Thursday, April 07, 2011

Aquino: Subsidies in uncertain times...

A news item on the Philippine Daily Inquirer is kind of unsettling at this point:
Concerned about the "uncertain" times, President Benigno Aquino III has directed his economic managers to come up with more measures to help people cope with the impact of rising prices of oil, power and other goods.
The thing is, subsidies are good for short run situations -- such as during the aftermath of disasters or any sudden, massive upheaval that causes people to lose their productivity.

It would be good if these subsidies are directed at enabling people to become productive after they've lost productivity or are applied to programs that will increase their productivity.

What would be a bad situation would be one where in subsidies actually amount to dole outs, or a reward for unproductive behavior.

The thing is, releasing subsidies for fuel, power, food, and other products may be the wrong way to go about it if the intention is to help people adapt to an oncoming hump in the country's economic condition.

I may be wrong, but I think subsidies are more for shoring up waning popularity ratings than a stop gap solution being applied while the government applies longer term solutions.

The thing is the country is not going to meet a small bump in the road, it's going to be dealing with a mountain.

I am not expert in geo-politics and this is a subject that I am just beginning to understand.  Like most Filipinos, I have a tendency to think that the world revolves around my navel and sometimes it is hard to believe that it doesn't.

In recent months, I've been tracking the progression of tension in the Middle East and a paragraph in encapsulates the current situation:
In Libya, battles between Libyan leader Muammar Gaddafi's forces and the rebels continued. In Bahrain, firms have fired hundreds of mostly Shi'ite Muslim workers who went on strike to support pro-democracy protesters.
Currently, all the news about tension in the Middle East is focusing on the plight of thousands of Filipino contract workers there and the Aquino Administration seems bent on doing all it can to show that it is (or that it can) do something about it.

The possible repatriation of Filipinos fleeing the Middle East is one problem, the influx of jobless Filipinos from overseas is another and probably the more serious consequence.

But having more jobless Filipinos in the country isn't really the biggest problem that the Philippines faces, it's the possibility of the tension spreading to countries like Saudi Arabia -- which is the second largest oil producing country in the world, next to Russia.

Of course, it's easy to see what would happen if the Kingdom of Saudi Arabia becomes unstable.  You can figure that if things get really bad, there'll be less oil coming out of the country and less oil supply will mean higher fuel prices.

A recent article in the Voice of America news website may be indicative of just how serious the situation is:
U.S. Defense Secretary Robert Gates is in Saudi Arabia to meet King Abdullah for talks on the recent spate of political unrest sweeping the Middle East and North Africa. 
Gates arrived in the capital Riyadh Wednesday on his third trip to the area in the past month. Officials say his talks with the Saudi ruler will focus on political change across the region, progress on a $60 billion arms deal and plans to upgrade Saudi Arabia's missile defense system.
Pentagon press secretary Geoff Morell said the two men would also discuss Iran and its attempt to exploit unrest in the region to its advantage. 
The talks are unlikely to focus on Saudi Arabia's internal situation, which has seen a limited number of demonstrations by the country's Shi'ite population in the eastern oil producing provinces.  
Of course, the US is a powerful country and perhaps it can do something to prevent Saudi Arabia collapsing amidst political unrest (if at all that is a possibility).

Anyway, even if political unrest doesn't result in the destabilization of the Kingdom of Saudi Arabia, the effects are already being felt.

Right now, gasoline prices in the Philippines is back to 55 pesos plus per liter.

But would you believe it? The rising cost of transportation won't be our biggest problem in the coming months.

Food production will be affected and it won't be because of the higher transport costs, really.

Chemical fertilizers, a major input in our country's agriculture, is a by-product of the oil refining process and Saudi Arabia -- at least according to one study published in 2005 -- supplies 18 percent of our country's chemical fertilizer imports.

So, the more costly chemical fertilizers are, the higher the cost of agricultural goods will be -- not just in the Philippines but also in some of the countries which supplies the Philippines with agricultural goods.

So how will things look like in the coming months?  Well, first, we'll definitely have more unemployed Filipinos and then, almost all goods will have a higher cost due to the increase in fuel prices.

Perhaps, instead of subsidies, the government would be better off providing money for economically productive activities.

During the last food crisis during the administration of Gloria Macapagal Arroyo, there was a proposal in the senate to come out with a 'cash for work' program.  What the proposal intended was to employ jobless people in the countryside to rebuild irrigation and thereby solve one of the reasons for the country's flagging agricultural productivity.

The same idea could be applied to areas in which we will have problems with in the coming months:

Bio-diesel production using waste cooking oil.  The government could put up a subsidy for the production of bio-diesel using waste cooking oil.  Operators and Drivers Associations could be given both training and money to produce their own bio-diesel.  The program could be further extended to use organic waste or bio-mass conversion into diesel.

Organic waste to organic fertilizer. Instead of shelling out money, all the government has to do is to require all farms, golf courses, etcetera to use organic fertilizer instead of chemical fertilizers.  We have a problem with the implementation of RA 9003 and 70 percent of all the waste that goes into our dumpsites are organic.  So, in doing this, we not only solve our garbage problems... we also solve the rising cost of food.

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