Federalism spells disaster for PH – economists

Analysis by: Trisha Singson

Published: Inquirer, 16 July 2018

Summary: Top economists from the University of Asia and the Pacific (UA&P) says that a shift to
federalism can only spell disaster for the Philippines, possibly stoking “hyperinflation” and
ceding more powers than what many local government units (LGUs) are ready to handle.

They also noted that nations that had suffered from hyperinflations – specifically a
consumer price upsurge of 1,000 percent – were mostly from Latin America as well as
Eastern Europe, which had broken away from communism 1.

ANALYSIS

The Philippines is considered as a highly centralized government, the president acts as the head
and state of the country which enables him authority. One of the main struggles, the country continues to
face is the equal and faster distribution of good and service to all areas of the country. With that said, the
proposed Federalism that the Duterte administration suggest aims to promote equal governance and to
faster address the continuing problems the country is experiencing (poverty, unemployment and etc).
Economically, federalism will be able to bring financial independence and distribution of wealth to local and
national government. In such local government, this is seen as an advantage as they can maximize their
income in the improvement of their community. Furthermore, through the equal distribution of wealth
through the decongestion of NCR, each state will now have the responsibility to generate income on their
own ways. The regions outside of NCR will eventually result in economic development by mobilizing their
resources without being hindered by the central government thus promoting more job and opportunities in
their respective provinces.

Some people argue that the federalism government may also worsen the issue of inequitable
distribution of resources. It can lead to an uneven distribution in wealth and neglect of some regions due to
the fact that not all regions have the same economic opportunities like NCR. Furthermore, the cost burden
(tax or debts) of the country. According to studies done by economist, the government will likely increase
government spending with an additional of 44 to 72 billion in order to implement the federalism
government. Thus, such big spending will cause an inflation in the economy. While some economist might
argue that inflation is not a bad indicator of an economy, like the Demand and Pull inflation, wherein an
economy is growing and developing fast, an increase in demand prices will tend to grow and the output of
good would also tend to increase. However, if such drastic change or in this case a hyperinflation is
experienced in a third world country such as the Philippines our economy will plummet. The price of goods

1 http://business.inquirer.net/254089/federalism-spells-disaster-ph-economists#ixzz5OD24fOPi
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will increase, while our countries currency will continue to depreciate due to the excessive spending of tax,
wages, debts that we allocate to all the local and national government.
On figure 9, we can easily assume that with the increase in price level, money demand will shift to
the right. In respect to the suggested Federalism government the money supply will not increase nor
decrease, such action will drive our economies interest rate to increase.

Figure 9. The Effect of Interest rate in the Aggregate Expenditure

While for Figure 10, it illustrates that the sudden increase in our economies interest rate will drive our
economy into a hyperinflation. Due to the inflation, investors will tend to not likely invest in our economy.
Thus, a shift to the left for our Investment is to be expected.

Figure 10. Planned Investment vs Interest Rate Figure 11. The Effect on Aggregate Supply and Aggregate Demand Curves

Lastly, for Figure 11 the approximate increase in government spending will increase our economies GDP,
thus price level is expected to increase. Increasing the money supply leads to an increase in aggregate
demand (AD) thus a shift to the right is expected. For the federalism to work, government should find an
accompanied corrective action or plane to help manage the expected increase in GDP. They should be
able to somehow manage the hyperinflation through the monetary policy, if the government increase the
interest rate, money supply then can shift to the left to counteract the sudden increase in GDP – inflation.
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SEC warns against new crypto currency

Analysis by: Trisha Singson

Published: Philippine Star, 14 July 2018

Summary: The Securities and Exchange Commission (SEC) issued an advisory with the recent
emergence of the crypto currency trade. The SEC informed the public to be more cautious
in handling digital currency; the most common type in our country is the Bitcoin. Which is
not backend or guaranteed by a Central Bank.

Schemes have continued to emerge, the most recent was Ploutos, which guaranteed
Filipino Customers that income is generated when the value of the coin increases and the
price movement of ploutos would move similarly like demand and supply.

ANALYSIS

Crypto currency is known, as a decentralized form of virtual currency is one of the consistent rising trends
in the market. One specific type is Bitcoin network, which requires no financial intermediaries (by banks) or
transaction fees. It is usually just used in online transactions, thus credit expansion policy is not possible.
Economically it will be perfectly inelastic as Money supply is expected to always be equal with the stock of
commodity of the economy. Inelastic money supply would then lead to an anticipated deflation rate. Crypto
currency as a monetary system for any country to adapt would have a perfectly inelastic supply and zero
growth of monetary base (Figure 12). With the introduction of crypto currency in our market a deflation rate
based economy.

