Impact of Japan’s woes assessed

Posted at 03/14/11 8:39 AM

MANILA, Philippines - The 8.9-magnitude earthquake and ensuing tsunami that hit Japan on Friday will likely cause weaker oil prices and see a decline in Tokyo’s official development assistance (ODA) to countries like the Philippines, according to economists.

Senate President Juan Ponce Enrile, while agreeing with the forecast of lower ODA as Japan rechannels more resources to the rebuilding, sees the oil front being impacted differently, though. He said on Sunday that Japan, having suffered damage in its oil facilities and nuclear-energy plants, may boost oil importations, driving global prices higher.

While details on the extent of the disaster are not yet complete, former Budget secretary Benjamin Diokno expects the relief and reconstruction efforts will cause an upswing in construction-material prices in Japan.

Diokno thinks oil-product prices will decline, as well as the amount of ODA that the Japanese government extends to developing countries like the Philippines. Japanese ODA to the country accounts for more than 30 percent of the Philippines’ total ODA.

Meanwhile, Deputy Director General Rolando G. Tungpalan of the Neda’s National Development Office for Investment Programming said the country’s ODA committments have been steadily declining as more donors reduce aid for various reasons.

Tungpalan said Japan is not the only country that has been decreasing its aid to the Philippines. The decline in ODA is expected, he said, since the Philippines is no longer as aid-dependent as other developing countries.

The challenge, Tungpalan said, is for the Philippines to develop other sources of funding to undertake projects. He said these sources could be in the form of more public-private partnerships and an increase in domestic sources like government revenues.

“The more important thing now is how we and the international community can help Japan. That’s what partnership means,” Tungpalan said.

“Consumer spending will slow while business and government [will] spend more money for relief, investment and reconstruction. There will be [an] upward pressure on prices of construction materials and downward pressure on oil-product prices, the latter due to the slowing Japanese economy. ODA is likely to shrink as the Japanese government focuses on reconstruction of damaged physical facilities. This puts additional stress on Japan’s shaky fiscal house. I expect the yen to weaken in the days ahead,” Diokno said via SMS over the weekend.

First Metro Investment Corp. and University of Asia and the Pacific Capital Markets Research Center executive director Dr. Victor Abola said the decline in oil prices was already evident as prices fell on the news of the disaster in Japan.

Abola added that since Japan is a net importer of food, the effect on inflation in the Philippines will also be minimal. This will likely keep inflation in the coming months well  within the Bangko Sentral ng Pilipinas’ expectation of 3.5 percent to 5.5 percent.?

Japan’s northeastern portion on the main island of Honshyu was hit by an 8.9-magnitude quake early Friday afternoon, but the extensive quake damage was not the only disaster. Minutes later, a 10-meter tsunami struck the coastal areas, particularly Sendai City, sweeping everything in its path. The quake and tsunami damaged a nuclear plant in Fukushima district, and an explosion late Friday killed four workers trying to cool down a reactor.

The Japanese disaster has revived calls from opponents of the proposed Bataan Nuclear Power Plant revival for the Philippine government to scuttle the BNPP and nuclear energy altogether.

On the economic impact of Friday’s disaster, Enrile noted that besides the huge ODA to Manila, Japan is also facing damage to its power plants and oil refineries, which could force it to import more oil, further driving up the price in the international market. Japan also relies on nuclear energy for half of its power requirements.

“Japan’s economy will slow down as they concentrate on the task of reconstruction and rehabilitation,” said Enrile. On the other hand, such reconstruction might require additional skilled workers and medical personnel, “so we need to study that, too.”

Philippine inflation outlook

Even before the disaster in Japan on Friday, Abola said inflation in the third quarter could reach 5 percent but will not reach 6 percent. This is largely due to the fact that food-price increases in February were mainly due to the heavy rains in the Visayas and Mindanao—something that may not be replicated in the coming months. He said any revision in the government’s macroeconomic targets may wait for the second half of the year. Abola expects a gross domestic product (GDP) growth of 6.2 percent to 6.3 percent this year.

“Since Japan is a net importer of food, the effect on Philippine inflation will be minimal. You may note that oil prices reacted with a fall when news of the tsunami came out. It is because their demand for oil is likely to ease,” Abola explained through SMS sent over the weekend.

No deployment ban

Two labor officials on Sunday quashed the possibility of banning deployment to calamity-stricken Japan, saying that affected areas appear to be isolated.

In  separate interviews, Labor Secretary Rosalinda Baldoz and Philippine Overseas Employment Administration Administrator Carlos Cao both said it is unnecessary to temporarily halt the deployment of overseas Filipino workers there despite the threat of a nuclear meltdown. --With S. Fabunan