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.