Lesson 1: Contemporary Economic Issues Facing the

Filipino Entrepreneur

What’s In

After learning about the workings of demand and supply and how these
forces affect the market, we will now focus on how the forces of demand and
supply, the theory and principles, can help in analyzing Philippine economic
problems.
In this lesson, you will be able to analyze the effects of contemporary
issues such as migration, fluctuations in the exchange rate, oil price increases,
unemployment, peace and order, etc. on the purchasing power of the people.

What’s New

Activity 1.2.12. Guess What?

Directions: Identify which Philippine government agencies are referred to by

matching column A and column B.

Column A Column B
1. Responsible for preparing, integrating,

manipulating, organizing, coordinating, supervising and

controlling all plans, programs, projects and activities of the
government relative to energy exploration,
development, utilization, distribution and conservation.
2. Tasked to contribute to the
enhancement of national security and the protection of
the territorial integrity and
national sovereignty

3. Prime mover of consumer welfare. It is

committed to protecting the rights and interests of the
consumers and developing policies and programs
aimed
at sustaining the growth and development of the Philippine
economy.

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4. Responsible for the formulation,
institutionalization and administration of fiscal policies,
management of the financial resources of the
government.

5. Responsible to formulate policies,

implement programs and services, and serve as the policy-
coordinating arm of the Executive Branch in the field of labor
and employment.

What Is It

Philippine Peso and Foreign Currencies

Trading with other countries is also an important economic activity that

impacts on the economy. Selling locally made products, called exports, means
we earn dollars as payment for these goods bought by foreign buyers. In the
same manner, we buy goods from other countries, and these are our imports.
When we trade with other countries, we need a common currency to use to pay
for goods we buy from them and for them to pay us for goods we sell to them.
When we travel to foreign countries, we may bring peso or the US dollar, then
convert them into the local currency of the country which we visit.
The rate of conversion of the Philippine peso to a foreign currency is
reflected in the exchange rate. If we have pesos that we need to convert into
dollars, we need to know the current exchange rate. These rates are dependent
on the workings of demand for and supply of the currency in the market. For
example, if the US dollar is in demand, the price of the dollar will increase and
will be reflected in a higher exchange rate in favor of the dollar, which means
one will need more pesos to buy dollars.

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 Table 4. Peso-Dollar/Euro Exchange Rates

BANGKO SENTRAL NG PILIPINAS

FINANCIAL MARKET OPERATIONS SUB-SECTOR

REFERENCE EXCHANGE RATE BULLETIN

July 30, 2020

EURO U.S. DOLLAR PHIL. PESO

EQUIVALENT
EQUIVALENT EQUIVALENT
COUNTRY UNIT SYMBOL
I. CONVERTIBLE CURRENCIES WITH BANGKO SENTRAL:

