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.