MANILA, PHILIPPINES - PHILIPPINE President Gloria Arroyo has granted the country's one million government workers a 10 per cent pay hike, amid a severe fallout on household incomes from soaring rice prices and other rising costs.

With the wage hike, which will cost around S$400 million to implement, a teacher will get a basic monthly salary of S$423, and an army lieutenant S$589, according to reports.

The administration is also considering tax exemptions and other non-salary benefits for low-wage earners.

No increases were announced in the minimum wages for private-sector employees in time for Labour Day, which was marked by demonstrations in Manila by labour organisations and civic groups calling for higher wages to counter rising inflation.

The regional wage boards that set the minimum salaries companies must pay their workers are still deliberating on petitions from labour and employer organisations.

Making ends meet on the minimum wage - 362 pesos (S$12) a day in Manila and less in the provinces - is getting harder.

In 2006, a family of five needed a monthly income of S$202 to stay out of poverty, according to government data. That year, about a third of the population of 85 million was below that line.

The situation will only get worse as food and utility prices accelerate, while cheap government-subsidised rice is pulled from public markets to be distributed to the poor.

Against that backdrop, some influential local business groups, who have been hawkish in the past on wage hikes, acknowledge there are grounds for an increase.

Labour organisations are calling for a 35 per cent increase in the minimum monthly wage of S$350 in Manila.

'(But) we are definitely not going to get that,' said Mr Rodrigo Catindig, spokesman for the Federation of Free Workers, which has around 200,000 members working in industrial firms.

Hard-nosed economists worry that the push for wage rises could hamper the government's efforts to balance the budget. Foreign chambers of commerce also fear the proposed wage hikes could erode the country's already deteriorating international competitiveness.

Even some local labour groups such as Mr Catindig's can see the bind. 'The government is going to be very cautious over the rise in minimum wages because of its effect on foreign companies, which may look at moving to cheaper locations like Vietnam,' he said.

With consumer prices already rising sharply, others worry about the inflationary push of even a modest wage increase. The March inflation rate - stoked by a double-digit jump in rice prices - hit 6.4 per cent, the highest level since November 2006.

This article was first published in The Straits Times on May 3, 2008.