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Everyone should pay attention to the warnings made by UP Economics
Professor Ernesto Pernia, the former chief economist of the Asian
Development Bank and its expert in human-development economics, that
the looming US recession, which has begun to cause a slowdown
throughout the world, will hit the Philippines hard. Harder than the
1997 Asian crisis did.
Some economists, however, still believe the
situation is not as bad as Pernia paints it.
The most complete presentation of his
forebodings came out in Newsbreak last Monday with Lala Rimando’s
byline.
Hard times will begin to be felt next month,
Pernia forecasts, up to the third quarter of the year—if the
stimulus packages recently launched in the United States work to
arrest the slowdown or recession there. If not, Filipinos will feel
the pains throughout 2008 and maybe beyond.
“It’s going to be a hard year for us.
Everyone will be affected. And the hurt will be deepest among the
low-income families,” Prof. Pernia was quoted as saying.
Economic domino effect
Although the Philippines is no longer as
dependent on the USA as our largest export market (we now sell only
17 percent of our exports to Americans, it was twice that volume
just a decade ago), the looming recession there also impacts on the
economies of our other major buyers.
We sell 27 percent of our exports to China
(including Hong Kong) and 20 percent to Japan. US purchases from
China will be as badly hit as ours. This means China/Hong Kong will
have its own slowdown, so they will not be buying from us as much as
they used to. The same goes for Japan—which, despite its hobbled
economy for many years now, buys 20 percent of our exports—and
these are not just our bananas and mangoes but the automotive parts
and harnesses we make for that country’s carmakers.
Europe buys less than 10 percent of our exports.
It will also experience a slowdown as a result of the US recession.
So even our sales to Europe—and everywhere in the world that has
to do some belt-tightening in response to economic doldrums in
America—will decline.
Cebu’s world-class furniture industry is now
already suffering from the strength of the peso. If customers in
Singapore and other countries need to economize, they will hold off
buying from their Cebu suppliers.
Less labor exports
It won’t just be the hits on our product
exports that will make us suffer.
Let’s not forget that hardworking Filipinos
are in fact our country’s biggest exports. Less money for service
companies in the United States and for companies and families in the
Arab world, Hong Kong, Macau, Singapore, Taiwan, Malaysia, Japan and
Europe will mean POEA will be deploying less OFWs to those places.
We pray all the Filipinos already holding jobs abroad are retained
by their employers. Prof. Pernia, however, worries that some may
have to be let go by the hardest-hit countries and business sectors.
This means there will be less US dollars in
remittances from our OFWs to their families. These remittances have
been a major driving force in our consumption-led economy. This
decline will hurt our malls, restaurants, supermarkets, department
stores and even the wet markets.
Bad news for OFWs
OFWs’ investments in family-owned small and
medium family enterprises will also decline. Less OFWs will buy the
condominiums now being built for them by property companies. We hope
and pray not too many OFWs who signed their installment-plan
contracts these past few years get pink slips—and end up being in
default. Less OFW funds could abort the revival of the property
market. And this will in turn mean less employment in construction
and private-sector infrastructure building.
A poorer USA, Europe, Japan and China will mean
less foreign direct investment here. And less foreign firms coming
to the Philippines to open call-centers and other business process
outsourcing offices (BPOs).
These forthcoming days of hardship for us
Filipinos will be worse than the 1997 Asian crisis. That one was not
so bad because at that time we were less pronouncedly involved in
the global economy. APEC was just starting and the vision of Asean
economic solidarity was only being fleshed out.
As usual the poorest segments of our society
will be hardest hit. With such problems as a possible rice shortage
and steep increases in the prices of food and fuel, the threat of
inflation becomes real.
Beware of kleptocrats
The administration has announced various
economic stimulus plans. Scores of billions will be spent for
infrastructure. This will create jobs and inject money in the lower
segments of society. Wonderful.
But massive government spending has a
downside—success in meeting the goal of maintaining a budget
surplus and liberation from the pressures of a deficit will have to
be forgone. This means S&P’s, Moody’s and Fitch cannot soon
raise our risk rating to investment grade.
The administration will also have to make doubly
sure that all the billions allocated and released to pump prime the
economy do not go to the pockets of the kleptocrats in the Palace
and the Cabinet. Bureaucratic theft, in the perception of most of
our fellow citizens as well as of the international
country-assessment institutions, usually gobbles up at least 40
percent of government budgets.
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