Thursday, 22 April 2010

Manila and Athens

Manila Times
http://www.manilatimes.net/index.php/component/content/article/83-opinion-columnist/15547-message-to-arroyo-govt-and-its-successor

THE continued growth of Philippine exports, the return of foreign investments, and the resilience of overseas Filipino worker (OFW) remittances provide a boost to the country’s economic prospects at a time when the after-shocks of the global crisis are still felt in what are the most unlikely places. Take Greece, for example. A cradle of ancient society, it is one of the bulwarks of the Euro Zone, whose currency is a rival to the US dollar’s dominance.

The Athenian society is now amid a debt crisis, similar in some respects to what the Philippines endured during the twilight of the Marcos dictatorship.

But the two countries have little else in common.

Besides being a stable modern democracy, Greece is a developed country belonging to a region that—before the recent global financial crisis—was attempting to challenge the economic hegemony of the US.

The European Union—with some help from the International Monetary Fund (IMF)—has assembled a bailout, even as Greece is tapping more loans to avert a fiscal meltdown.

That European country’s problems are unsettling financial markets across the globe, including the Philippines.

However, Manila’s strong external payments position—thanks to OFW money, and recently, exports and foreign investments—has kept the peso and the local bourse from succumbing to the volatility generated by external developments like Greece’s fiscal crisis.

Over the past few weeks, economic data have shown that the Philippine economy is regaining its footing—indeed, at a faster pace than earlier forecast.

The most dramatic improvement has been the country’s exports.

The Philippines’ heavily weighted electronics shipments at 60 percent of overall merchandise sales abroad—pilloried for its lack of diversification—suddenly has turned into a source of strength.

Consumer demand in rich countries—that put off new purchases amid the global crisis—has returned with a vengeance.

Westerners are lapping up the latest gadgets, ranging from netbooks to mobile phones and flat-screen TV sets.

This has led to inventory stock-outs among electronic device makers, and in turn to a surge in investments in additional capacity.

Since the start of the year, we have been witness to several expressions of interest among existing economic zone locators to ramp up their production in the Philippines.

Nidec of Japan was the biggest so far, announcing additional investments to increase the output of its Philippine operations.

A few days ago, the Bangko Sentral ng Pilipinas (BSP) announced that foreign direct investment (FDI) registered net inflows in the first month of the year.

Although the amount was smaller than in the same month last year, first-quarter data on foreign portfolio investment (FPI) showed a big improvement in inflows year-on-year.

Unlike FDI—which is used to establish new business or expand existing ones—FPI pertain to investments in peso-denominated financial assets, and so create no new jobs.

But FPI is also called “hot money,” which is a precursor of the job-generating FDI. Ergo the surge in FPI inflows in the first quarter is likely to cause an equally huge increase in FDI in the coming months.

Lastly, remittances have not let up even during the depths of the global crisis when everyone thought that recession in OFW host-countries would lead to huge cutbacks in jobs.

True, some lost their jobs, but demand for OFWs kept coming, leading to what the government called a net creation of jobs abroad, especially for skilled Filipinos.

The latest round of the BSP’s Consumer Expectations Survey indicates that households—many of which are recipients of OFW money—are likely to increase purchases of durables on top of the usual non-durable purchases and necessities.

Having said the above, the El Niño remains a threat to a fifth of the economy—the farming sector. With this, the government (the Arroyo administration and the incoming one after the May 10 polls) should still not let up mitigating measures to ensure that the impact of the lingering dry spell won’t offset the expected benefits from the improving external sector.

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