A
traumatized jittery fragile economy
The
Philippine Star
08/11/2003
It is easy for
us Filipinos to dismiss what happened last July 27 at the Oakwood
Hotel in Makati as just another one of those "little"
challenges that continually derail the country’s road to progress
and wellness.
Understandably,
there are Filipinos who have been so used to obstructions –
an escaping international terrorist today, a coup tomorrow –
that a potential threat to the seat of power elicits a blasé
reaction like a sigh, or at worse, a yawn.
But alas! Foreign
investors and tourists have a more difficult time getting used to
our misadventures. For one, many of them still have not forgotten
the state of emergency declared by the late dictator Marcos in the
70s that led to declaration of martial law that lasted for years,
and eventually drove the Philippine economy to the ground.
For those who
have selective or limited memory of those days, the Marcos autocracy
that lingered much too long triggered a debt crisis in the early
80s with the peso being one of the biggest casualties.
During the 1989
mutiny against President Aquino, for those who care to remember,
the economy was pushed back by at least three years. Of course,
the power crisis had by then aggravated the situation to untenable
proportions and the economy slipped by another couple of years.
The recent attempted
coup, or mutiny depending on where one’s political inclination
is, prompted analysts to quickly predict that the economy could
slow down by a year and a half to three years before investor confidence
returns once again.
Emotions
and sentiments prevail
Investors, it
seems, are easily jolted by the smallest shocks. Even before the
Magdalo group – in what they later claimed as a simple act
of protest – took over Oakwood last July 27 and wired its surroundings
with explosives, the peso has been taking a beating.
Earlier rumors
of a coup pushed the peso back to the P54 level last July 23. It
has been threatening to breach the P55 level since. Only the central
bank’s intervention and intimidation have kept the peso at
P54. Without the spurt of dollar selling and occasional calls to
bank presidents to toe the line, the local currency would have been
worse off.
Some armchair
economists do not consider the peso as a strong economic indicator
because of its vulnerability to knee-jerk reactions. But precisely
due to being sentiment-driven, the peso mirrors exactly what the
financial markets feel.
Apparently,
this jittery feeling does not give much weight to other economic
data such as a benign inflation level of 3.3 percent in July or
a budget deficit that is lower than the target of P79.6 billion.
A
peso that shivers
One of the most
predictable reactions to a national crisis similar to the Oakwood
incident is for exporters and families of overseas workers to hold
on to their greenbacks while importers and companies with maturing
debts scramble for dollars in a tight dollar spot market.
The peso’s
resultant decline brings with it a host of difficulties like higher
interest rates. Almost instantaneously, banks try to bring up Treasury
bill rates that are used as basis for pricing loans and deposits.
The perceived
risks in the local market heighten, and the government’s cost
of borrowing naturally rose along with it. Spreads of Philippine
dollar debts also rose, and with the next issuance of government
bonds, the coupon rate is expected to be higher.
Ambivalent
non-committed investors
Even the central
bank admits that every time there is political unrest, investors
– especially offshore ones – would rather stay on the
sidelines and wait until the dust settles before finally putting
their greenback in local stocks, government securities or to build
factories and establish call centers.
Before the Makati
siege, the government said foreign direct investments should hit
$1.1 billion next year or a notch higher against this year’s
expectations of a billion dollars. Today, even a modest growth in
direct investments would seem ambitious, according to a banker.
Ever
present domino syndrome
As investors
get surprised and shocked, funds to build factories and call centers
do not come in and jobs are harder to come by for the country’s
more than 10 percent who remain unemployed.
As investors
wait in the sidelines, economic activities slow down and companies
– especially manufacturing firms – have no choice but
to cut costs that always lead to lay-off of employees.
As corporate
income declines, the tax and tariff revenues of the government drop.
And this is one major reason why revenue collections are way below
expectations.
When this happens,
the budget deficit once again swells, interest rates go up, foreign
borrowings become more expensive, and the poor peso is again the
punching bag.
Uncertainties
and surprises keep economy in coma
The 16-hour "demonstration" by some 300 disgruntled soldiers
against a system they say is riddled with corruption and pitiful
benefits caused both foreign and local investors to react. The impact
on the local economy is not only to be felt now but according to
the experts, will linger on for the next two to three years.
Our traumatized
economy will remain jittery and fragile not because of this one
incident only. What will keep our economy in coma condition is the
general feeling of both foreign and local investors that there are
more surprises waiting around the corner.
All are agonizingly
waiting for what will happen next. A mass walk-out of thousands
of teachers protesting their low pay and corruption in the education
system? A Gringo arrest followed by a dramatic escape act? A state
of rebellion turning into martial law? GMA back in the running?
Players for deportation still dunking and running around town? Ateneo
losing all of its remaining games in the UAAP?
What next???
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