Thursday, 31 December 2009

Philippine threat assessment 2010

John Mangun
Outside the Box
Business Mirror

There always seems to be two Philippines. One Philippines shows up on the front pages of the newspapers and is a part of the official record. The other Philippines seems to hide in the shadows quietly. Often these two Philippines cannot be reconciled with each other. They do not seem to fit together.

The Maguindanao massacre is a tragic example of this phenomenon. While this terrible and senseless event of historic proportions hits the headlines, the logical conclusion is that it should have some sort of a great economic impact on foreign investment. But it does not. The global slowdown and great recession in the US should have severely impacted overseas Filipino remittances. Remittance rose nicely in 2009. The Philippines through the last two decades should have been a country with significant problems paying its foreign debt. Every creditor has always been paid in full.

Whether continued good fortune, divine intervention or something unfathomable in the Philippine bloodline, this country always remains standing, stumbling at times, but never going down for the full count.

Obviously, the major event for 2010 will be the elections. We always look economically toward these national political contests as if we were expecting a rich uncle from the US to arrive with a large number of balikbayan boxes filled with goodies. In 2010, the country may hit the jackpot.

When you look at the war chests of the several presidential candidates Villar, Teodoro, Aquino and Estrada, the “unofficial” spending amounts could be staggering. We could potentially see P30 billion or more added to the economic system by May. Considering who the candidates are, this is going to be political slugfest, and the money is going to pour out. How significant is campaign spending? In 2007, political spending added an estimated 0.34 percentage point to GDP growth.

So where is the threat? That much money pumped into the economy in such a short time might trigger a jump of inflation as the money will be spent immediately. In the long term this money will be beneficial and well- absorbed in the system. Short-term, there may be some headlines that will create a negative attitude, dampening enthusiasm for investment.

It has been a while since anyone has talked about the Philippines “shooting itself in the foot.” That is where I see the most significant economic threat in 2010.

As I wrote on Tuesday, I believe that 2010 has the potential for bringing us a much deeper and more serious global economic situation than in 2009. Let’s assume for the moment that a large portion of the things I mentioned come to pass; bad dollar, worsening US economy, a major sovereign-debt default or two, a geopolitical crisis.

Perhaps the strongest criticism that one could make about Philippine government policy is that far too often, that policy is reactive rather than proactive. It very often appears that the best and the brightest in government lack the ability to anticipate coming train wrecks and are too often paralyzed by inaction to get out of the way.

Tropical Storm Ondoy is a good example. The system and the people in the system failed terribly. One might accept the excuse that no one correctly predicted beforehand the ferocity of the storm. But at some point, someone in government should have figured out that a disaster was happening before their eyes and more quickly mobilized resources.

The election season may coincide with global economic turmoil/meltdown. With the current government involved in the campaign at so many levels and in so many races, the government’s eye may not be on the ball. That is a real and serious threat.

For example: Assume that a country like Greece suddenly defaults on its debt payments. Venezuela, the Ukraine and Argentina are all 50/50 or worse to default in 2010.

The devastating ripple effects would be enormous, immediate and build daily over time. And you’re worried about fake global warming? This would be a tidal wave sweeping over countries like the Philippines, affecting currencies, stock markets and bond prices.

Iran is a powder keg waiting to explode, and that explosion will rock oil prices. And prices go up much more quickly and they come down after the situation passes.

A major bank failure in the US could trigger a general run on banks all over the West, causing the dollar to collapse and commodity prices to jump 10, 20 and 30 percent.

Confidence in the government to anticipate and be prepared for these types of scenarios and to have the determination and ability to respond quickly is not very high. The tendency of the Philippine government to respond to crisis slowly and often inadequately is real and is serious. Together with the fact that the current government may be focused on the election or a newly installed government still getting adjusted could be a very great threat to Philippine economic stability in 2010.

“Wait and see,” “Play it by ear,” “bahala na”: all of these are dangerous attitudes that will not serve the country well in 2010.

Have you made at least a mental threat assessment for your personal and business finances for 2010? It is important that you consider some of the “what ifs” and the potential impact. Take action before, not just after. Get some money in the stock market, which will suddenly boom if the dollar falls. Budget out the impact, if gasoline jumps to P60 per liter. Forecast your business around both a 10-percent rise and a similar fall in the peso-dollar rate. Be prepared and be ready to act, if necessary, for a variety of potential situations that might occur.

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