Crisis leadership

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Even before the US-Israel war against Iran broke out, our economy was facing risks that the BSP governor said were beyond what they could address at the central bank.

Bangko Sentral ng Pilipinas (BSP) Governor Eli Remolona Jr. indicated that the central bank’s toolkit is becoming limited because the economic challenges facing the Philippines are no longer simple liquidity management. They are deep-seated, non-monetary structural issues that interest rate adjustments cannot fix.

Gov. Eli said that “monetary policy cannot do much more” at this stage, implying the “law of diminishing returns” has kicked in when it comes to lowering interest rates to stimulate the economy.

The main drag on the economy is low business and consumer confidence, caused by non-monetary factors like governance issues (corruption scandal) and slow project execution, not just a lack of money in the system.

Further rate cuts cannot boost production and investments when structural bottlenecks exist. The economy’s problems are driven by supply-side issues (e.g., infrastructure, logistics, power costs and agricultural bottlenecks) that interest rates cannot directly solve.

And today, the BSP is facing pressure from a weak peso (aggravated by geopolitical tensions) and surges in oil prices (now exceeding $100 per barrel), limiting their ability to ease policy further without risking inflation.

In essence, the BSP is saying it can manage inflation and liquidity, but it cannot “manufacture trust, productivity or institutional quality,” and that fiscal and structural reforms are needed to support economic growth. In other words, the ball is in BBM’s court.

BBM must do more than ceremonial visits to project sites to improve the public’s confidence in his ability to address the impact of the oil price surge. And now, there are looming problems too with rice.

A comment made by an agri expert in one of my Viber Groups wondered whether the agriculture department had built enough rice inventory at the end of 2025 to carry us over the early part of 2026.

Says the expert: “I suspect it is negative because of the rice import ban from September to December to protect palay farm gate prices. With limited harvest during the dry season (late February to April) and with rice prices going up due to increases in petrol and fertilizers, we will now be scrounging for rice imports at much elevated prices.

“Good quality rice is now P58 and upwards. There is a strong possibility that prices will continue to rise in the coming weeks.  I see the possibility of a severe supply crunch during the months of May up to early August, during the wet planting season.”

The simultaneous oil price surge and rice supply pressures have significantly clouded the prognosis for the Philippine economy this year. Expect higher inflation forecasts and downward revisions for growth.

Emilio Neri Jr., lead economist at BPI, stated last Friday that headline inflation could approach or breach the four percent upper limit of the BSP target as early as April 2026. BSP recently raised its 2026 average inflation outlook to 3.6 percent (up from 3.2 percent).

Sustained high oil prices are expected to trigger “second-round” effects, driving up costs for transport, electricity and logistics, which broadens inflationary pressure beyond just fuel. A sustained oil price spike beyond $100 per barrel could drag growth down to 3.7 percent.

The impact of higher fuel and rice prices is like a “tax” on consumers, reducing disposable income and slowing household spending. There goes our consumer-driven economy.

The country’s current account deficit is projected to widen close to four percent of GDP due to the ballooning import bill for energy. A current account deficit of four percent of GDP is generally considered a “warning zone” for emerging economies like ours.

This means we are spending significantly more on foreign goods and services than we are earning in foreign exchange. That makes us more vulnerable to external shocks like the current oil crisis.

Currently, our deficit is increasingly financed by “volatile” capital (short-term investments) and foreign debt. Our corruption scandals and/or slowing growth can spook investors (as we have seen in our stock market). Capital flight could be a big problem. If this happens, we could face a liquidity crisis like we did in the first Marcos era.

But, the BSP has been very proud of our gross international reserves of $112.72 billion that can cover 7.5 months of imports of goods and services, providing what the BSP governor says is a “robust external liquidity buffer.”

If push comes to shove, our GIR can still pay for essential imports (like oil and rice) and meet foreign debt obligations and help stabilize the peso against speculative attacks. However, a sustained four percent current account deficit could “bleed” our GIR at an unsustainable rate.

Furthermore, major credit rating agencies warn that a “structural deterioration” in the external position (like a permanent shift to high deficits) could lead to a rating downgrade, making it more expensive for the government and the private sector to borrow money for building infrastructure and other needs.

Given all these things happening, one wonders how BBM and his economic managers (who are less brilliant than his father’s) can even sleep at night. So, how can BBM choose to attend useless UN meetings in New York rather than be here to manage the unfolding crisis? BBM must show he can be a good crisis president.

An economist in my Viber Group observed: “The Iranian revolution in 1979 caused oil prices to double, seeding the start of the economic crisis under the Marcos regime, which was heavily indebted.

“The subsequent Volcker shock which saw Fed rates rise to 20 percent sealed the bankruptcy of our central bank and the demise of the Marcos regime. Will history repeat itself? Will Marcos Jr. be the next victim of the latest oil shock?”

Only BBM can seal his fate by the choices he now makes. So far, he has yet to make the right ones.

Boo Chanco’s email address is [email protected]. Follow him on X @boochanco