World War E (Energy)

World War E (Energy) | Daily Tribune

If an undead economy sounds familiar, that is because our economy “turned” into one in 1983.

Apart from the Ninoy Aquino assassination, 1983 was also the year the Philippines declared bankruptcy and asked for a moratorium on paying its debts. We had a balance of payments (BoP) crisis. What this meant was the country did not have enough US dollars to pay its foreign debt or settle its import payments, like for oil.

Because of the debt and BoP crisis, there was a scarcity of oil and fuel products. Because of this, we saw inflation spike to an average of approximately 55 percent during this period. What this meant is that that generation of Filipinos lost around half of their purchasing power-–assuming no growth in income. This high inflation period turned our economy into a walking dead economy.

As we enter the second month of the US-Israel-Iran war, Filipinos need to appreciate that oil fuels the mechanized productivity of the world’s agricultural sector and its transportation. In other words, expensive oil translates to expensive food. And not just food.

Petrochemicals, used in the manufacture of soap, shampoo, and plastics, which are part of the consumer basket, are affected by a scarcity of oil. I was very young, but I remember clearly in 1983-84 when you had to fight for the remaining laundry bars in the supermarket. Consumers had to be content with Perla, which was less affected than more popular products like Tide and Mr. Clean because of its indigenous raw materials.

In the WWZ movie, Brad Pitt’s character explains to a family intent on hunkering down in the crisis that “movement is life.” If that is the case, movement is determined by energy. Without energy, there is no movement, there is no life.

The difference between today and 1983 is that we have a healthy amount of US dollars in our reserves. However, the US-Israel-Iran war means there is a scarcity of oil that we can buy. And at current prices, we could be paying nearly 80 percent more — if oil is available. This is the similarity between today and 1983: oil is very expensive. Prohibitively expensive.

The longer the war goes on, and given the current path the combatants are taking, it will likely go on. We need to be prepared if oil prices go back to their 2022 peak of US$125 per barrel and possibly higher at US$200 per barrel. The Philippine government has been coordinating with the private sector to secure oil supplies from alternative sources, but we must remember that they are forced to contract for oil at current market prices.

The government is likely to try to support consumers and firms in this precarious period for the economy via subsidies and tax relief. We should take whatever support and save or prepare for the worst by diversifying and increasing local products, if possible. Do not treat subsidies and safety nets as free money to be used to buy non-essential goods and services.

Energy is movement and movement is life. While WWZ can be frightening, it also offers hope that a crisis can be overcome. The best way to offset inflation is to raise our income faster than prices rise. We have been in this situation before and we know that the economy must continue to move and maintain productivity, regardless of how high inflation spikes because of this war. This is World War E (Energy).