Tuesday, 30 November 2010

Fortress Philippines

JOHN MANGUN
OUTSIDE THE BOX
Business Mirror
http://www.businessmirror.com.ph/home/opinion/4344-fortress-philippines

Fortress: Any place of exceptional security; a stronghold.

To use the word “fortress” to describe the Philippines is probably the last thing you would think of about this country. But you might just be wrong.

Financial security is probably the first place you should look to see if the fortress is sound. And some portion of financial security must be measured by the amount of money in the bank. The Philippines currently has in excess of $50 billion of gross international reserves. This may not seem like a lot on money in comparison to some (Thailand is sitting on nearly $100 billion). However, that amount covers almost all of the debt obligations of the government to foreign lenders.

It was interesting to read the negative comments about the nation’s economic growth in the third quarter of 2010; the economy only grew by 6.5 percent. The drop from the second quarter was due to the effects of bad weather on the agricultural sector. But to cast negatives on that economic growth number is pretty silly. Thailand, that “tiger” economy of Asia, is technically in a recession. From the International Business Times, November 22, 2010: “Thailand’s economy fell into recession following a contraction in the past two consecutive quarters, as strong baht and a weak global demand hit the country’s exports.” Thailand’s economy was hit by bad weather, too, as agricultural shrank by 3.3 percent in comparison to the Philippines’ drop of 2.5 percent.

Another important comparison between Thailand and the Philippines is in the area of consumer spending. Filipinos increased their spending quarter-on-quarter, while Thailand saw spending actually down over the same period.

Exports numbers are important to both countries. Thailand’s export growth slowed to 11.7 percent from 23-percent growth in the second- quarter 2010. The Philippines, on the other hand, saw its exports grow by 30 percent.

The appreciation of both nations’ currencies is a great concern. “Exports were weakened by a stronger Thai baht, which rose to a 13-year high against the greenback. The Thai government has imposed a tax on foreign investments in Thai bonds in one of its major efforts to curb the strength of its currency.” Granted, the peso is not at a 13-year high. Yet “The Bangko Sentral ng Pilipinas said the rate of increase in consumer prices could have slowed down further in November partly due to the strengthening of the peso. In October inflation was recorded at a 10-month low of 2.8 percent.” In other words, the strong peso has not hurt our exports over the longer term, but is keeping inflation very low in spite of massive rises in global commodity prices.

Foreign money must consider the Philippines as some sort of fortress also. Almost $1 billion of so-called “hot money” flowed into the Philippines during the first two weeks of November alone, bringing the total to nearly $4 billion for the year. This is what I find very interesting about that most recent $1 billion. Since the beginning of the month, the stock market has been terrible. I would venture to guess that a very small amount, if any, of that $1 billion went into the stock market. That tells us a couple of things. That $1 billion may have come into the country in anticipation of more peso appreciation and in anticipation of more stock-market gains. The foreign money is just getting ready for the next stock-market rally upward. In the meantime, though, that $1 billion has to be parked some place and the choices are either deposits in our fortress-like banking system or with short-term Philippine government debt. This foreign-money action is not what is found with a nation that is weak.

Part of the security of a fortress is the belief that the walls are strong and will hold against danger. Our belief has never been stronger. From the American Chronicle: “Based on its latest Business Expectation Survey, the Bangko Sentral of Pilipinas [BSP] said the overall confidence index reached 50.6 percent—the highest reading since the start of the survey in 2001—compared with the 45 percent in the third quarter this year and 22 percent in the fourth quarter last year.” You might point out, though, that another survey of local businesses stated that new hiring of workers is expected to slow in the first-quarter 2011. This is great news. It means that expansion plans and spending in 2010 have taken hold with much higher employment this year. Build a new factory and then you hire people. Afterward, your hiring demands slow as the factory starts producing profits. Then a year or so later, those profits are placed in more expansion and more hiring. This is an indication that the economic growth we are experiencing is more sustainable than many people think.

Someone once said that if you want to know what you are really like, ask your enemies’ opinion, not your friends’. Perhaps the strongest critics of the Philippines are found in the Philippines. Filipino “workers” groups are some of the most vocal, and I am sure they would never think of the Philippines as a fortress. Their latest protests are themed “Fight Contractualization, Oppose Globalization.” A leader issued this statement: “The Filipino way of life should be a regular job that provides decent wages, substantial benefits, security of tenure, decent working conditions.” That sounds like a good plan, and is a reality for the more than 500,000 people employed in outsourcing with high wages, tenure after six months per labor law and benefits particularly with private medical insurance. Unfortunately for the workers’ group, it is all a result of globalization into “Fortress Philippines.” While other countries (Brazil, Japan, for example) are losing as a result of increase globalization, the Philippines is at least taking some advantage of global economic integration.

The real test is going to come in 2011. Can the Aquino administration make good on its Public-Private Partnership (PPP) program? The success or failure of PPP will be a critical turning point for the country. Will the Philippines be able to continue to build on 2010 economic growth? If so, 2011 will be the most important year of Philippine history in the past century.



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