The not-so-hidden message in the current downturn


It has been a week of bad economic news here in the Philippines, one that pessimists are already calling the beginning of the end of the country’s remarkable period of good performance. A tumbling stock market, depreciating currency, and higher unemployment and lower export figures than were expected are certainly not good, but the mild panic they have provoked among the public—every post or comment on those topics on social media seems to fall somewhere in between “I told you so” and “the sky is falling”—is probably a bit overwrought. The falling indicators are not necessarily a sign of impending doom, they are not significantly different for the Philippines than they are for most of the rest of the region, and with the exception of the unemployment rate, are not even the worst in Southeast Asia.

First, the equity markets: On May 15, the Philippine Stock Exchange Index (PSEi) hit a high of 7,392; on Tuesday (June 11), the market closed at 6,556, a decline of 11.3 percent in a little less than a month. That is a bit worse than the average drop of 9.16 percent across the entire Asean, or Association of Southeast Asian Nations, but not as bad as the 12.73-percent decline in Indo­nesia’s Jakarta Composite Index between May 20 and June 12, and the 13.21 percent lost by Thailand’s SET index in the same period. Singapore’s STI, which is probably more sensitive to market pressures from the US and Europe than the rest of the Asean markets are, lost 8.4 percent in the two weeks between May 28 and June 11.

Second, the export figures: The frightening figure of 12.8 percent, representing the year-on-year decline in exports from the Philippines in April, has been the number to grab the local media’s and public’s attention, but reporting that figure alongside shorter-term indicators like the stock market closing figures, currency exchange rates, and unemployment rates is a mild abuse of dimensional analysis. A more appropriate indicator is the month-to-month export performance; that is still not positive—April exports declined 6.7 percent to $4.04 billion from March’s $4.33 billion—but is not quite as panic-inducing as the year-on-year result. And the reason it should not create a panic is, just as with the performance of the stock market, it indicates the Philippines is merely tracking the general regional trend: Overall, Asean exports declined by more than 3.5 percent in the same period (although that excludes figures not yet available from Laos, Cambodia and Myanmar), and both Malaysia (down 7 percent) and Thailand (down 16.2 percent) suffered bigger declines than the Philippines.

Third, the declining peso: In the month-long period between May 12 and June 11, currencies across the entire Asean depreciated by an average of 1.95 percent against the US dollar. The Philippine peso was near the upper end of the range in terms of the magnitude of its change, losing 4.5 percent of its value in that time period. But again, Malaysia and Thailand have seen bigger changes; the Thai baht declined by 4.58 percent, and the Malaysian ringgit declined by 7.22 percent.

And finally, unemployment: Maintaining unemployment figures accurately and according to a consistent schedule is something evidently challenging for the statistical bureaus of the Asean countries, so comparisons carry a great deal of uncertainty. Laos has not published official unemployment figures since December 2010, and Cambodia, Brunei and Myanmar have not done so since December 2011; Indonesia recently published its official unemployment rate for the fourth quarter of 2012 (1.81 percent), but is yet to release any 2013 figures. Among the four countries that have published fairly recent statistics, the Philippines’ 7.5-percent unemployment rate at the end of the first quarter of 2013 is more than double the best-estimate Asean average (around 3.4 percent) and the 0.4-percent increase in the unemployment rate in April was markedly higher than the increase in Thailand (0.23 percent), Malaysia and Singapore (0.1 percent in both countries).

The downturn in the Philippines does appear to be a regional trend, with one notable exception: Vietnam, whose Prime Minister just received a rare official scolding in the form of a less-than-glowing endorsement in a parliamentary confidence vote, has seen both its stock indexes (one in Hanoi, and one in Ho Chi Minh City) rise by more than 8 percent while all the neighboring indexes were dropping, its currency has appreciated by about half a percent in the same period, and the country posted a healthy 7.68-percent export growth between April and May.

Even though Vietnam is still beset by chronic corruption and an inflation rate, the central bank has yet to fully come to grips with (the basis of the grumbling against Prime Minister Nguyen Tan Dung), its comparative success in what is otherwise a widespread economic retreat tends to contradict the basic explanation given for the poor results in the Philippines and elsewhere: that because of economic conditions elsewhere, foreign money is being withdrawn. The four indicators—market performance, exchange rates, export performance, and unemployment—do suggest that in some ways, but at best it’s an oversimplification. In an opinion published after this past Tuesday’s sharp 4.64-percent decline in the PSEi, BusinessMirror columnist and noted stock guru John Mangun pointed out that in the midst of the rout, foreign investors actually put a positive net amount of P40 million into the market.

An excessive reliance on, or at least an overestimation of the importance of foreign investment money, an attitude which is acute here in the Philippines but affects all the Asean countries to some degree, fails to recognize that foreign money is actually a very small part of the economy, and when markets react, they are reacting out of all proportion to the cause. Vietnam, despite problems which may still catch up to it at some point, has managed the present uncertain situation a bit better because of the government’s longer-term economic orientation. While monetary control is not working very well to manage prices, Vietnam’s larger efforts to boost domestic consumption and employment—mainly through large-scale infrastructure development and support of agricultural exports—have so far kept its problems from getting out of hand, and have actually led to comparatively positive economic circumstances.

Sound familiar? For three years, Philippine economic observers, backed by correlative evidence from beyond this country’s borders, have been calling on the Aquino administration to do more than offer lip service to infrastructure and agriculture development as a means to build strong economic fundamentals. In a way, it is unfortunate that the present downturn seems to be a regional, rather than a uniquely Philippine situation, because the implication of it all is that things will “go back to normal” relatively soon. That “normal,” however, is the one keeping a vast proportion of the population jobless and in poverty. One wonders if the country might be better off if it suffered a real economic crash—perhaps then, the administration would actually start taking the economy seriously.


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