Dominguez’s candor

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IN a Senate hearing on Wednesday, Finance Secretary Carlos Dominguez 3rd offered some views on the sustainability of the Philippine economy that some might find alarming.

Senator Gringo Honasan asked Dominguez whether or not the country could survive economically in a worst-case scenario in which “everything goes wrong,” for example, if the dispute with China over the West Philippine Sea would degenerate into open war, if the government’s violent anti-drug campaign would cause domestic unrest or the imposition of economic sanctions by other countries, or if peace talks with the Communist rebellion failed and led to widespread violence.

To put it in more economically relevant terms, a “worst-case scenario” would be one in which the government’s normal revenue collection would be severely compromised, either through an inability to collect taxes, customs duties, fees, and proceeds from the sale of debt instruments, or through uncontrollable spending, such as might happen in a war.

Dominguez’ response to the Senate was, in that kind of a situation, the Philippines’ present financial status of manageable debt and large foreign reserves would help the economy survive.

“Speaking from the finance point of view, our balance sheet is very strong. Our total debt is only $77 billion; our total foreign reserves are $86 billion. We have enough for 10 months of imports of goods and services so we will definitely survive,” he said.

However, he warned, the country would “have to tighten our belts,” because there would be serious difficulties.

He did not go into details of what those difficulties might be, but some of them are obvious: Beyond the 10-month import buffer period, shortages of basic necessities like food and fuel could quickly become a reality. During the crisis, spending for immediate necessities would have to take precedence over debt service, meaning that the country’s ability to borrow more to fund its needs would steadily deteriorate. Foreign reserves, which are built by export income (including business process outsourcing revenues), remittances, and foreign investment inflows, would not be replaced, or would be replaced much more slowly than they were being spent.

Dominguez’ candor in the Senate hearing is appreciated, though worrisome on two counts. First, it is not totally reassuring that the country could survive economically, with difficulty, for a little less than a year if dire circumstances arise.

Second, it may be that what Dominguez described is the best the government could do if “everything goes wrong,” but the tone of that assessment suggests that not much thought has been given to the problem, either in terms of relieving the difficulties during a potential crisis, or even more critically, what the country could do to sustain itself once its reserves were exhausted.

To be sure, the fundamentals of the Philippine economy are currently quite sound, and even though there seems to be a somewhat greater sense of uncertainty among analysts and investors about the longer-term economic prospects of the country under President Rodrigo Duterte, there is not at the moment a sense that the Philippines is at imminent risk of the sort of chaos that would be considered a worst-case scenario.

But “unlikely” does not mean the same thing as “impossible,” and history is full of examples of countries, even entire empires, which were brought to their knees in an instant; Japan, for instance, has yet to fully recover from the devastating earthquake that struck that country more than five years ago. A government whose leader is exerting great efforts to establish the Philippines’ “independence” ought to reassure its people that it has considered ways to make that independence sustainable for more than a brief period of time.

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9 Comments

  1. Yonkers, New York
    13 October 2016

    The incipient signs should begin to strike fear into those who are responsible for managing the country’s Economy, including Finance.

    The latest report says that in September alone $2.08 BILLION in “hot money”–investments in stocks or securities–left, which is 23% higher than the outgo in September last year .

    With Little Tyrant Duterte obsessed with turning his back completely on the United States, a longtime reliable ally and friend, and his simultaneously warmly embracing COMMUNIST China and Russia, the hemorrhaging of foreign investments, both “hot” and “direct” will be bound to not only continue but probably in time, actually DRY UP.

    This could turn out to be an”unintended consequence” which have the potential to spell DISASTER for the country.

    MARIANO PATALINJUG
    paatalinjugmar@gmail.com

  2. why worry if i could live the same life i used to from time immemorial.
    guys, there will never be a war in south china sea, taga n’yo yan. there will never be a civil unrest because 3m druggies get killed, there will never be a war, other than usual, between npa and afp if negotiation failed, etc.
    this is the most idiotic editorial i ever read so far…3% lang ang ayaw kay digong, 11% medyo-medyo, 86% pabor. what does it mean?

