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THE volatility in the stock
exchange and the currency markets has become an embarrassment for
the Arroyo administration. But it should not be.
Since the
local bourse and the peso hit record highs, President Arroyo took no
time in taking credit for their rise. Now that their values have
pulled back from records, the ruling party’s subsequent—and
sudden—silence has become a case of bragging about the wrong
things too early.
The lesson the
administration should learn from this episode is not to stake its
success on such fickle indicators as the equities and foreign
exchange spot markets.
To be sure,
there is some merit to Malacañang’s claims. Foreign portfolio
investments have come back with a vengeance following the
government’s success in bringing down the budget deficit.
The fiscal gap
last year was way below the P125-billion ceiling, generating
positive sentiment, as the Philippines’ improving finances
encouraged investors that the government won’t drag down the rest
of the domestic economy into the morass of unsustainable spending.
With the
fiscal horizon lighting up, investors took this as a cue that it is
safe to park their funds in Philippine financial assets. The main
beneficiary of this surge in foreign inflows had been the stock
market, as low interest rates both here and abroad made fixed-income
securities or debt papers sold by the government less attractive.
The foreign
money flooding the Philippines likewise boosted the peso, as more
dollars coming in lifted the local currency. Thus the peso’s
strong showing vis-à-vis the greenback.
Of course,
huge remittances by overseas Filipino workers (OFWs) helped buoy the
peso, but history shows that money sent home by Filipinos working
abroad was robust especially during difficult times back home. This
means that OFWs would have remitted money anyway.
Thus, the
Philippines’ improving fiscal position tells only part of the
story of the stock market’s return to pre-Asian crisis highs, and
the peso’s recent appreciation.
Some analysts
have pointed to growing investor interest in all emerging markets,
and not just the Philippines, in light of their bright economic
prospects. In the case of the Philippines, there is some indication
that money has been diverted from what otherwise would have been
invested in Thailand, which has fallen on hard times since a
military clique ousted Prime Minister Thaksin Shinawatra and imposed
anti-market policies.
Other analysts
say that the stock market may be overbought, thus the correction we
saw last week. What this means is that investors believe—rightly
or wrongly—that the spurt in the prices of locally listed shares
may be unsustainable, and may be unsupported by the profit
potentials of these companies.
All the above
is not to say that the Arroyo administration’s claim of rising
affluence is baseless. The Philippines indeed has registered decent
economic growth rates in recent years, despite the shocks to the
domestic economy posed by high imported oil and slowing growth in
the country’s major market, the United States.
But the issue
the Arroyo administration should have addressed more openly is
whether the affluence has benefited the greater number of Filipinos.
The lack of conclusive proof for this has emboldened the opposition
to run ads contesting the ruling party’s claim of economic
improvements.
Moving into
the midterm elections two months from now, the administration should
clearly indicate whether ordinary Filipinos have gained from this
newfound affluence, and if so how. A rising stock market, as the man
on the street would say, is malayo sa bituka (not a gut issue).
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