Hefty wage hikes to spell economic troubles for RP--bank
By Doris Dumlao
Philippine Daily Inquirer
First Posted 19:23:00 04/20/2008
MANILA, Philippines--More than the rice crisis, the clamor for hefty wage increases could spell trouble for the Philippine economy, a regional economist of Standard Chartered bank has warned.
In a report titled "Philippines: Troubling Wage Developments," Hong Kong-based economist Simon Wong said the government seemed well-positioned to handle the rice crisis given its much-improved fiscal position. But large wage increases, he added, could cause a dangerous home-grown spiraling of consumer prices that could weaken the economy's capacity to withstand the effects of impending recession in the United States.
"An eventual wage agreement that comes across as being too generous will have major negative impact," said Standard Chartered's Wong in the report dated April 18.
Standard Chartered, the first foreign bank to set up operations in the Philippines 135 years ago, said there was cause for concern that the recent jump in inflation (a 20-month high of 6.4 percent in March) would have an impact on wage developments.
The government already announced a 10-percent pay hike for its one-million strong workforce starting July, costing an additional P24 billion, the bank noted.
The report said a hefty wage increase for the rest of the labor force would stir fear of a "home-grown inflation spiral" that would prevent the Bangko Sentral ng Pilipinas (the Philippine central bank) from further reducing interest rates to perk up the domestic economy.
"At a time when the business sector is faced with a collapse in US demand, rising wage costs and interest rates are the last things the economy needs," Standard Chartered said.
When the inflation rate is on the rise, central banks tend to increase interest rates to reduce the incentive for consumer spending. But by making interest rates more attractive, they take away money from consumers' pockets that could otherwise be used to chase goods and drive up inflation further.
Standard Chartered, along with many other banks, earlier projected that the BSP might be able to further reduce interest rates later this year in order to offset the impact of a US recession.
The Standard Chartered report noted news of the Trade Union Congress of the Philippines (TUCP) demand for a 22-percent increase in the minimum daily wage, from P362 to P442, in the Manila area.
"This, if approved, will clearly set off an alarm bell," the report said.
Standard Chartered estimated that the TUCP's demand could immediately cost as much as P30 billion or up to 0.4 percent of gross domestic product (GDP) for employers in the National Capital Region (NCR).
GDP, an important measure of the size of an economy, is the total value of all goods and services produced in a given period.
Initial labor demands rarely become reality. When TUCP presented a P100-minimum wage hike proposal last August, it ended up getting only P12. But with the political temperature rising, Standard Chartered expressed worry that government may be pressured into being more generous this time.
The bank noted that the inflation surge in March has shifted public concern from fuel to food.
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