Thursday, 17 December 2009

Predictions for 2010–maybe later

John Mangun
Outside the Box
Business Mirror

When all is said and done, this has been a disappointing year. There are a few bright spots though. The stock market was very strong. There were some very big financial deals made by the large companies. With the exception of the export sector, few industries experienced any substantial contraction. Interest rates stayed low. Inflation was quiet. The peso was stable.

A tremendous amount of money flowed into the country through remittances, direct investments and funds marked for portfolio investments.

But there was limited wealth creation.

Bank lending was down. Small and medium-size businesses held on to profits instead of expanding. Property sales and construction were relatively flat. Very few entrepreneurial ideas ever got off the drawing board. Nothing really moved.

And the most frustrating thing is that there was no great and substantial reason this economy did not grow larger in 2009.

The problems of the West and its economic destruction never really touched the Philippines. No banks here had wasted money over the years investing in garbage financial instruments. Private and public companies were not caught up in these financial schemes and the subsequent problems as in 1997. Yes, the export sector was significantly affected. But in truth, net exporting profits are a small part of the total economic picture. At the end, you could say that the economy was stable and boring, almost in a financial coma.

But businesses and individuals were continuously bombarded with negative propaganda throughout most of 2009. The economy was frightened into idleness and lack of action. Nearly every part of the economy stood still, waiting for all the bad predictions of bank failures, falling remittances, no foreign investment and massive unemployment to hit. We waited and waited and waited, doing little or nothing.

Just about the time that we realized that perhaps all those gloom-and-doom predictions were not going to come true, the rains came and did not stop. Billions of pesos that should and could have been used for new enterprises and wealth creation suddenly were needed to repair the damage. And so the year ends.

Individually and collectively, the Philippines took few risks in 2009. Fear of loss kept the country from winning. You can never triumph unless you are willing to take a chance.

In the late 1980s to early 1990s, two diverse schools of thought emerged during the run-up to the 21st century, the “boomers” and the “gloomers.” With the explosion of global debt in the 1990s, the boomer forecasts became the reality.

In 1999, a book was published, World Boom Ahead, by Knight Kiplinger. World Boom Ahead became the godfather of the “boom” books. Kiplinger, as president, is the third generation of the family that owns and runs the Kiplinger financial-publishing group, with its most widely recognized periodical, The Kiplinger Letter. I faithfully read the Letter more than 40 years ago as it was basic reading material in my house as I was growing up. The Kiplinger Letter is considered the most widely read business-forecasting periodical in the world.

Kiplinger accurately predicted the boom years of the 1990s and in World Boom Ahead, he wrote, “Over the next few decades, the technology-driven boom will bring several billion more people—now toiling in marginal local economies—into a fully integrated world marketplace.” That is at least partially true. He said, “They will constitute an immense new global middle class with vast purchasing power, and they will be both tough competitors and avid customers of the advanced nations.” Perhaps very true.

However, he also wrote, “There will be periods of slow or negative growth but no big crash; globalization will help to ensure shorter and milder recessions; although Asian growth will be strongest, the United States will remain the world’s economic, technological and political leader throughout most of the next century; and the American model will be emulated and adapted by more nations.” The first part of that thought was not true; the last part about the US being emulated was dead right, and it has brought the world economy to its knees.

Ironically, it was the policies of the debt-boom 1990s and financial globalization that created much of this current world financial disaster.

But Kiplinger was not the only one that espoused this belief. From the New York Times, February 19, 1999; “His [Kiplinger] forecasts are not pie in the sky. Looking beyond today’s problems, they are matched by long-term World Bank projections and the predictions of other influential economists. They may look much better than those of the merchants of doom when 2010 rolls around. A doubling or a tripling of 20th-century growth is ‘eminently doable’ in the 21st century, Mr. Kiplinger writes.” Ouch!

I know that I am not being fair with Kiplinger’s book. There is much more to it than I am mentioning. But I just want to remember how wrong other people can be with their predictions when you remind me how wrong I was with my predictions for the Philippine economy for 2009.

I have no intentions of making specific forecasts for 2010, at least at this point. However, this is what I do see. There is a large amount of private liquid capital available for productive growth that is waiting to be committed and utilized. There is built-up consumer demand that can break loose at any time once the fear factor is overcome. There are productive business ideas that were shelved in 2009 that could be implemented at any time.

All of these factors can make 2010 a boom year for the nation’s economy.

PSE stock-market information and technical-analysis tools were provided by Inc. E-mail comments to mangun@email.comThis e-mail address is being protected from spambots. You need JavaScript enabled to view it .

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