By Dean Dela Paz
The ayuda program has been going on quite aggressively in the last two years since the Duterte government ramped up its implementation and the amount of cash doles funded from a convoluted combination of foreign debt, quantitative easing, helicopter money and re-channeled taxes. Not realizing that simply locking up the public inside their homes would not only bring the economy and employment to a standstill but condemn the destitute to further despair, Duterte’s pandemic managers decided doles as responses to the debilitating economic effects of their ill-fated pandemic strategy.
Upon deeper analysis, perhaps there was no real pandemic strategy save for continuous lockdowns now notorious as the longest, the most economically incapacitating and perhaps one of the most Draconian in the world. In a bizarre and warped way, these measures fit Duterte’s governance legacy.
Rodrigo Duterte’s distinctively populist ayuda program is a form of helicopter money and is one of the expansionary monetary toolkits employed during serial recessionary periods. That it is funded by external debt makes it so much worse for an economy cursed with serial recessions, a devalued peso, and economic volatilities created by the uncertainties of game-changing presidential elections. As a palliative to quickly alleviate epidermal discomfort, when overly extended and funded from long term indebtedness, ayuda can be quite expensive, its true costs not simply charged on future generations but unwittingly inflicted on the current public as well.
During the run-up to the elections it was easy to be ecstatic albeit fall myopic about free cash doled out by the government. It takes an external, objective, and macroeconomic perspective to see its true impact in a different light. At its core is the difference between household retail economics and systemic macroeconomics. That foreign lenders and international rating agencies are unanimous in declaring our economy among the weakest and most vulnerable, and the last to recover in the region validates the criticism that our COVID-19 measures and its impact on the economy were abject failures. That observation has recently been quarterbacked and validated by reports that our COVID-related debt will take over forty years to pay off.
It reminds us of a forgotten plundering despot half a century ago.
Duterte’s ayuda first entailed un-programmed state spending. Tasked to conduct the nationwide logistics were former generals whose initial strategy was to channel millions to simply purchase an assortment of emergency food supplies, package these and require retail local government units to distribute house to house. Then some brainiac decided to shift to cash doles.
Normally, that should boost domestic productivity where cash doles catalyze consumerism and propel household spending. Unfortunately, over extended periods, it creates immeasurable downward pressures on fiscal discipline, liquidity management and the inherent value of the peso.
On the plus side, ayuda theoretically increases money supply in circulation, adds disposable funds to the public, generates spending and demand both spurring manufacturing productivity on the supply side. The latter generates employment that augments incomes in the short term macroeconomy. Vote-buying has the same effect where campaign coffers release otherwise dormant funds, and floods money in circulation.
Unfortunately, ayuda, doles, vote-buying, and helicopter money lead to significant currency devaluation as money supply in circulation increases and peso values fall together with purchasing power. The resultant inflation is aggravated by the negative effects of extremely incompetent energy and fuel management by energy officials who do not have a firm grip on energy and fuel pricing thus allowing retail price-gouging and run-away cost-push inflation. To parry criticism, they peddle nukes but halted oil exploration on account of Chinese threats.
Now discern the data. Inflation leaped from 3.4% to 4.1% then to 4.9%. The consumer price indices for fuel, water, electricity, and gas rose 6.2%. Transport price, by 10.3%. Pump prices are going through the roof every week. The peso to dollar exchange rate has worsened. Capital markets turn volatile. Yet the ayuda’s beneficiaries are ecstatic. So are the gullible recipients of vote-buying. Unfortunately, when vote-buying is guised as ayuda, then the self-fornication creates an abnormal wretched spawn. The resulting poverty is invisible to the blissfully ignorant whose purchasing power is gravely diminished as all are now essentially poorer.
(Dean dela Paz is a former investment banker and a managing director of a New Jersey-based power company operating in the Philippines. He is the chairman of the board of a renewable energy company and is a retired Business Policy, Finance and Mathematics professor.)