1 UNITED STATES DOLLAR USD 0.847817 1.000000 49.2170

2 JAPAN YEN JPY 0.008080 0.009530 0.4690

3 UNITED KINGDOM POUND GBP 1.102501 1.300400 64.0018

4 HONGKONG DOLLAR HKD 0.109397 0.129034 6.3507

5 SWITZERLAND FRANC CHF 0.929624 1.096491 53.9660

6 CANADA DOLLAR CAD 0.635831 0.749963 36.9109

7 SINGAPORE DOLLAR SGD 0.617267 0.728067 35.8333

8 AUSTRALIA DOLLAR AUD 0.609496 0.718900 35.3821

9 BAHRAIN DINAR* BHD 2.249150 2.652872 130.5664

10 KUWAIT DINAR KWD N/A N/A N/A

11 SAUDI ARABIA RIYAL SAR 0.226097 0.266681 13.1252

12 BRUNEI DOLLAR BND 0.615028 0.725426 35.7033

13 INDONESIA RUPIAH IDR 0.000058 0.000069 0.0034

14 THAILAND BAHT**** THB 0.026958 0.031797 1.5650

15 UNITED ARAB DIRHAM AED 0.230850 0.272287 13.4011

EMIRATES

16 EUROPEAN EURO EUR 1.000000 1.179500 58.0515

MONETARY UNION

17 KOREA WON KRW 0.000712 0.000840 0.0413

18 CHINA YUAN** CNY 0.121095 0.142831 7.0297

Source: Bangko Sentral ng Pilipinas, as of July 30, 2020

Table 4 is the list of the various currencies into which the Philippines peso
is convertible. The most commonly traded currency in the world is the US dollar.
We need foreign currencies to trade with other countries. When we buy
imported brands, the importers pay for these in the currency of the country from
which we buy these goods.

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Labor Migration and the Overseas Filipino Workers
Another distinct feature of Philippine labor is the growth of laborers whom
we call the OFWs or the Overseas Filipino Workers. Primarily because of a high
unemployment rate in the country, currently at 6.4%, Filipino have started to
find work in other countries. In addition to this, migration is also affected by
wage gaps among countries. Because wages are higher in the developed
economies, Filipino teachers, engineers, doctors, nurses and other health
professionals and technical workers have to migrate.

Table 5. Distribution of Overseas Filipino Workers by Sex and Region (2014)

Region Number (In thousands)

Both Sexes Male Female

Philippines 2,320 1,149 1,170

National Capital Region 10.5 12.5 8.6

Cordillera 2.2 1.6 2.91

Administrative
Region
I - Ilocos Region 8.2 6.4 9.9

II - Cagayan Valley 6.7 3.9 9.5

III - Central Luzon 15.5 18.6 12.4

IVA - CALABARZON 17.9 20.7 15.1

IVB - MIMAROPA 2.1 2.5 1.6

V - Bicol Region 3.4 3.3 3.6

VI - Western Visayas 8.6 8.4 8.7

VII - Central Visayas 6.5 8.8 .4

VIII - Eastern Visayas 1.1 1.2 1.1

IX - Zamboanga Peninsula 2.6 2.3 2.9

X - Northern Mindanao 3.4 3.3 3.6

XI - Davao Region 2.7 1.5 3.9

XII - SOCCSKSARGEN 4.6 2.3 6.9

Caraga 2.0 1.8 2.1

Autonomous Region in 1.8 1.0 2.7

Muslim Mindanao

Source: Philippine Statistics Authority

2014 Survey on Overseas Filipinos

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 Scattered all over the world, our overseas Filipino workers have been
hailed as our modern-day heroes, contributing to the growth of the economy
and sending millions of dollars to their families back home in the Philippines.
The lack of jobs in their native land, and the low wages for whatever jobs are
available are the main reasons Filipinos, both male and female, try to find work
in foreign countries. Oversupply of workers has resulted in low-wage levels.
Insufficient jobs in relation to the available labor supply has also led to these
low-wage levels since workers compete among each other for these limited job
openings. Those unwilling to work at these low-wage levels look for greener
pastures, which they find in foreign countries. They do a wide variety of jobs:
professionals, health workers, caregivers, engineers and construction workers,
entertainers, and teachers.
Unemployment
Many things lead to unemployment. Technology can lead to
unemployment. How? For example, workers are needed to make shoes. But
one day, a new machine is made. It helps make more shoes faster. To buy
these machines and keep them working is cheaper than paying wages to
workers. So a shoe factory will no longer need a lot of workers. It will buy the
machines instead.
Business cycles also lead to people losing jobs. If the economy is doing
badly, less goods will be made. Less workers are needed. People will lose their
jobs. But not all things that lead to unemployment will last long.
What happens to a country when many of the people there don’t have
jobs? It means national income goes down and the government gets less
money. They have to stop working on some projects. It is because they do not
have enough money or funds. It means they cannot finish the roads or schools
they started building. Sometimes, they need to borrow money from other
countries.
Jobs are very important because they give people money. Without
money, people can’t but the things they need. They cannot buy basic goods like
food and water.

