Local economy is collateral damage in Russo-Ukrainian war: DOF

WHILE THE Philippines remains neutral in the Russo-Ukrainian war, the country’s economy will likely be collateral damage from the conflict, according to Finance Secretary Carlos Dominguez III.

In a recent meeting with President Rodrigo Duterte, Dominguez said “the conflict between Russia and Ukraine does not involve us directly because neither Russia nor

Ukraine is a major trading partner of ours. Instead, the Philippine economy will likely be collateral damage. It is as if we are hit by a ricocheting bullet.” 

He said these “indirect shocks” are likely to be felt through four major channels - the commodity market, the financial market, investments, and the impact on fiscal health. 

In his report, Dominguez said the ongoing conflict between Russia and Ukraine will have an effect on the country’s oil and food prices as they are expected to go up as Russia is the largest exporter of natural gas and wheat; while Ukraine is the fourth largest exporter of corn. 

“As the conflict continues, Ukraine and Russia’s main trading partners, predominantly the European Union, will look to trade with other countries such as the US and China, where we are buying both wheat and corn, thereby pushing up the prices of commodities in these markets as well,” he said. 

Dominguez said the conflict will also likely cause a surge in interest rates or cost of borrowing which was already expected to go up even prior to the crisis because of the US tightening of monetary policies.  He said the conflict will increase the perception of risk in investments. 

“Investments are likely to decline or at least be on hold in the face of uncertainty, which may cause investors from the West to be more conservative or postpone their planned investments. Once sanctions are imposed, it will take a long time for investor and consumer confidence to return to normal. Lastly, all the aforesaid economic impacts will likely require government support to protect our vulnerable citizens and the critical sectors most affected by the crisis and this will stretch our budget even further,” he said. 

But Dominguez was quick to say that although he does not expect this crisis to last

very long, adding “there may be some lingering effects we have had, we have seen similar crises in the past such as the Gulf War in 1990, the Asian financial crisis in 1997, the oil price shock of 2008, and also the first Russia-Ukraine conflict in 2014, and we have weathered all of these crises very well.” 

“These crises lasted much longer and yet we were able to get through them. Based on these experiences, we are confident that we have the tools and the preparation necessary to help our people through this crisis,” he said. “This crisis may increase prices across several sectors and thereby cause our inflation rate to breach our target. But with the measures that we discussed at the economic development cluster, we are confident that we will be able to keep the inflation within our target range of 2 to 4 percent and maintain our growth path of 7 to 9 percent this year.” 

The economic development cluster recommended 14 measures to alleviate the impact of the crisis on the people. (Mindanao Examiner)