Venezuela, from the 1950s to the 1990s, then a booming oil state, was the most economically stable country in the whole of South and Central America. Today it’s virtually a failed state. It’s running out of food and basic necessities. It’s an utter disaster. The fall in world oil prices was certainly the catalyst, but heavy-handed economic intervention – more specifically, the forcing of rigid price controls – by the former regime of Hugo Chávez and that of his successor, Nicolás Maduro, is what’s really put Venezuela out of business.
In short, Venezuela is operating under ‘monetary restriction’ enforced by draconian government regulation. Free-market economies, however, cannot work under such circumstances; for them to thrive and flourish they must have ‘Monetary Freedom’; their economic growth depends on it. Indeed, free-market competition of itself is the ideal market regulator.
The 2017 Economic Freedom Index (EFI) – produced by the prestigious Washington-based think tank, The Heritage Foundation – evaluates the ‘Regulatory Efficiency’ of 186 countries world wide – and one indicator of that measurement is ‘Monetary Freedom’ without which free-market economies would falter and fail; simply, they’d lack the freedom to operate effectively.
From that index we’ve extracted the global results for the 10 states of the Association of Southeast Asian Nations (Asean) to show how the Philippines ranks with its Asean peers in terms of ‘Monetary Freedom’. Here are those results. Malaysia, 21st; Singapore, 33rd; Cambodia, 62nd; Philippines, 69th; Brunei, 108th; Vietnam, 111th; Indonesia, 126th; Thailand, 134th; Laos, 150th; Myanmar, 169th.
Just for the record, Venezuela was ranked 182nd, coming one place above economically isolated North Korea and four places above war-wrecked Syria. We rest our case.
The Philippines’ commendable ranking on the EFI puts it in the company of the Arabian Gulf states of Oman, Bahrain and Qatar – and seven places above the US. There’s little surprise that the Philippines does so well in this area of ‘Regulatory Efficiency’, however – monetary policy is in the very safe hands of Bangko Sentral ng Pilipinas (BSP), one of the most-efficient central banks in the world.
Somehow, unlike so many of its peers, the BSP has managed to apply a light touch where monetary policy is concerned. It’s resisted the temptation to intervene and allowed the market to develop freely.
The primary objective of BSP’s monetary policy is to keep inflation low and stable, and conducive to a balanced and sustainable level of economic growth. Its inflation-targeting framework for monetary policy – which it adopted in January 2002 and has perused ever since – is specifically aimed at achieving this objective.
That doesn’t sound too difficult if you say it fast – but in practice it’s extremely challenging. External market-turbulence factors aside, the Philippines is prone to devastating natural disasters, for example, which put immense stress on the prices of virtually everything.
Runaway prices lead to inflation – possibly an economy’s worst enemy; certainly one of them. When the cost of basic commodities, such as food and energy, rise; there’s a knock-on effect across all sectors supplying goods and services. It telephones throughout the entire economy. There’s an impact on the cost of living, mortgage rates, the cost of doing business, the cost of borrowing, bond yields, the jobs market, consumerism, retailing etc. etc. The dominos just keep falling.
Economic climates have much in common with nature’s weather systems – they’re often unpredictable, capricious, and can turn like storms released by sudden events. Economies, however, are well capable of healing themselves; they’re extremely adaptable and innovative – particularly in times of crisis. Furthermore, loading them up with economic ‘cures’ in the form of government and central-bank regulation, price controls, printing money and so on, not only restricts the patient’s recovery, it exacerbates and prolongs the illness.
It’s fortunate for the Philippines, then, that the BSP believes in a homeopathic approach.