Thursday, 18 February 2010

Philippine microeconomics

John Mangun
Outside the Box

The recent presidential-candidate forum hosted by the Philippine Chamber of Commerce and Industry harvested the typical answers about the economy that we have heard for a decade.

Everyone said the normal mantras. Stop corruption and smuggling. Increase food production. More help for the poor. Peace and order. Really nothing new.

Yes, Gordon talked about the same three economic drivers I have been writing about for more than a decade; tourism, agriculture, and mining. Villar spoke of the fact that small and medium businesses are the engines of the economy and that the banks would rather loan money to the government than to you. I said that a few weeks ago. Estrada wants to improve the agricultural sector. Teodoro spoke of the lack of public confidence in government.

All good answers. All from the same decades-old script.

I would have liked a little more insight into the understanding these men have of the Philippine economy. Each comes from a different business background with a variety of experiences and, therefore, the potential of a variety of perceptions. I personally would have liked to have asked each what they think is different about the Philippine economy.

It is a valid question because no economy is exactly the same as another. Therefore, every economy reacts to situations differently. Why, for example, did the Philippines miss the worst of the global financial crisis in 2009?

Look at what happened in other countries. China went into this global meltdown with a trillion dollars in its savings account in the form of foreign currency reserves. Singapore, although suffering a massive recession and contraction in 2009, carries virtually no foreign debt. Russia has only a little foreign debt and is nearly self-sufficient in both basic commodities and consumer goods. Thailand is stable because of small debt and a well-diversified economic base.

France, Germany, and Great Britain are suffering greatly because they depend on the US market. Italy and Greece are bankrupt because they sell very little to the world markets. All have a large debt obligation also.

So therefore, what is unique about the Philippines?

I can almost guess the answers to my question from the presidential candidates. All would have talked about remittances. Another would have mentioned outsourcing. One might have said something about the country being at the bottom so the Philippines cannot go any lower. Another would have lauded the current administration for its economic policies.

From an article in BusinessMirror with “expert” analysis: “World Bank country director Bert Hofman told members of the Foreign Correspondents Association of the Philippines that monetary authorities, led by Bangko Sentral ng Pilipinas Governor Amando Tetangco Jr., at present can be cited for providing the stabilizing force that enabled the Philippines to post a modest 0.9-percent growth in 2009. The Philippines has restored macroeconomic stability and, as important, a reputation for macroeconomic stability, mainly on the back of rapidly growing remittances that provide a strong basis for currency stability and international-reserve buildup,” Hofman said.

I do not think the World Bank has a clue either about what makes the Philippine economy stable and growing in this environment. My opinion is this. It is not the macroeconomics that makes this economy resilient. It is the microeconomics. By that, I mean the way you and 90 million other Filipinos conduct our financial affairs.

Simply put, the global meltdown started because both the private sector—ordinary people and businesses—and the public sector—governments—have too much debt. The housing collapse in the US and Europe started because individuals borrowed too much money. Now we are in a full-blown disaster because governments also have too much debt. If only the “people” and businesses had debt problems, and the governments had practiced sound financial policy, the governments could have easily solved the problem.

If the young student spends his money for candy, instead of buying supplies for his school project, the father can always step in financially to “bail out” the child. But if both have wasted all their money, the whole family suffers a financial meltdown.

If you look at the total amount of both public and private debt in countries such as Iceland, Greece, the US, Ireland, Spain, and the United Kingdom, private (individual and business) debt is equal to or even greater than the public government debt. In effect, both the private and the government sectors in these countries are bankrupt and are having great problems paying their bills. Their entire economies are bankrupt and insolvent.

Here in the Philippines, it is only the public sector that carries large amounts of debt. And because the private sector is very solvent, it can in effect “bail out” the government if necessary.

Look at our banks and corporations. Credit-rating companies like Moody’s, Fitch, and Standard & Poor’s will not give a nation’s businesses a credit rating higher than that of the country’s government. In fact, firms such as San Miguel, Ayala Group, Shoemart, and the Gokongwei companies are better credit risks than the Philippine government. But their ratings cannot be higher than the Philippine government by the formulas these credit agencies use.

In the Western nations, the government gets the highest rating and companies are lower. And it is all a fraud because both the private and the public sector are broke.

So what makes for the residency and strength of the Philippines? It is because Filipinos and Filipino companies are not heavily in debt and overextended. And this fact should be the primary focus of government economic policy, which is what the candidates need to understand and act on. Every policy action from Malacañang and the legislature should have one goal and one goal only—helping and strengthening private business interests, not the government treasury.

Unfortunately, it seems like that when even a successful businessperson becomes a public official, he starts thinking like “government” and protecting government interests instead of private-sector priorities. I hope it will be different in this election.

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1 comment:

  1. Sana po nakapost din yung GNP data of the Philippines..