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Wednesday, March 20, 2019

BWorld 301, Inflation, Interest Rate, BSP Governor, and Travel Tax

* This is my column in BusinessWorld, March 06, 2019.


Many people want the government to protect the consumer. A much more urgent problem is to protect the consumer from the government.”

— Milton Friedman (1912-2006), Nobel Prize economist

This paper will briefly cover four topics showing various degrees of “outlierness” in Philippines economic performance and policy compared to our neighbors in Asia.

(1) Inflation rate. The Philippines registered a 4.1% inflation rate average for the first two months of 2019. The good news is that it is a lot lower than the past four months average of 6.1%, but the bad news is that compared to our neighbors, it is the highest. In the ASEAN-6, Malaysia experienced a deflation, Singapore and Thailand have near-zero inflation while Indonesia and Vietnam have below 3% (see table).


So we are the inflation outlier in the region. Since Dutertenomics’ TRAIN law has penalized the consumers with high inflation (1.3% in 2016, 2.9% in 2017, 5.2% in 2018), the administration should compensate this year by targeting a 1-2% inflation via tax cut somewhere, or suspension of tax hikes. Far out. Its mantra is spend-spend-spend, tax-tax-tax, borrow-borrow-borrow. Let the future taxpayers worry about current high borrowings.

(2) Interest rate. In particular, Bank lending rates, the numbers for March 2018 to January 2019, are:


So the Philippines is an outlier again, the only economy with ever-rising rates and surpassing the 7% mark.

(3) New BSP Governor. The third BSP Governor, Armando Tetangco, worked at BSP for two decades before he was appointed Governor in 2005. His successor, the late Nesting Espenilla, also worked at BSP for more than three decades before he was appointed as the fourth Governor. The new and fifth Governor, Ben Diokno, is somehow an outlier because he has zero BSP work experience, zero private banking experience. But he is a known economist, was a two-term DBM Secretary (under former President Erap Estrada, then President Rodrigo Duterte). Diokno was my teacher twice, in undergrad mid-80s then graduate studies late 90s in UPSE. I notice that he’s a fiscal hawk, practicing spend-spend-spend philosophy at DBM. I just hope that he will not be a monetary hawk, print-print-print money at BSP.

(4) Travel tax. In my work as a free market advocate in the Philippines, I get to travel abroad about 3x a year mostly in Asia, all expenses covered by my various sponsor-think tanks and fellow free market institutes. I see plane fares fluctuate depending on the season but one thing that does not fluctuate is the Philippines travel tax (P1,620 for economy, P2,700 first class passengers).

While my sponsors pay for my plane fare including the travel tax (makes my travel cost go higher), occasionally I would bring my family when the kids are on school break and plane fare is cheap (KL, HK, Bangkok) as they can stay in my hotel for free for few days. I have to pay extra for their travel tax.

The Philippines is an outlier again because we seem to be the only country in Asia that imposes a travel tax on its citizens. This is on top of airport terminal fee of P700 and there is not even free drinking fountain.

Travel tax abolition should be done. Senate Bill 1841 by Sen. Koko Pimentel aims to do this but it was not even passed at the Committee level. TIEZA and other bureaucracies that benefit from gouging more taxes from Filipinos oppose. They should be abolished too someday.
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