OUTSIDE THE BOX
Journalist and author Sebastian Junger wrote a book in 1997 about the 1991 Halloween Northeastern storm, a massive hurricane that hit the northeastern part of the United States. While researching his book, Junger spoke to a meteorologist who described the three different weather-related phenomena that combined to create what he called the “perfect situation” to generate such a massive storm. Junger subsequently named his book (and the title of the movie that came from it) The Perfect Storm.
Now a part of common language, a “perfect storm” refers to a rare combination of factors that come together to form the reality of a worst-case scenario.
So what is the opposite of a perfect storm? Perfect weather?
The condition of “perfect weather” does not necessarily mean calm and quiet. It means the coming together of conditions that create a most favorable, if not necessarily perfect, environment for success.
Businesses experience perfect weather when they introduce a new product at exactly the time the consumer is looking for that kind of product, at a price that is beneficial for both buyer and seller, and it comes out ahead of the competition. Examples might be the Sony Walkman tape player in 1979 and the similar iPod in 2001.
Wine-grape growers fully understand the concept of perfect weather; the right amount of rain and humidity, a few days of really hot temperatures but not too many, and cool nights but not cold enough to create frost.
In my humble opinion, the global financial and economic situation has created perfect weather for the Philippines going into 2011.
The Global Financial Crisis exploded due to a liquidity crisis. That is, credit suddenly was unavailable due to a collapse in the real-estate sectors of the US and Western Europe. Western business and consumer spending runs on credit. Without easy access to credit, businesses do not flourish and consumers do not spend. Suddenly there was no credit and the Western economics stopped in 2008 and 2009.
Since then, Western governments have pumped trillions of dollars into their economies in an effort get economic activity moving again by increasing liquidity or the amount of money in the economic system. It has not worked successfully. However, and here it gets good for the Philippines, all that “stimulus” has kept the Western economies alive just enough to benefit the Philippines.
While US economic growth is basically flat, Americans can still afford to buy a few electronic gadgets for Christmas, boosting our export industry. While Americans are looking at, realistically, a high double-digit unemployment rate, companies continue to hire Filipino workers. Deployments continue to grow, and remittances reach historically high levels, it seems like every month.
Business is good enough in the US to have companies increase their customer-service staffing to better serve a very competitive marketplace. But business conditions are bad enough that these same companies must use every option available, like outsourcing, to cut costs. One of the largest call-center operations in the Philippines, with over 10,000 employees, is forecasting to increase its staff here to 30,000 within the next three to five years.
If businesses and consumers are not borrowing money to create spending and economic activity, then maybe (the Western governments think) you need to put borrowed money “on sale” by lowering interest rates. Global interest rates have never been any lower. Here again, a failed Western economic policy is great for the Philippines.
A company can borrow money in the US for virtually zero interest rate. They then move that money to the Philippines and buy government debt or local corporate debt and make a bundle on the interest-rate difference. Here is the perfect weather situation. Philippine interest rates are high in comparison to the West, making our debt very attractive. But because this economy is not dependent on a massive credit for economic growth, we have not had to match the low interest rates of the West. Therefore, local money stays home in the Philippines and foreign money floods in to make a higher return.
From the Philippine Star: “The country’s balance of payments surplus surged to hit an all-time high of $13.17 billion in the first 11 months of the year from $5.206 billion in the same period last year, while the gross international reserves surged 39 percent to hit a record level of $61.3 billion from $44.17 billion.”
The fact that so much money has come into the Philippines in 2010 gives us the tools to further and more effectively benefit from perfect weather. The greatest advantage that wine growers receive from ideal weather conditions is the ability to pick the grapes at the perfect time of ripeness. For example, if the temperature is too hot, the grapes must be picked at a time when they are too sweet. Too low temperatures mean picking later when the grapes are too acidic. The perfect weather gives the growers more flexibility.
The Philippines now, perhaps for the first time in history, has the ability to react to whatever the world financial weather brings. If oil prices spike up dramatically, the peso can be allowed to appreciate to offset high prices. If the government needs to borrow money, low interest rates keep costs down and the strength of the economy allows borrowing in pesos and not foreign currency. If the Western economies suddenly turn down again, the economy has become more focused on local business activity and growth than in the past.
As 2010 comes to a close, it is only proper that we count our many blessings from this year. Thank you for your continued support for my small effort to bring, I hope, a slightly different perspective to the business and economic discussion. This column will return to celebrate the New Year on January 4, 2011.
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Tuesday, 28 December 2010