THE EnTrEprEnEur

We can safely say that the Philippines has neutralized the high inflation rate that hounded us at the start of the year. Former Bangko sentral ng Pilipinas Governor Felipe Medalla did a good job at taming prices and keeping the economy stable, and i am confident the new BsP chief will follow in his predecessor’s track.

Prof. Medalla skillfully guided the Philippine economy through a period of high inflation and other challenges that still allowed us to post one of the fastest growths in the region.

The job of the BSP chief is crucial to the economy. He must see to it that prices and the exchange rate are stable to preserve the purchasing power of the consumers. Former Governor Medalla, to me, performed creditably well. There is no doubt that his successor, seasoned banker and Monetary Board member Eli Remolona, will continue to keep an eye on inflation and interest rates to keep the cost of funds relatively low in the Philippines. I congratulate Gov. Remolona for his new job at the BSP after President Ferdinand Marcos Jr. appointed him to a six-year term.

The BSP kept interest rates steady in its policy meeting on June 22, 2023 in what could be an extended pause of its monetary tightening cycle, or a signal that it is preparing to backpedal and bring down the rates to levels supportive of economic growth.

Economists are debating on whether the US Federal Reserve should start hiking its rates again in the face of a still elevated inflation, but our own central bank believes a pause in rate adjustment is the best course at the moment given the easing of domestic inflation from a peak of 8.7 percent in January to 6.1 percent in May.

Before he left the BSP, Prof. Medalla was quoted as saying that an inflation rate below 3 percent would give the Monetary Board enough reason to cut interest rates by January or February 2024. This is good news for the business community and our small entrepreneurs. Cheaper funds will allow them to sell more and expand their businesses.

Our Cabinet economic team seems confident that the inflation rate will fall below 2 percent to 4 percent in the first quarter of 2024, or well below the government’s “target band.”

Governor Remolona, meanwhile, will steer our monetary policy in the next six years, a pivotal period in our goal to become an upper middle-income and later a high-income economy. This period will also determine if we can join the list of 20 largest economies in the world by 2050, as predicted by BMI, a research firm under the Fitch Group.

BMI forecast that the Philippines would become the 18th largest economy with a nominal gross domestic product of $2.3 trillion by that time. It would join other rapidly growing economies such as China, India, Indonesia, Bangladesh and Vietnam, as well as more established economies such as the United States, Germany, Japan, the United Kingdom and France.

The Philippines is already one of the largest markets with over 110 million consumers right now, and given its relatively young labor force, our country is expected to gain more purchasing power in the coming decades.

A bigger economy offers tremendous opportunities for the Filipino people. Among the sectors that are expected to benefit from the country’s ascension to the group of 20 largest economies are manufacturing, retail, property and real estate, banking, health care, education, automotive and transportation, travel and tourism, information technol- ogy and other services.

The much bigger economy is possible if the BSP, which has control of liquidity to manage inflation and foreign exchange rate, strikes a good balance between stabilizing prices and supporting growth.

BSP officials are known for their analytical skills as they carefully weigh the pros and cons of any interest rate adjustment that can control inflation but stifle growth as a result, or boost business activities but trigger inflationary pressures.

That is why Governor Remolona’s appointment is a big deal for many economists and stock analysts. He has big shoes to fill as he inherits the job from noted economists like Prof. Medalla and Finance Secretary Benjamin Diokno, as well as career central bankers Amando Tetangco and the late Nestor Espenilla. He is not new to the job, as he has been a member of the seven-seat Monetary Board, the policy-making body of the BSP, since August 2022. He served for 14 years at the Federal Reserve Bank of New York and for 19 years at the Bank for International Settlements. He was also an independent director of the Bank of the Philippine Islands before joining the Monetary Board.

I am confident his distinguished banking career will stand him in good stead when he steers the central bank in the next six years.

For comments, send e-mail to mbv_secretariat@vistaland.com.ph or visit www.mannyvillar.com.ph

John Mangun

Measuring an economy OuTSIDE THE BOX

Back in the days before the internet, and before there were countless social media economic experts as well as the genuine kind, i used to regularly monitor the health and wealth of the Philippine economy at the Tejeros Market on Pasong Tirad, Makati.

Our suki pork dealer had more economic perspective then—and probably still does—than anyone in a skyscraper office in Makati or BGC.

The husband with one son would arrive at the abattoir from Batangas long before sunrise, and the swine would then be butchered into retail cuts at the palengke by six. The “Pork Lady” had good insights into the economy, as does every small business owner, by the amount and type of cuts of pork that did not sell. Further, a small business adjusts quickly to both positive and nega- tive economic changes as “boom and bust” cycles determined the size of the hog the husband would buy from the piggery.

There are many ways of measuring an economy. However, these are not always able to accurately evaluate economic activity when there has been a shift in consumer habits. For the last six months I have observed—for whatever it is worth—a slow increase in foot traffic at every mall that I regularly visit. In my experience, in 2023 we have gone from “empty” to “back to normal.” But that does not give a complete picture.

The “newest” economic theory in the past two years is “Revenge”: Revenge Shopping, Revenge Travel, Revenge Buying. It comes from the 1980s Chinese phrase “bàofù xìng xiāofèi.”

During the past two years I have been seeing at the malls (what’s the opposite of revenge? Mercy?) store closings. Many businesses that were marginally successful have died. I said late in 2022 that there would be many previously successful businesses, even some that quickly reopened after the lockdowns, which would eventually close their doors forever. Knowing that they would earn no net profit for two or maybe more years to make up for the losses of 2020-2021, they would shut down and move on.

There are many ways of measuring an economy. However, these are not always able to accurately evaluate economic activity when there has been a shift in consumer habits. For the last six months I have observed —for whatever it is worth—a slow increase in foot traffic at every mall that I regularly visit. In my experience, in 2023 we have gone from “empty” to “back to normal.” But that does not give a complete picture. I can never find a seat at a mall coffee shop and mall restaurants from fast food to casual dining are often waiting-line full. But the department stores seem empty. The only genuine indicator of business is not the warm bodies roaming the floor but how many cashiers are on duty. Are we only seeing “Revenge Eating” or has there been a shift in purchasing patterns? My wife and I seem to be the only ones in our family that still actually go “shopping.”

Our sons are buying almost everything online, from clothes and shoes to vitamins and shampoo. We have dog food and cat litter delivered, as well as peanut butter and beer. With these in mind, what will be the overall effect on employment? Will the economy grow even as employment stagnates? What will be