10.8.09

a philippine economic review

adapted form PINOYWORLD website:The original article had the title "A Philippine Economic Review" written by Charles Avila. This same article was published by Impact but with a new title : "How bad really is the Philippine economy?" Vol. 43, No. 7 (July 2009). Thanks to H B for sharing this via NYPAA]


The Lost Decades

At a U.N. Conference on Financing for Development last December in Doha, Qatar, Member States requested the General Assembly to organize a meeting “at the highest level” - a United Nations summit- which they scheduled for 23-26 June 2009 in London (UK).

The aim was to identify both emergency and long-term responses to mitigate the impact of the crisis – increasingly perceived to be the worst global economic downturn since the Great Depression – especially on vulnerable populations. The hope thereafter was to initiate a needed dialogue on the transformation of the international financial architecture, taking into account the needs and concerns of all countries of the world.

Assessments of the impact on the ongoing economic crisis highlighted the deteriorating social and political fallout in the least developed countries and middle-income countries as well. Prospects for an early recovery have faded, forcing countries to prepare for a prolonged downturn in trade, investment and employment.

The stark reality is that the situation in the world’s developing countries – which contributed least to the crisis and yet are the ones most severely affected – has led some economists to warn of “lost decades for development” which could have catastrophic consequences for rich and poor countries alike. It seems to be bad news all around.

Filipinos still upbeat on the economy ?

Given all this, many UN Summiteers were incredulously surprised, if not shocked, when told that 44 percent of Filipinos nationwide believed that while the economy was still weak, it would soon start to recover. In the most recent 2,000-people survey by global market research firm Synovate forty-three percent of respondents even said that they had earned more in the last six months! And twelve percent of Metro Manila respondents said they were actually spending more on luxury items. In fact, the “Malling” of the country goes on unabated.

This is not to say that the current economic situation has not impacted the lives of everyday Filipinos. All across the Philippines, according to the same survey, people have become more conscious when it comes to spending, with close to two-thirds (or 59 percent) paying more attention to prices of food items before making a purchase. In addition, high-tech gadgets and branded goods topped the list of items that people from Metro Manila avoided, while over a quarter (28 percent) from Mindanao said they were giving up on outside meals with friends, choosing cheaper dining options instead. People are definitely making changes to their spending habits.

Despite the worrying trend, however, the survey interpreted the majority of people to be generally upbeat, with over three quarters (86 percent) agreeing that they will always find a way to afford some items that make them feel good.

But aren’t more people losing their jobs?

How many people do you know who have not lost their jobs? How many do you know who have? Some private survey groups say one thing. The official statisticians of the State say another. Being in some measure part of a globalized economy, let us hear from the ILO, the United Nations’ International Labor Office. The ILO puts out an annual Global Employment Trends report (GET).

The report says global unemployment in 2009 could increase over 2008 by a range of 18 million to 30 million workers, and more than 50 million if the situation continues to deteriorate. Giving a report it called “realistic, not alarmist” the ILO said that last scenario of 50 million unemployed would easily mean some 200 million workers, mostly in developing economies, could be pushed into extreme poverty.

The number of working poor – people who are unable to earn enough to lift themselves and their families above the US$2 per person, per day, poverty line, may rise up to 1.4 billion, or 45 % of all the world’s employed.

“In 2009, the proportion of people in vulnerable employment – either contributing family workers or own-account workers who are less likely to benefit from safety nets that guard against loss of incomes during economic hardship – could rise considerably in the worst case scenario to reach a level of 53 % of the employed population,” the report said realistically, not trying to be alarmist.

Meanwhile in the Philippines, in its latest survey, the Social Weather Stations (SWS) reported last May that unemployment among Filipinos has risen to a record high of 34.2 percent. This would translate into 14 million Filipinos who had no jobs during the first three months of the year. Of that number, some 2.9 million had lost their jobs within the previous three months. Of these 2.9 million, 13 percent voluntarily left their old jobs, while 12 percent were retrenched—9 percent were laid off and 3 percent had unrenewed previous contracts.

On the other hand, for contrasts, the National Statistics Office (NSO) survey showed that the unemployment rate rose by only 7 percent. Although a state agency, the integrity and independence of the NSO has yet to be seriously impugned.