Figure 12. Aggregate Supply and Aggregate Demand Curve

As seen on figure 12, if AD were to fall due to the reduced spending of actual money and increase in rate of
cash saving it is expected for the price level to go lower. Some economist argues, that an increase in rate
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of cash saving will cause a negative impact in our economy, which can lead to recession or unemployment.
However, other economist believes that promoting crypto currency or Bitcoin can actually bring economic
stability. Since the supply and demand of bitcons cannot be regulated or manipulated by any central bank,
thus interest rate manipulation will not be possible.

Figure 13. Planned Investment and Interest Rate

With the above said, it is very likely for the central bank to print out more money, thus would shift our
supply curve and push down the interest rate. In an economy with a low interest rate, investors would tend
to invest more.

Our government is not supportive of crypto currency due to the fact that it is not regulated by the Bangko
Sentral of the Philippines (BSP) or by any central bank. Thus, lack of control can lead to exploitation and
usage of the currency in illicit websites or online theft. Unregulated currency might have benefits, but the
detriments are far greater to completely dismiss the whole idea of regulation. Overall, Bitcoin is unlikely to
emerge as a general medium of exchange in the Philippines. Instead, as with many revolutionary
technologies, usage and innovation can expand into originally unexpected areas. The Bitcoin represents a
technical breakthrough and could provide the basis and infrastructure for future remittance and payment
solutions markets. By competing with other companies that promotes such online currency (amazon, apple
pay and etc), any improvements it brings in either speed or decreased transaction costs will ultimately
mean that Bitcoin will have had a positive impact on our society.
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Unemployment eases to 5.5% in April

Analysis by: Trisha Singson

Published: Philippine Star, 06 June 2018

Summary: According to the recent report done by the Philippine Statistics Authority (PSA), the
unemployment rate for the month of April has decreased, with that said the employment
rate has increased to at least 94,5 percent compared from the rate last year which was
94.3.

An estimated 40.9 million Filipinos is currently employed. One key factor that has greatly
affected the employment rate is the increasing hiring in the construction sector specifically
with the new increase in infrastructure spending with the Build, Build, Build program.

ANALYSIS

Unemployment has always been one of the many factors or indicators that we have in assessing a
countries economic performance. Unemployment rate is one of the determining factors of how an economy
is operating above or below its normal level of activity. Recently our country has been experiencing a
decrease in unemployment rate and an increase in employment. From an economics perspective, this is
seen as a good sign for our economy. Low unemployment rate is correlated with positive signs of economic
growth.

One of the reasons for the low unemployment rate is the increased in demand specifically with the new
infrastructure programs that we have launched; leading to an increased in labor demand – Expansionary
Policy. With the recent economic reports that we have, our GDP has grossed thus impacting the market.
Reports from various business articles, says that Inflation has risen for the first few quarter of the year
2018. Thus, It is safe to assume that with the increase in GDP and Inflation, employment rate has
increased, increased in money supply and demand is experienced in our country since they are all
relatively connected and interdependent.

Figure 14. Aggregate Supply and Aggregate Demand Curve

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As seen on the above figure 14, since the increase in employment rate aggregate demand (AD) shifted to
the right and a higher price level is experienced. The increase in AD is caused by the fact that the increase
in production (eg: government projects, higher investment rate) as a result the quantity of labor of demand
increased. In the long run, the increased in AD leads to an increased in output produced. Thus, the money
demand affects the market; interest rate increases while the money demand shifts to the right (figure 15).

Figure 15. Effect on Money Market: Money Demand vs Money Supply

In terms of monetary policy, it is expected for the interest rate to increase as to control the market. If
interest rate increases, it is safe to assume that the normal reaction of the market is for the money supply
to decrease and eventually cause investment rate to plummet (figure 16). The below is possible in a long –
term run.

Figure 16. Planned Investment vs Interest Rate

Overall, it is safe to assume that a decreased in unemployment rate is a good indication for a booming
economy. However, such rate is not a sole basis for the economic growth of a country. Other factors should
always be taken into account such as the Long-term and short-term effect of such changes in the market.
The inflation that comes hand in hand with the increase in employment rate should be taken into account
and manage accordingly.