Economists warn against ‘populist measures’ vs high cost of fuel

MANILA, Philippines—A group of top Filipino economists has warned against the use of populist measures like the repeal of the value added tax on oil products, restoration of oil subsidies or price controls to counter the impact of skyrocketing global oil prices.

The Foundation for Economic Freedom said in a press statement that while the temporary use of targeted subsidies in favor of vulnerable groups was commendable, further extreme measures should be avoided. It argued that markets that work efficiently would ultimately serve the best interest of consumers.

“Broad-stroke populist measures being pushed like special exemption of all oil products from VAT, re-establishment of the oil price stabilization fund, or worse, price controls, will surely lead to price distortions, misallocation and inefficiencies in the use of an expensive resource, fiscal wastes due to subsidization of those who do not need help, and supply shortages,” FEF said.

FEF, an organization that seeks to expand economic freedom, has among its members the country’s top economists, some of whom served in the economic management teams of previous administrations. They include Gerardo Sicat, Roberto De Ocampo, Felipe Medalla, Dante Canlas, Ernest Leung, Raul Fabella, Romeo Bernardo, Raphael Lotilla and Arsenio Balisacan. Also among the group’s advisers are former Prime Minister Cesar Virata and former Finance Secretary Ramon del Rosario.

“We disagree with the populist view that firms should sell products at historical acquisition cost as this is contrary to best practices. Enterprises will buy, trade, and sell at replacement cost; insisting otherwise can lead to supply shortage which will imperil not only our oil but energy security,” the group said.

But the group also supported efforts of the Department of Energy and its initiatives to:

• Vigilantly monitor oil price movements both in the international and local markets;

• Provide greater transparency in the computation of local petroleum product prices using alternative formulas and posting them at the DOE website for easy online access;

• Require oil companies to explain when their price adjustments are higher than the DOE computation to prevent anti-competitive behavior;

• Conduct dialogues with consumer and transport groups for a more open discussion of the oil price movements and other concerns; and

• Conduct public consultations in the course of spot inspections of gasoline stations to monitor prices.

FEF also supported the DOE’s leadership in promoting alternative fuels and energy efficiency in its thrust to ensure energy security and sustainability.

“We therefore encourage other energy stakeholders to be guided by the tenets of the Oil Deregulation Law in fostering a truly competitive market, stimulating private investments, freeing up the government and taxpayers of costly oil subsidies, and providing better services to consumers,” the group said.