  3. If and when everything goes wrong we can blame it on the wasteful spending of our senators and congressmen on cha-cha or con-ass rather than focusing on food security such as ensuring that their constituents are provided with funds for sustainable livelihood projects such as raising chickens, pigs, ducks, cows, vegetables, and planting fruits trees like avocado, mango, etc. Additionally, providing technical guidance on performance and measurable results so as to weed out the scammers. Despite the PDAF and DAP scandals, more government funds should be allocated to these village industries. With proper oversight, these village scale projects will help in eradicating poverty, improve nutrition, education, and promote a well-being and a stable family life for all.

    Once we have achieved food independence, we do not need Congress, Senate, and the regional heads of any government agencies as these bureaucrats mostly coming from PH IVY leagues are morons when it comes to governing a less privileged constituency and history can attest to that.

    Over 100 years the people suffered in the hands of these termites of corruption, sycophants and religious hypocrites living in their mansions while the poor and downtrodden live in the dark fringes of despair and hopelessness.

    This is basic garden variety revolution that will be an anti-dote to the impact of the digital revolution that will cause a major disruptions in the OFW, BPOs, local jobs, and all dollar earning jobs and exports.

    If I were to realign the economic strategy it would be a tactical one. I would reallocate the infrastructure budgets for roads and bridges for this next 6 years to immediately address our food security and invest in rebuilding sustainable garden variety projects in our villages. Why? This should build the resiliency of spirit into our physical well being and health.

    Senator Honasan’s question is really a cry for radical change in our wasteful theatrics on the form of government and rebuilding infrastructure rather must be directed toward combatting the growing discontent in our starving population which must be addressed immediately or our country will descend into more crimes and murders. This maybe the worst-case scenario which nay cause our economy to implode.

  4. Benzirach Cruz on

    Worst case scenario? Expect broad daylight robberies, food riots, suicides where most of the victims will be the poor majority since those elites in society are protected and well-stocked with all needed commodities inside their well secured domains.

  5. Those anxieties only worry people who are afraid to leave their ‘comfort zones’; like government corruption, illegal drugs trade, nefarious activities gone unabated like smuggling for one, an economic saboteur!

    Worry not, as the Filipino people are as resilient as ever! We have a working agriculture secretary that is focused in providing us rice & food to eat in such eventuality; farmers tilling back the soils given back to them by DAR; BPO/OFW to provide our dollar reserves through dollar remittances and surge in local employment.

    Inclusive growth is the focus. So, let us all help in making it happen. Squeal those drug pushers so they can be arrested; surrender those users and clamp down on those Shabu labs!

  6. Even FVR and other past presidents combined would not be able to cope with the worst-case scenario as below. The correct answer to Sen Honasan’s query is “NO COMMENT” or Throw back this kind of question to him.

    “Senator Gringo Honasan asked Dominguez whether or not the country could survive economically in a worst-case scenario in which “everything goes wrong,” for example, if the dispute with China over the West Philippine Sea would degenerate into open war, if the government’s violent anti-drug campaign would cause domestic unrest or the imposition of economic sanctions by other countries, or if peace talks with the Communist rebellion failed and led to widespread violence.

    To put it in more economically relevant terms, a “worst-case scenario” would be one in which the government’s normal revenue collection would be severely compromised, either through an inability to collect taxes, customs duties, fees, and proceeds from the sale of debt instruments, or through uncontrollable spending, such as might happen in a war.”

  7. How is vietnam able to survive and prosper?

    Surely an efficient, no-nonsense government, leading a disciplined people can manage to move on and survive. The poor pilipinos (majority) is more than apt to it, thought we were resilient!
    The country survives mostly by remittances of its international slaves, not by any effort of the local businesses, senator, congress and other government parasites – so what is there to lose?

    Only the oligarchs, existing business parasites, senators, congressmen and thieves who will lose. That will be good riddance.

    • Those most chilled to the bones at the worst-scenario prospect are the top 10% of Phil society pyramid. the more than 46% poor will take as just another of those calamities that come “weather-weather lang.” It’s high time our people go back to the discipline learned after world war 2 and prior to Marcos’ dictatorial regime. Pity also our young generation!