promote the country's export products in othercountries that are not importing Philippine products.3. Broaden the tax base <strong>and</strong> improve efficiency in tax collection. The budget deficitexperienced by the country for so many years was partly attributed to low tax collection.Government budget defic<strong>its</strong> if not corrected, sooner or later, have to be financed throughmoney creation, which is inflationary. With the broadening of the tax base <strong>and</strong> efficienttax collection, the fiscal deficit could be minimized thus easing the pressure on interest<strong>and</strong> exchange rates which will help stabilize <strong>price</strong>s.4. Institute BSP Monetary Measures. The BSP has at <strong>its</strong> disposal a number of monetarypolicy <strong>measures</strong> that can eventually influence the movement of <strong>price</strong> levels. Theseinclude regulation of money supply, prime interest rates, <strong>and</strong> reserve requirement rates.While these are usually used to influence credit conditions, the investment climate, <strong>and</strong>eventually output <strong>and</strong> employment, these variables can also be used to influence inflationrates. The BSP has kept <strong>its</strong> h<strong>and</strong>s off the dealing floor, allowing the peso to fluctuate <strong>and</strong>seek <strong>its</strong> market rate. While a strong peso can be used to dampen inflationary pressures,this policy is only correct to an extent in the short term. Furthermore, the cause ofinflation should be determined. The current inflation is not a monetary phenomenon buta cost-push one combined with <strong>and</strong> “El Niño” supply shock or a structural defect. Inaddition, the BSP should be more active in monitoring <strong>and</strong> supervising the financialsystem to prevent defaults in the banking system (e.g., Orient Bank, Monte de Piedad,etc.).Issues on the Adoption of Inflation Targeting In Developing CountriesInflation targeting is a framework that be used to conduct monetary policy in order tomaintain a low <strong>and</strong> stable rate of inflation. Its adoption would indicate the strongest possiblecommitment by the monetary authorities to deal with the danger of inflation.In an internet article entitled "The Eternal Triangle", Krugman (1999) argued thatcountries face a dilemna in choosing <strong>its</strong> monetary regime. The three main goals of adjustment,confidence <strong>and</strong> liquidity conflict with one another; choosing one implies dropping the otherobjective. Following Krugman's definition of the three objectives, it looks like the Philippinegovernment is trying to strike a balance between the above-mentioned goals. It is allowing thepeso to float, while keeping interest rates low <strong>and</strong> inflation at manageable rates. In effect, theadministration is putting a premium on adjustment <strong>and</strong> liquidity, but at the same timemaintaining a relatively stable exchange rate by allowing the currency to float within a b<strong>and</strong>.19
Page 2 and 3: udget subsidy needed to implement t
Page 5: prices of imported
Page 10 and 11: Inflation can also erode the profit
Page 12 and 13: Table 1. Average rates of inflation
Page 14: Table 3. Contribution to inflation
Page 17: Table 5. Philippine exports by majo
Page 21 and 22: It appears then that while
Page 23: The expected increase in productivi
Page 27 and 28: Before advocating the adoption of c
Page 29: Masson, Paul R., Miguel A. Savastan

price stabilization measures and its effects on - Philippine Institute ...

You also want an ePaper? Increase the reach of your titles

Delete template?

Save as template?