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ON THE SUBJECT OF GLOBAL OIL CRISIS: HOW SHOULD THE PHILIPPINES SOLVE IT?

BY: Marlou Mumar | Category: Politics | Post Date: 2009-02-01
 



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   Marlou Mumar
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A decade ago, Philippine lawmakers made a proposition that deregulation would secure the Philippines from the vulnerability of oil price shocks due to its heavily dependent on imported oil. But it is now evident that many are calling to scrap the law as more and more Filipinos suffer from unstoppable increase in oil prices.

This policy was formulated under the regime of President Fidel Ramos who, in his flagship program called the Philippines 2000, envisioned to make the country globally competitive by pursuing the thrusts of deregulation, market liberalization, and privatization.

Republic Act 8479 was then enacted to pave the way for the full deregulation of the oil industry.

But oil crisis is evidently far from over as the policy fails to meet its goal to foster a truly competitive market. Even President Gloria Macapagal-Arroyo acknowledges that oil crisis is threatening to erode the very fiber of the Philippine society. But she herself is helpless as she always makes an excuse that "we are on a roller coaster ride of oil price hikes, high food prices and looming economic recession in the US and other markets."

But why is the oil crisis a global crisis? Is it really beyond the government's control?

The Global Oil Crisis

The Philippines buys the oil at the spot market. By "spot" is meant, that one buys the oil at a market only 24 to 48 hours before one takes physical (spot) delivery, as opposed to buying it 12 or more months in advance. In effect, the spot market inserted a financial middleman into the oil patch income stream.

The oil price is largely set in the two futures markets: London-based International Petroleum Exchange (IPE) and the New York Mercantile Exchange (NYMEX). Here, traders buy or sell certain commodities like oil at a certain date in the future, at a specified price. Through highly-leveraged scheme, traders invest in the futures market by buying futures contracts called "paper oil" or simply paper claim against oil. The purpose of buying oil is not to wait for actual delivery of the oil in the future, but to sell right away the paper oil to another trader at a higher price. That's how investors engage in widespread speculation.

In a year 2000 study, Executive Intelligence Review (EIR) showed that for every 570 "paper barrels of oil"-that is futures contracts covering 570 barrels-traded each year, there was only one underlying physical barrel of oil. The 570 paper oil contracts pull the price of the underlying barrel of oil, manipulating the oil price. If the speculators bet long-that the price will rise-the mountain of bets pulls up the underlying price.

This only disproves the popular notion that oil price is driven by the "law of supply and demand." In fact, as much as 60% of today's crude oil price is pure speculation driven by large trader banks and hedge funds.

In a study conducted by the U.S. Senate Permanent Subcommittee on Investigations, it reveals that 30 percent or more of the prevailing crude oil cost is driven only by speculation. The study further says that about $35 to a barrel of crude oil.

Deciding the Best Options

Repealing the Oil Deregulation Law seems to be a good option. But that is not the ultimate answer to the rise in oil prices. Even if the law is repealed, the Philippines will still be subjected to the same factors-a rise in oil prices in the global market.

To solve the crisis at the international level, the Philippine government must join the worldwide call to have oil de-listed as a commodity traded in the futures market, thereby escaping the clutches of unscrupulous people and speculative financial institutions.

The Philippine LaRouche Society, an increasingly emerging think-tank organization in the country, has long been proposing to the government to initiate immediate steps to establish bilateral contract agreements with oil-producing countries of not less than 12 months' government-scheduled deliveries at reasonable, fixed prices.

How about the efforts to solve the crisis at the national level?

Advocating biofuel is definitely not an answer as it competes with food production for human consumption. The government must instead revive the Bataan Nuclear Power Plant (BNPP) to provide the population with a cheap, reliable, and continuous source of power to subsequently free the people from dependence on oil.

LaRouche Society proposes that government must direct its funds, instead for debt servicing, towards the revival and upgrade of BNPP. Removal of the entire E-VAT, not only on oil, must also be taken into consideration to ease the pain of the people. By moratorium, government doesn't have to extract a pound of flesh out of every Filipino to have the means to fund its programs.

The Peculiarities of the Philippine Policy System

For the Arroyo administration, amending RA 8479 seems to be difficult to adopt because re-regulating the oil industry would mean subsidizing oil. This is where debt moratorium comes in as an effective fiscal strategy.

But moratorium, to many skeptics, is unwise as they fear the retaliatory blackmail of the multinational creditors. Our leaders must learn how then President Nestor Kirchner of Argentina defied the predatory financial institutions, averring that "There's life after the IMF."

Moreover, many deride bilateral oil agreement as giant oil companies still have strong influence on the policy-making process in the country. Also, many leaders consider the Philippines as a small nation with no voice in the international economic affairs.

But it is a matter of having "big balls." After all, they are the leaders and are mandated by the Constitution to protect and promote the general welfare.

Another peculiarity of the Philippine policy system is the negative perception towards nuclear energy. BNPP has been stigmatized as being environmentally dangerous and associated with "corruption." The fact of the matter is, government spent $2.3 billion to build BNPP without generating a kilowatt of electricity.

It is worth mentioning that the International Atomic Energy Agency inspected the power plant in Bataan early this year and reported that this could be rehabilitated, in full compliance with high international safety environment standards, in at least five years at a cost of $800 million.

The LaRouche Society emphasizes the importance of declaring debt moratorium as a fiscal strategy to start the rehabilitation. The organization argues that the Philippines is servicing the debt over US $10 billion per year, which is more than enough to start the full operation of BNPP.

This solution may sound improbable, but not impossible. Courage is now being called forth for the benefit of the present and future Filipino generations.

Article Source: http://www.saching.com



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Comments on this article: (2 comments so far)

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Comment Comment By Comment Date
Oil Crisis
I think government is so preoccupied with those insignificant social issues to the point of burying the oil issue in oblivion. Something has to be done. Your recommendations are out-of-the-box and revolutionary.
Susan 2009-11-04
I agree to it
i agree to it
Roshan 2009-05-05



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