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Basic Economic Knowledge Tells Us Why Ayuda Will Not Help Filipinos Survive Inflation for Long

IBON Foundation

I'm getting amazed at how IBON Foundation still has their ever-destructive obsession with ayuda (read here). Lately, they have written another article where they say that high inflation "confirms" the need for real ayuda which means cash handouts (read here). That's totally one thing whenever IBON Foundation decries the need for foreign direct investment (FDI) but they keep saying that cash handouts are good for the economy. That statement is purely stupid because handouts equals expenses and there's really no long-term Return on Investment (ROI) on that one! 

However, for the Philippine government to be able to give more cash handouts without FDIs (and rely too much on local businesses)--it can mean doing the following:
  1. Start raising taxes for the rich in order to provide more money for cash handouts.
  2. If taxes from the rich aren't enough--why not print more money, right? 
The demand for ayuda worth PHP 10,000.00 is utterly stupid. The two "solutions" above are going to guarantee the following:
  1. If we start raising taxes too much then wouldn't that encourage tax evasion instead? Paying taxes can become a burden when tax rates are way too high. So, is lowering down taxes when need be a pain to the non-taxpayers? 
  2. Overly printing of money can devalue the money in the long run. The Economics Help website mentions that it (1) worsens inflation, (2) devalues the local currency even more, and (3) discourages speculators. I wonder if IBON Foundation even knows that. 
There's a demand for PHP 10,000.00 per month ayuda. Let's say that the Bangko Sentral Ng Pilipinas (BSP) is forced to overprint the Philippine peso (PHP). What happens would be as follows:
  1. The value of the PHP will go lower. In short, PHP 10,000.00 monthly handouts per month will no longer suffice. Just think the prices of basic goods will shoot up from PHP 100.00 per kilo to PHP 1,000.00 per kilo. To sell rice at PHP 20.00 per kilo and eggs at PHP 5.00 a piece will be selling at a loss.
  2. What happens next is that cash handout demands will go from PHP 10,000.00 monthly to adding more zeroes towards the end. I coul imagine the demand can go to PHP 100,000.00 monthy or even up to PHP 1,000,000.00 monthly or even higher. This will result in the same crisis as Venezuela as the Bolivar's value gets so low due to overprinting. Venezuela is even poorer than the Philippines because of that.
Obviously, a bad combination of focusing on "national industrialization" and cash handouts will require printing more money. The value of the national treasury is in people paying up their taxes--not the BSP printing more money. We can't use printing more money to pay the debt. It's because when the money devalues--the value of the PHP vs. the foreign currency will widen as a result. 

Instead, the problem with dealing with inflation is all about getting rid of Pinoy Pride economics (read here). After studying Singapore's history through the late Lee Kuan Yew's book From Third World to First and public policy maker Kishore Mahbubani's advice--this is what I would recommend:
  1. The Philippines really needs to open up to economic charter change. Economist Andrew J. Masigan may have been a longtime critic of former Philippine president, Rodrigo R. Duterte. However, Masigan also recommends the need to have an economic charter change in order to fix the economy. 
  2. If there are more FDIs then one can expect more taxes and employment for the Filipino people. The idea that FDIs are just invaders is obsolete (read here). "Thought leaders" such as Philippine Anti-Fascist League (and I heard the administrator is just a misguided teenager larping on the dreams of a Communist utopia) or people like Teddy Casino are saying the dumbest things. Instead, FDIs, as Mahbubani says, are there to provide capital, jobs, and income. That's why I recommend that people should listen to Mahbubani instead of Hilario G. Davide Jr. in regards to economic policies (read here).
  3. There should be fewer tariffs so people can buy basic goods when need be. For example, does it matter if imported rice was used to make bibingka, puto, and the like? I even wrote asking if would it matter if Filipino investors used foreign equipment and materials to produce their goods (read here)? If so, we need to import more during times of shortages and export more during times of abundance. This would try to minimize both shortage and wastage. 
This is why I just can't take people who are too obsessed with cash handouts too seriously. It's as always said, "Give a man a fish and he will have a meal for a day. Teach a man to fish and he will have a meal for a lifetime." If we want more productive Filipinos then let the country open up to more competition than just live on handouts. 

References

Books 

"From Third World to First--The Singapore Story: 1965-2000) by Lee Kuan Yew
Harpers Collins Publishers

Videos

"The Singapore economic model - VPRO documentary - 2009"  by VRPO Documentary (September 8, 2018)

Websites

Websites


"High inflation confirms urgent need for real ayuda" by IBON Foundation (September 8, 2022) 

"Readers Question: Can Central Banks devalue currency by printing money? by Tejvan Pettinger (September 29, 2011)

"Venezuela's inflation hit 686.4% in 2021 - central bank" by Mayela Armas
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