ONLY THREE WEEKS AGO, the president of the Asian Development Bank (ADB), Haruhiko Kuroda, warned the Asia-Europe Meeting (Asem) on Jeju Island in South Korea that the explosion of food prices posed a threat to political and economic stability in Asia.

Kuroda said the cost of food and energy might be the “most important risk at the moment,” posing policy challenges. “Food prices can become a very sensitive economic and political issue,” he said.

He called for safety nets to help the poor, reforms to agriculture and measures to increase production.

His warning, which had themes made by United Nations Secretary General Ban Ki-moon months ago, was delivered to Asem finance ministers.

Within weeks of the speech, Kuroda was overtaken by the galloping inflation fueled by oil and food prices. The full force of inflation came to fore in the Philippines last week. On Friday, the National Statistics Office (NSO) reported that the prices of goods and services went up 11.4 percent in June from a year ago.

The inflation rate, the fastest in 14 years, was attributed to hefty increase in the cost of rice and other products. The NSO report said the price of rice alone increased 43 percent. Thus, rice bought for P100 in June 2007 cost P143 last month, and food products that cost P100 last year now cost P117.4.

The June inflation rose to a double-digit level due to the jump in world oil prices, according to Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco Jr.

“As a result, domestic pump price increases triggered large price buildup across wide commodities and services groups,” he said.

The 11.4-percent inflation in June outstripped the BSP forecast of between l0.4 percent and 11.2 percent and the 9.5 percent recorded in May. The inflation rate was blamed on the relentless rise in oil prices, which reached $145 a barrel last week.

No immediate relief

The BSP warned no immediate relief from inflation was in sight and oil prices were still rising and would peak by the third quarter.

Oil firms raised their prices last weekend for the 18th time this year, by P2 a liter for diesel and kerosene, and by P1 a liter for gasoline. The inflation was partly driven by increasing global demands for rice—the Filipinos’ staple.

Soaring food prices are hitting the poor the most because food accounts for 60 percent of a poor household’s consumption, according to economists. In 2006, 32.9 percent of the population, or 27.6 percent of Filipinos, lived below the poverty line.

The acceleration of the inflation rate was partly muted by Typhoon “Frank” (international code name: Fengshen) that left at least 500 people dead across the country and by the sinking of the Sulpicio Lines’ MV Princess of the Stars, with 864 passengers and crew.

Public attention and pain from the inflation were deflected by the pubic outrage over the sinking of the ship that sailed into the path of the typhoon off Sibuyan Island, in disregard of typhoon warnings issued by the weather bureau.

In all these disasters, the government has stood helpless in providing relief to the population suffering from the effects of inflation.

Tokenism

Apart from tokenism such as President Gloria Macapagal-Arroyo visiting the site of the capsized ferry and suspending Sulpicio Lines’ ships from transporting passengers pending the investigation by the Board of Marine Inquiry, all the government had done was to reassure the public it would take ad hoc measures designed to help people cope with rising food and oil prices.

The measures included the distribution of cash handouts to destitute electricity users from the P4 billion generated from the value-added tax on oil, and subsidies to help farmers boost rice and food production through a quick-fix food production program financed by a P43-billion agriculture subsidy program.

The policy challenge facing the BSP to curb inflation concerns increasing interest rates. Kuroda said “many countries face a growing dilemma on monetary policy: How to gauge the right mix to control rising inflation, without excessively slowing economic growth.” Philippine economic growth rate has already slowed from a record high in 2007.

At the 41st annual meeting of the ADB in Madrid in May, Kuroda foreshadowed the advent of the galloping inflation. He said that the pressing problem of rising food and energy prices was aggravating inflation in many countries and posing serious challenges to prudent macroeconomic management and financial stability.

“Rising prices of basic commodities adversely affect the real incomes of poor households, putting progress on poverty reduction and social cohesion at risk. This demands early responses,” he said.

“Governments need to implement well-designed and well-targeted programs for the poorest and most vulnerable groups, as well as policies to support open commerce and availability of basic commodities across the region. Medium to long-term measures are needed to improve agriculture productivity and modernize the rural economy,” Kuroda added.

Socially sensitive issues

The government’s ad hoc responses to cope with spiraling inflation are a far cry and are the opposite of these policy recommendations. They are not targeted to poverty alleviation. The unabated oil prices increases reflected in the volatile price of fuel at the pump are among the socially sensitive issues.

High fuel prices are claiming more of the car-owning middle classes as victims, and adding to the ranks of the poor as the constituency of unrest over food and fuel inflation.

There is no need to discover new pockets of coup plots to warn the restive public of underground currents of political destabilization. The ingredients of unrest are feeding on inflation. The government has no weapons to counter this. It has never looked so helpless and impotent.

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