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Oil Shock in the Philippines

Those of us who live in the United States have a tough time with high oil prices. But the Philippines doesn’t produce any of its own oil, and it’s having an even tougher time.

And that means tough times for the Philippines’ President Gloria Macapagal-Arroyo. Her popularity has fallen to a low point, lower than any president there since 1986, the year long-time leader Ferdinand Marcos was toppled from power. Moreover, while the nation’s growth rate is still good, inflation has climbed to 11.4 percent. Growth has slowed from 7 percent to 5.2 percent. Many members of Congress are demanding that Arroyo trim the 12 percent value-added tax on oil products, but she has refused. Tomorrow she is scheduled to deliver a nationwide address, and oil prices will be at the center of her talk.

Last week I talked to her secretary for trade and industry, Peter Favila. “Just like the other countries in the world, especially developing countries, everybody is suffering from the oil price,” he said.

Unlike many countries, which rely on coal or nuclear power, the Philippines still uses oil for electric power as well as transportation, so high prices have had a huge impact on utility rates as well as prices at the pump. (Hydropower provides 18 percent of the country’s electricity requirements, Favila said.)

One reason why some lawmakers in the Philippines want the value-added tax cut is that the higher the price of oil, the higher the tax revenues. So, they reason, the government can afford to cut the tax and give consumers a break.

But Arroyo, an economist by training, seems to have pursued a more sensible path. High prices will stimulate a drive to cut consumption, so she doesn’t want to blunt that incentive, which is important to help the country to start to reduce its reliance on oil. The Philippines has its own geothermal resources, the second biggest in the world after the United States, Favila said. The country could also develop solar and wind resources, and could encourage more efficent use of energy.

At the same time, Favila explained, the president is funnelling higher tax revenues from the oil tax to lower-income people, who have the most trouble coping with higher fuel prices. He said the government expects to collect about $1.7 billion from the taxes on fuel, more than usual. So it will put $420 million into fuel aid and other subsidies for the poor, up from $318 million last year. That's one-quarter of one percent of the country's GDP, which might not sound like much, but if the U.S. devoted a similar percentage of its GDP to fuel assistance programs, it would be spending about $35 billion a year -- not exactly pocket change. The Philippines has also put $90 million into social services in the last three months, he said. About $23 million has been set aside to help those who consume less than 100 kilowatts a month pay their utility bills.

“We are under pressure from lawmakers who say we should suspend the tax on imported oil products or lower the tax,” said Favila. “But what we’re trying to do is tax the rich who can regularly afford the pay and generate revenues to subsidize the poor. That is our program.”

Favila says Arroyo saw the threat of oil, credit and other economic pressures early last year. Dealing with it will take time, but now is the time to start even if prices come down in the months to come.

One can only hope that politicians in all countries, including our own, will avoid the easy tax solution and keep their eyes on the larger energy picture, as Arroyo has.

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Comments (11)

David:

What happened to the five-part series?

I cannot seem to locate it anywhere on the Washington Post website.

Thanks.

Jesse Lopez:

Peter must be in la la land together with the so called Economist from Malacanang. What happened to the original objective of the VAT implementation? Why did we end up having the VAT, was it due to the fact that when it was introduced, the nation's coffer was literally empty due to the election? The government takes more share than the actual oil company. How much is the VAT and the Regular Tax in comparison with the oil companies profit margin.

What the government should do is to encourage building of large Oil Tank Farm and not relying on spot market. Our government system are all good in paper but when it comes to implementation, nothing is sacred.

One of the thing that the Government should do is to improve the Public transport; more rails less of the oil consuming Jeepneys and Buses. Imagine how much energy are wasted from the inefficient transportation system we have.

Have a great day

Dane Recamadas:

Might as well read Walden Belo's articles.
His articles are very informative, critical and most importantly,he wrote nothing but facts.

Arnie Trinidad:

I wonder where Ms. Lucy Lee has gotten her observations about the following:

"But ordinary Filipinos are now reaping the fruits of the sensible path that she has taken, through better investments in education, health, social services and infrastructure, and in subsidies to help the poor cope with the soaring prices of oil and commodities.

Rather than lowering or removing the VAT, she has supported more income tax exemptions which helped increase the take-home pay for lower to middle income households."

What subsidies? What investments in education, health and social services? What increased take-home pay for lower to middle income households? Is she referring to the Philippines or some other country? I've just resigned from the University of the Philippines, I have not seen the investments she is talking about. And the salary? The salary has remained the same for some time now. While there may have been small increments, these have been invalidated by the rising prices of basic commodities.


Lucy Lee:

In the United States where people are heavily dependent on private transportation, it has become politically costly for the government to tax oil consumption. President Arroyo's refusal to cut or remove the VAT is more in line with the European model, where the heavy tax imposed on oil has been an incentive for the development of green technologies.

