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Taal, a game changer for the economy?

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OF SUBSTANCE AND SPIRIT

By DIWA C. GUINIGUNDO

Diwa C. Guinigundo

16

At this point, Philippine economic managers must be concerned about the economic implications of Taal Volcano’s phreatic explosion, its uncertain and prolonged duration, and widespread effects.

It is unlikely that we have seen the worst of Taal.

If Mt. Pinatubo’s eruption of June 15, 1991, is any guide, we should be armed to the teeth. Obscure for at least 600 years, Mt. Pinatubo suddenly released pyroclastic surges, ash falls, and spewed lahar, covering vast tracts of land, collapsing and burying buildings and houses in Zambales, Tarlac, and Pampanga. Torrents of deadly volcanic debris flowed down major river systems, forever changing the topography, and altering the economic activities of these three provinces.

The damage wreaked by Pinatubo was estimated at nearly $I billion. Its explosion affected 16 aircrafts flying at the time of the eruption, agricultural crops, personal property, and infrastructure.  Billions of pesos were also re-allocated for relief and recovery, also to build dikes and dams to prevent further damage. The cost was staggering and unquantifiable, considering the painful loss of thousands of lives.

In a paper on the socio-economic impact of the Mount Pinatubo eruption written by Remigio Mercado, Jay Bertram Lacsamana, and Greg Pineda of the NEDA Regional Office in San Fernando, they proferred that public policy should go beyond traditional relief and recovery efforts. This column agrees.

Given the game-changing impact of volcanic activity on topography, infrastructure, and economic activities, restoring pre-eruption conditions is impossible. It is necessary, therefore, to move people away from territories vulnerable to future lahar flows and flooding. This would require public ownership of such strategy. Most important, the challenge is to establish infrastructure that would be resilient and could withstand future climatic shocks.

I recall delivering intervention remarks at the Executive Board of the International Monetary Fund (IMF) sometime in 2003, a few months before we returned to Manila after a two-year secondment. I argued that economic growth in emerging markets in the Asia Pacific region becomes more challenging owing to their vulnerability to various climatic challenges. In our region, infrastructures are built only to be destroyed by natural disasters. In the case of the Philippines, we periodically receive the brunt of the world’s typhoons, earthquakes, and volcanic eruptions. This could be one of the reasons prolonged use of IMF resources was inevitable during the two oil crises in the 1970s, the debt crisis of the 1980s, and after the Asian Financial Crisis of 1997.

The Philippines was made more desolate after the floods of the 1980s, the deadly Baguio earthquake of mid-1990, and yes, the Mount Pinatubo eruption in mid-1991. Massive destruction caused by these calamities required rehabilitation and rebuilding, greater budgetary allocations and reallocations from capital buildup to capital restoration.

Today, the world is wiser — the IMF and the World Bank especially. Investors from Europe and beyond now insist on ESG—environmental, social, and governance factors —when it comes to benchmarking financing options and financing destinations.

So what do we make of Taal’s ash fall in progress?

In news reports, geologists make the dire prediction that Taal’s unrest could be prolonged from a few days, to a few weeks, to a few months. Seven months is worst-case scenario. Tagaytay Highlands is now under a blanket of “gray snow.” The Sta. Elena golf course is a huge sand trap. But the midlands and lowlands sustained minimal ash fall on account of the wind blowing north, driving the dangerous particles towards Metro Manila.

What should bother us is the warning that it is not exactly ash that we are seeing, but rather, microscopic pieces of glass that could be extremely harmful to health. Maynilad has had to assure its clients that their water supply remains safe. How long this state of air and water affairs will last is an empirical question. The economy is bound to receive some collateral blows.

Meanwhile, despite the initial findings of Diwata 1 and Diwata 2 satellites that the air quality in Metro Manila “never got worse than during the New Year’s Eve,” panic buying and hoarding of masks are reported, with the DTI and the President himself strongly warning against overpricing. This should be short-lived.

Despite the obvious danger, Taal Volcano and Taal Lake will continue to draw tourists for two reasons. First, Taal Volcano is in an island in the middle of Taal Lake, an amazing spectacle of nature.  And second, tourists love a volcano in action.  This is affirmed by how Mayon Volcano in its active state, drew thousands of tourists from all over the world a few years back.

Some scientists believe that the magnitude of potential volcanic activity of Taal will be less spectacular than Mount Pinatubo’s given its periodic eruptions compared to six centuries of Pinatubo’s inactivity. Despite the enormous cost of mitigating the damage caused by Pinatubo, the Philippines managed like a Phoenix, rising from the ashes to grow into one of the fastest growing economies in the region and the world. The challenge posed by Taal should be less of a game changer.

There could be a transitory increase in both private and public expenditures to relieve and rehabilitate affected areas. Some incremental increases are expected in infra spending on top of the massive “Build, Build, Build” projects. This was what we saw after the earthquake of 1990 and the volcanic eruption in 1991. Real output growth in 2013 was kept at 7.1 percent despite Typhoon Yolanda and the subsequent growth performance, while lower than 7.1 percent, remained upbeat.

Today, the nation’s tested resiliency and sustainability is much more potent on account of government’s improved ability to respond to, and manage, disasters and other climatic problems.

The key is the country’s success in building good and effective economic, social, and political institutions. By this, I refer to the infrastructure we are currently building today. I refer to the foundational policy and structural reforms we have been undertaking for the last 25 years.  I refer to our opening up to global competition that helped galvanize our industries into higher productivity and efficiency.

Indeed, we have, and must continue to transcend simple rehabilitation and relief efforts in favor of strengthening the base of a more robust and resilient economy – one that will remain strong in the face of unavoidable climatic challenges.

Taal Volcano is featured in the P50 New Generation Banknotes released by the BSP in 2010 along with the Scriptural inscription  “Pinag pala ang Bayan na ang Diyos ay ang Panginoon.”

The catadromous fish that is the Maliputo which grows in Taal Lake is also on the same banknote.  The Maliputo happens to be my favorite fish. If we abide by God’s promise in Psalm, our economy should be like the Maliputo which shall continue to tenaciously thrive even in volcanic waters.

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