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 Figure 4. Philippine Unemployment Rate from 1999-2019

Source: https://www.statista.com/statistics/578722/uemployment-rate-in-philippines/

Inflation
There is inflation when the prices of goods and services are high. When
there is inflation, does this mean that the price of every good is getting higher?
The answer is no. In fact, some prices stay the same or even fall. Other prices
rise very suddenly.
Inflation is bad for many parts of the economy. It is very bad for those who
have fixed income. Fixed income means they get the same amount of money
all the time. It does not change. When prices go up, they cannot buy as much
as they need or want. Inflation is also bad when lots of people don’t have jobs.
Demand for goods and services go down when prices go up. This means less
goods are made and this leads to less jobs. Even those who have savings in
the banks have a hard time.
For example, people put money in banks. We call this money savings.
When you have savings, you can use it not only to buy goods but also to pay
money you already own. When you borrow money from the banks, you have to
pay what you owe plus interest.
To get people to borrow money from them, every bank tries to give a lower
interest rate. But even if you had to pay a very low interest rate, you still have
to pay more for the goods you buy if there is inflation. This means you still spend
a lot of your savings. Instead of using it to buy more things, you pay more for
less goods because prices are higher. The value of your savings goes down.

Why is inflation hard to solve? This is because of the way people act when
prices are about to go up. Let us say, Anna loves to read books. One day, she
finds out that the price of books will go up next week. What would she do?
In this case, she might try to buy lots of books before the price goes up.
When prices keep going up, the first reaction of people is to buy more. Why do
people do this?

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 They do this because they want to spend as much as they can before
prices get even higher. When prices keep going up, people want to spend their
money before its value becomes very low. But this is not good because people
will save less money.

Figure 5. Philippine Inflation Rate (2010-2019)

Source: https://www.macrotrends.net/countries/PHL/philippines/inflation-rate-cpi

Taxes
We pay taxes for the government to provide public goods and services that
empower and enable individuals and institutions alike (e.g., school, business
corporation) to pursue their dreams. One example of a public good is farm
access roads for farmers to transport their produce to the cities for the needed
cash income. Another example is the public school system to educate children
of poor families out of poverty. On the other hand, an example of a public
service is restoring peace and order in war-torn areas in Mindanao by the armed
forces and police that all can resume normal life. Another example is the
regulation of business permits by the City Hall to prevent industrial
overcrowding, which can dampen the incentive to do business. In other words,
we pay taxes for the government to provide a better place where we can
exercise our freedom securely, fairly, and progressively.

But taxes are yet our burden even as we

ultimately benefit from the public goods and
services we get in return. Taxes can dampen the
incentive to do business for the benefit of society
as they can eat up profit. Pioneering businesses
need some tax reliefs in the early stage of market
exposure when profit is still lean. Taxes can also
distort savings, investment, and consumption as
income earners shift to substitute to avoid the

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 tax burden.
An example is the high tax on interest income, which drives income
earners to put their savings instead in individually lucrative but socially
unproductive real assets like jewelries, idle lands, and the like. Ideally, tax
benefit is maximized as its burden is minimized.
The main issue that hobbles the government to maximize tax benefit while
minimizing its burden is the shortfall of tax collections due to corruption. As tax
collection has even declined through the years, the budget deficit (spending
over tax revenue) has correspondingly worsened. What is worse is that the
government borrows from the public to make up for the deficit and stretch
government spending. Ultimately, repayment of public debts by drawing on the
government budget only crowds out spending especially on the more important
public goods and services. Shortfalls of tax revenues and government spending
can mean less road maintenance, books for the public schools, medical
services, and medicines for the poor, to name a few. On top of the shortfalls,
corruption misallocates spending on the not-so-important from the more
important public goods and services (Dinio, et al., 2017).