The SWS survey on unemployment was conducted from February 20 to 23 using face-to-face interviews of 1,200 adults in Metro Manila, with the balance spread in Luzon, Visayas and Mindanao. Margins of error are plus or minus 2.5 percent for national percentages and plus or minus 6 percent for area percentages. The NSO, for its part, had a much bigger number of respondents at 50,000 individuals.

A third think-tank voice, IBON foundation, said that “the real unemployment rate is not 7.7 percent as officially reported but likely to be at least 11.2 percent.” IBON estimates that some 2.5% of the working age population 15 years and over should still be considered part of the labor force, which implies an additional 1.5 million jobless on top of the 2.9 million officially reported– for a total of roughly 4.3 million. The officially-released figures already show an increase of 180,000 jobless Filipinos, which was reported to have reached 2.9 million in the latest labor force survey. Combined with the 6.2 million underemployed, it means that there were at least 10.6 million Filipinos jobless or otherwise looking for more work and pay in early 2009, per IBON interpretation.

As many Filipinos are fond of saying these days, “whaaatever…” Between NSO and IBON, it may be merely a matter of definition. Whom do you include in “unemployed” and “underemployed”? Between NSO and SWS it could be additionally a matter of respondent coverage. Among all of them, there is no question: a good number of Filipinos are looking for jobs, have been out of a job, have given up looking, or are precariously hanging on to a dear job by their very finger prints.

Is work in the First World drying up?

Quite relevant to our job situation is overseas opportunity. A team of writers for the Wall Street Journal recently remarked that full migration numbers for most countries are only available after a long lag, and so don’t yet capture all the effects of today’s economic crisis. But anecdotal reports and data from government ministries and outside organizations already indicate that “the flow of immigrants from poor to wealthier countries is slowing significantly for the first time in decades while more people are returning home.” Any significant number of Filipinos with these returnees – it would be quite relevant to ask. The answer is not yet clear.

Generally, however, it seems to be a fact that the biggest turnaround in migration flows since the Great Depression has now begun. Unemployment is rising in the First World, and backlashes against foreign workers are mounting. Of course, these migratory shifts will have to have profound consequences for First World nations as well, especially in places where domestic populations aren’t growing fast enough to fill jobs or pay for social needs. And in the Third World countries of migrant origin, remittances sent home by workers are also slowing, meaning less income — and potentially, less growth.

The World Bank foresees worker remittances declining by up to 8% this year, after rising to $305 billion in 2008, or more than double the level of 2002. In this area, the Philippine share has always been quite significant and it is still unsettled whether our remittances will also decline, following world trends.

Was it not only recently when economists and policymakers eloquently argued that widespread labor movement is a win-win because it boosts opportunities for people from Third World countries while giving First World employers more options for labor, allowing them to increase efficiency and keep costs low? That, in turn, can keep inflation in check and contribute to higher standards of living. Can these economists keep up the argument when unemployment surges, income gaps widen and home-grown workers increasingly view foreigners as competitors for scarce jobs?

Given all these, is then the Overseas Filipino Worker unique – uniquely skillful and charming? It is an egoist observation based on the fact that last year did not see his deployment decline or his remittances diminish.

According to the BSP Governor: “Robust remittance flows have been shored up by strong overseas demand for Filipino skills, and the greater availability of expanded money transfer services to overseas Filipinos and their beneficiaries.” The Philippine Overseas Employment Administration (POEA) also said that the number of Filipinos deployed abroad grew by 25.9 percent to 1.005 million last year compared with 798,731 the year before. And last year they sent home $14.4 billion, equivalent to 10 percent of gross domestic product. This year Manila is projecting remittances to exceed $16.4 billion, despite the crisis which could make the figure difficult to achieve.

What about FOREX reserves?

The measure of a country’s ability to service obligations and engage in commercial transactions with the rest of the world is called its Gross International Reserves. The Philippines’ GIR registered a new historic high in May: $39.5 billion - keeping the Philippines sufficiently liquid despite the lingering global economic crunch.

