Core
Business World, 29 May 2012

 

The global economy is on the brink of a double-dip recession. The euro zone is in a bloody mess. Greece may or may not exit the European Union. Spain, Portugal and Italy are facing hard times. The US economy continues to be weak, even as its politicians are distracted by the November presidential elections. China’s economy is slowing. And while Japan’s economy has shown some life, the sustainability of its recovery hinges on a strong global growth.

Is the Philippines ready for another global recession? Bangko Sentral ng Pilipinas (BSP) Governor Tetangco has some brave words: “Philippine banks have continued to reduce their exposure to the troubled euro zone and thus the possibility of a further worsening will have a limited impact.”

Reassuring? No. The real impact of another global recession on the Philippines is not on Philippines banks, but on the real economy. Its impact will be loss of jobs, economic slowdown, and the worsening of the economic well-being of Filipinos.

The impact of another recession could be much worse than the 2008-2009 recession. It is likely to be more difficult to recover from an economic relapse. Initial conditions have changed. More people are jobless, poorer, and generally more tired of severe adjustment measures. Governments are now more heavily indebted and their appetite for fiscal stimulus are diminished. The impact of an accommodative monetary policy is likely to be feeble with interest rates nearing zero levels.

THREE TRANSMISSION CHANNELS

For the Philippines, the impact of another recession will be through more limited trade opportunities, zero or slower real growth in overseas remittances, and lower inflow of foreign direct investments.

All three could prove to be disastrous for an economy that is striving to grow at 7% to 8% to make a difference in the lives of its close to 100 million people.

Lower trade means less jobs for workers in trade manufactures. This means more unemployed, more poor, and more hungry Filipinos.

China could have provided a way out of our economic predicament. China, the second biggest economy in the world, could have been the destination of our exports. While China’s economy is slowing down, is inefficient and unfair, it won’t collapse anytime soon.

The Chinese economy is an important part of our desire to diversity exports. But we manage to antagonize China. As a result, Philippine exports to China are now being turned back.

Zero or limited growth in overseas remittances as a result of the euro crisis and adjustment problems in many Arab countries means slower consumption. With limited demand for overseas workers and rising uncertainty of future employment, families of OFW workers will tend to spend and invest less. This means lower enrollment in private schools and less demand for middle-income housing. This impact could be limited or significant, but it surely is not nil.

The Philippines needs significant inflows of foreign direct investments (FDIs). During the last 12 years, it has attracted very little. So far, the situation has not changed, and another global recession won’t help reverse this sad picture.

NEW SOURCES OF GROWTH

Given the looming global recession, the Philippines has to find ways to develop from within. It has to look for new sources of growth, and it has to be now. We can’t wait for the world economy to recover. The Filipino people can’t wait. In the meantime, 1.8 million Filipinos are born every year.

The President and Congress should allocate more resources for well-chosen public infrastructure projects, and the Executive departments should act much swiftly to have such projects completed sooner rather than later. A strong spending program should be supported by a fundamental reform of the tax system to show our people and creditors that the budget deficits now will be paid for in the future. The current tax-to-GDP ratio of 12% is miserably low.

President Aquino is running out of time. A third of his presidential term is spent. Yet, no significant reforms have been done so far. The state of public infrastructure remains poor. His centerpiece program, the public-private partnership (PPP), has yet to take off the ground. Peace and order situation has deteriorated. There’s no progress in the government’s peace efforts. Foreign investors continue to avoid the Philippines. Dropout rates in public schools remain high, even as school facilities continue to deteriorate.

In the meantime, unemployment, poverty, and hunger rates have reached record highs.

Congress has not passed a single tax measure not has it rationalized the costly fiscal incentives. And people are now talking about the mid-term elections next year and who will succeed Mr. Aquino in 2016.

Here’s an objective assessment of the Aquino presidency, thus far, from the well-respected weekly, The Economist (Banyan: “More Fun in the Philippines?” 26 May-1 June 2012, p. 38):

“They are going by fast. Philippine presidents, barred from serving consecutive six-year terms, do not have long to make a mark. The backward-looking settling of accounts with Mrs. Arroyo does not help… If Mr. Aquino’s presidency is to be remembered as more than an interlude under a decent, likeable man who did his best, he needs to give some dynamic leadership to the reforms the Philippines so badly needs. Noynoying just does not cut it.”