Clearly, the President has reaped the political cost for her tough decisions, with the loss of the Senate to her political enemies and her plunging popularity ratings. But ordinary Filipinos are now reaping the fruits of the sensible path that she has taken, through better investments in education, health, social services and infrastructure, and in subsidies to help the poor cope with the soaring prices of oil and commodities.

Rather than lowering or removing the VAT, she has supported more income tax exemptions which helped increase the take-home pay for lower to middle income households.

Dimitry:

Excellent series of articles on Oil Shock in the main paper, Mr. Mufson!

Very well researched and balanced!

Well done!

Frohnie Diputado Cagalitan:

Economic crisis, corruption, etc. has been in the Philippines for so long a time...probably becoming worst this time! due to the oil crisis.

Filipino families living in poverty has been and still is a problem. There are many children who are unattended,neglected,abused,abandoned and in the streets ( this time not just children but families living in the streets!)

Many of them have several children and I have even handled cases where malnourished children eventually died! and a lot of patients in the hospital having difficulty securing meds and other related expenses.

Probably the Catholic Pro-life groups don't consider these a problem, they even featured a family with 12 children!

I really believe, people/families should not depend on others ( parents, gov't. etc.) they have to think /study what is good for them and what is good for their family.

Poverty can be changed and must be changed! People will just have to be RESPONSIBLE!

If they have low or no definite income, then, they shouldn't have a lot of children, just 2 or few children. If Natural FP or Fertility-Based Methods is not applicable to them, they can opt for the the modern non-Fertility-Based Family Planning methods.

They don't have to stick on the Natural FP if they experience several failures and unexpected pregnancies, which some mothers resort to abortion because they said they can no longer afford to feed them, which is wrong! they can opt for other safe and effective modern Family Planning method.

God has given us intellect, to think what is right and wrong and to decide what is good for us and our family.

Because of our economic crisis,we have to be ECONOMICALLY PRODUCTIVE and LESS REPRODUCTIVE!

Everyone,including the POOR deserves QUALITY LIFE! they just have to be RESPONSIBLE!

and the Filipino Educators, Professionals, concern Filipino citizens, here and abroad, and companies should be SOCIALLY RESPONSIBLE! (Pro QUALITY LIFE Training & Dev't.Inc. Cebu/Phils.
e-add: proqualitylife@gmail.com )



CB_Brooklyn:

The rising fuel prices are due solely to the Global Elite's plan for a New World Order. The following article explains in detail:

The 9/11 Truth Movement,
Free Energy Suppression
and the Global Elite’s Agenda

http://www.checktheevidence.co.uk/cms/index.php?option=com_content&task=view&id=182&Itemid=60

Doin Time:

Fact of the matter is that all government entities here are corrupt and all people power movements are led by another group of the corrupt. But, none of these are responsible for the crazy oil prices, as everyone knows that it is OPEC that is responsible. We need to do whatever it takes to break down this trust and all other trusts like it worldwide. Here in the Philippines we are burdened constantly by irrational trusts that torment the people, so we should be more aware that OPEC is the root problem. All of the nations of the world need to threaten to form their own trust to bring the member nations of OPEC to their knees unless OPEC breaks up.

G-Man Rojo:

Makibaka huwag matakot!

Elect Erap again as President!

Arnie Trinidad:

The rising fuel prices are not solely to blame for Arroyo's dipping popularity. While it is true this may have exacerated her negative popularity ratings, the real reason has to do with issues of legitimacy (because people perceive she has cheated massively in the elections and therefore is not the rightful president) and corruption (her family and close political allies have all been accused of dipping into the national coffers and for stealing billions of dollars from the national treasury).

It is also erroneous to say that by keeping the Value Added Tax in fuel, the government is able to tax the rich. This is a simplistic interpretation of things because in fact, public transport drivers, who come from the poor sectors of Philippine society, bear the bigger brunt of the rising fuel costs. Ordinary people who commute to work have to contend with rising transport costs. In a country where wages are ridiculously low, this serves as a death knell for many. Rising transport costs are also raising the prices of basic necessities including food prices. In a recent survey by the Social Weather Stations, the number of people who are going hungry in the Philippines has considerably risen. And all these are effects of very high oil prices. The effect of the VAT and fuel prices, thus, is more or less evenly distributed across social strata, with the poorer sectors getting more affected than anyone else.

The funny thing is, in the past, when oil prices went down in the world market, the prices of oil in the country has remained steady. This is because the giant oil companies here have formed cartles after the Philippine government passed the oil price deregulation law. Thus, we are not actually counting on these big oil players to cut down the oil prices should there be improvements in oil prices in the next few months.

Lastly, the Arroyo government's subsidies for the poor are simply palliative. They do not address the real problems of the poor. There is also no showing that the subsidies are reaching the people who are supposed to be reached by tehse. Moreover, given the wide practice of corruption in the Arroyo government, it will not be surprising if a portion, if not a large portion, of these subsidies are going straight into the pockets of our corrupt government officials.

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