Third World nations like ours have been urged to tap the international credit market to borrow and support their BOP and GIR as the lingering global turmoil is seen creating pressure on their liquidity positions. The BSP, however, said the Philippines need not borrow, noting that the country’s foreign exchange liquidity was still relatively healthy. The GIR in May was estimated to cover at least six months’ worth of imports.

The BSP said the gradual revival of market confidence in the Philippines was helping increase the amount of foreign portfolio investments entering the country. Increasing inflow of investments in securities and equities to the Philippines was partly a reason the peso has strengthened somewhat in May than the previous month. After hovering mostly in the 48 level, the peso moved into the 47-to-a-dollar territory last month.

What about inflation?

Are we in great danger of having more and more money chasing fewer and fewer goods? What the monetary authorities have said is they expect inflation to hit bottom in the third quarter this year and slightly pick up in the following months to hit an average of 3.4 percent by the end of the year, within the government’s 2.5-4.5 percent target in 2009.

Consumer price index rose 3.7 percent in May from a year earlier, a Reuters poll of 12 economists showed, marking the slowest annual rise since November 2007 when inflation was at 3.2 percent. The central bank had forecast May annual inflation to come in between 3.3-4.2 percent from 4.8 percent in April.

Economists said the inflation drop was due to a stronger currency and base effects from rapid increases in commodity prices in the same period in 2008.They logically expect the central bank to deliver its sixth consecutive interest rate cut at its next policy meeting on July 9 to lift economic growth, and probably mark the end of its current rate easing cycle that began in December.

The BSP policy was to bolster the banking system, instituting measures to provide liquidity where needed to support the functioning of the credit markets. Banks were exhorted to continue lending freely and boldly – to show the public that there’s money in our system. It does seem true that the impact of the global financial crisis on the Philippine banking system was muted due to its relatively minimal exposure to the affected financial institutions abroad – a statement that may not have been taken as a compliment a year and a half ago!

What about the real economy?

If the news in the banking system is not all that bad, how bad is it in the real economy? Are monetary policy responses to restore confidence in credit markets ever enough to mitigate the effects of the crisis on the economy? The sum of the value of goods produced and services rendered within an economy in a given period is generally considered the most common measure of an economy and it is called the GDP or Gross Domestic Product. Economists cite the drop in our GDP growth from 7.2 percent to 4.6 percent in 2008.

Moody’s Economy.com, the research unit of credit-rating firm Moody’s Investors Service, said the Philippine economy most likely shrank 1.2 percent in the first three months of the year from the last quarter of 2008. They see the full-year growth at only 2.9 percent – slower than the government’s official economic growth target of between 3.1 and 4.1 percent. The National Economic and Development Authority (NEDA) said earlier the economy needed to grow by at least 7 percent over several years in order to reduce poverty incidence.

Weak external conditions such as the steep decline in exports outweighed whatever positive factors the domestic economy had during the first three months. In the first quarter, exports plunged 36.8 percent to $7.92 billion year-on-year. This was due largely to the decline in exports of electronics, the country’s major dollar earner accounting for about half of total export revenues.

Coconut oil exports slid 72.6 percent in April from a year earlier, marking its 10th consecutive month of decline. The Philippines expects exports of coconut oil, which is used in food, cosmetics and biodiesel, to dip to 835,000 tons this year from 847,626 tons in 2008, on soft global demand as well as its increasing use as feedstock by local biodiesel producers. Actual shipments slumped to 31,638 tons last April from 115,632 tons in April 2008.

Besides the drop in exports, the move of some producers to cut output signaled a contraction of the economy on a quarterly basis. Fearful that weak demand will persist, producers rapidly cut back on staffing and investment. If inventory levels have not fallen sharply, further production and investment cutbacks may be forthcoming. The National Statistics Office reported recently that factory output, measured in terms of volume of production, fell at an annual rate of 12.7 percent in March and 20.1 percent in February.

What about our debt burden?

It is almost settled doctrine that the current crisis demands unabashed government spending. But the Philippine government may not have enough flexibility to shore up spending to a level necessary to achieve its economic-growth target for the year, set at between 3.1 and 4.1 percent. Fitch Ratings, the credit ratings agency, has already said the government debt, at nearly P4 trillion, was still high and a drastic increase in public spending could lead to a worrisome fiscal condition.

The latest is that the economy plunged to a decade-low growth of 0.4 percent in the first quarter despite the expansion in bank lending, and notwithstanding the fact that remittance flows have held up reasonably well so far. A steady rise in bank lending should sustain, if not accelerate, the growth of the economy. Through all that, it seems it is the high debt burden, along with possible inflationary pressures, that’s weighing down the fiscal and monetary policies of the government and affecting the country’s growth.

Systemic Collapse

The radical economist, Paul L. Quintos, quite perceptively wrote last year that the current global financial crisis — with the US economy at its epicenter — is merely the latest and so far most severe in a series of financial crises that have erupted since the 1970s..

At the most basic one finds the capitalist system itself to be in fundamental contradiction between social production which enables great strides in productivity on one hand, and the private ownership of the means of production which ensures that only a few profit from production by exploiting the many. The contradiction inevitably leads to crises of overproduction relative to the capacity of people to buy the productive system’s commodities and products. Before long, real production that cannot realize enough profits gives rise to shadow financial products that enables some to make tons of moneys until reality catches up with the shadows, derivatives and other profitable mental figments and thereby manifest real crisis.

Said Quintos: In 1980, the value of the world’s financial stock was roughly equal to world GDP, itself bloated. By 1993, it was double the size, and by the end of 2005, it had risen to 316% — more than three times world GDP. Government and private debt securities accounted for more than half of the overall growth in the global financial assets from 2000-2004 – which indicated the role of leverage or debt in driving this process. In 2004, daily derivatives trading amounted to $5.7 trillion while the daily turnover in the foreign exchange market was $1.9 trillion. Together they added up to $7.6 trillion in daily turnover of just two types of portfolio capital flows, exceeding the annual value of global merchandise exports by $300 billion.

“While the value of financial assets is ultimately grounded in the value created by the working class in the process of production in the real economy and cannot [should not]diverge too far from it, asset bubbles can form for a period of time driven by ‘irrational exuberance’ (in the words of Alan Greenspan). The positive expectations of financial speculators feed on each other, bidding up asset prices in a seemingly endless virtuous cycle. But like all ponzi schemes, reality eventually takes over and all it takes is one negative development, e.g. rising home foreclosures, to reverse expectations and send the entire house of cards crashing down.” And we are told that is what happened. The capitalist system collapsed.

Yes, capitalism became dysfunctional but capitalists now want socialism for themselves and dump capitalism on the poor. In short, said Quintos, monopoly capital is using the present crisis to appropriate more of the people’s (real) wealth, erode and press down on wages and social spending, lay off workers, promote precarious employment, tear up workers rights, clamp down on workers concerted actions and intensify the exploitation of the working class.

And it affected the Philippines as early as last year, said U.P.Professor B. Diokno: “In 2007, 924,000 new jobs were created; in 2008, the number was down to 530,000. This level of job generation is unacceptable for an economy that is expected to generate between 1.0 to 1.5 million new jobs every year.”

According to Diokno, a responsive jobs creation program should address five sets of unemployed and underemployed workers: those who are currently unemployed (2.7 million), those who are underemployed (6.6 million), those entering the labor force (1 to 1.5 million), those who will lose their jobs at home, and finally, Filipino overseas workers who will lose their jobs abroad.

The government, for its part, unveiled a broad spending program called Philippine Economic Resiliency Plan (PERP) worth PhP330 billion. It consists of the following:

  • PhP160 billion in incremental government allocations;
  • PhP100 billion for government corporations, financial institutions and the private sector;
  • PhP40 billion for corporate and individual income tax breaks; and
  • PhP30 billion for temporary additional benefits from the social security institutions – Government Service Insurance System and Social Security System – and Philhealth.

Some say this stimulus package may not be large enough to reverse the anticipated sharp slowdown of the Philippine economy. Others say it may even be grossly overstated. To be sure, unless people-powered participation is organized by change agents of all persuasions, the plan will be short of details and long in sub rosaappropriations and last minute looting leading to worse economic misery and heightened social unrest – or, maybe, at last, to real change.

2 comments:

  1. jah kah rod..iupdate pd na panagsa imung rpofile uie..wasa gyud ning field nto dira..joke lang

    ReplyDelete

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