RESCUE PACKAGE, PINOY STYLE

The Philippine Star
10/24/08

Resiliency – that much-abused word describing the Philippine economy – has given Filipinos a false sense of security that things would turn out fine even as the world suffers from its worst financial crisis ever since the Great Depression.

When the Philippine gross domestic product (a measurement of our economic growth) managed to rise by a humble 4.6 percent in the second quarter, our economic managers took comfort in the fact that output remained respectable, thanks to domestic consumption that had been aided largely by brisk remittances from overseas Filipinos.

Never mind if a portion of these Filipino expatriates could soon be heading home, and in consequence, could affect the amount of dollars being sent home.

Some local investors even consoled themselves that our stock market didn’t fall as badly as the others, believing that the Philippines may have decoupled from what is happening in the U.S., and that the relatively small drop of the market and its low turnover suggesting how strong the local market is.

Well, these stock market traders were hiding the fact that most of the foreign investors – especially those more risk averse – had already left the Philippine market long before others pulled out.

Facing reality

The reality is that while the economy has proven its resiliency, there isn’t any guarantee that it would be left unscathed by the U.S. toxic mortgage-induced financial crisis.

Global equities and fixed instruments may have already stabilized from the volatility experienced early this month, but the drastic effects could only be reflected in the local economy six months down the road, meaning that the real crisis may just be starting.

Larger economies have come up with their respective rescue plans for their banking industry, the most prominent being the $750-billion bailout package of the U.S., which involves the Fed buying banks’ bad assets in order to infuse liquidity and thaw what has been described as a frozen credit market.

Locally, the Bangko Sentral ng Pilipinas insists the Philippine banking system remains sound and resilient, with its exposure in risky U.S. assets accounting for only 2 percent of total assets. The exposure may be small relative to assets, but banks are nevertheless rushing to raise funds to beef up their capital.

The U.S.-led crisis – and the consequent recession the global economy is almost sure to suffer – provides us the opportunity to look at our own state of affairs. The question is: How do we survive this global misery?  

More deposit insurance cover is a must

At a time when investor sentiment is on a rollercoaster ride, authorities must first work to assure the public that the funds they have with the banks are safe. Otherwise, we’d be headed to where the U.S. financial system is right now – a banking sector that has no money to lend because most of its depositors have chosen to keep their funds under their mattresses.

There are those who say that the proposal of Malacanang to increase deposit insurance to P1 million would be costly on the part of the government and banks, and doesn't make economic sense considering that with the Congress proposal to double the cover to P500,000, more than 97 percent of all deposit accounts are already covered.

An increase in depositors’ guarantee, whether to P500,000 or a  million, would require more capital infusion from the government which is already facing dwindling revenue collections and rising expenses.

Bringing in new money

Offhand, a significant hike in deposit insurance coverage could be managed in such a way that should attract more money into the local banking system instead of being salted away abroad in dollar or euro accounts or put in high-risk investment portfolios.

The Philippines has one of the lowest savings rates in the world, in large part because Filipinos are afraid to put in their money in the banks after hearing so many stories of countrymen losing most of their life savings in the many instances of bank closures.

With a higher deposit insurance cover, many would definitely be more at ease placing their lifetime savings and retirement money in banks rather than in speculative stocks, or worse, hiding them at home.

Assuring words, yes, but actions better

Lately, we’ve also been hearing a lot of reassuring words.

The other day Banco Sentral ng Pilipinas (BSP) announced a dollar repurchase facility that would provide foreign currency liquidity to banks if needed, the intention being to prevent sharp volatility in the foreign exchange market and prevent the peso from further sharp losses versus the U.S. dollar.

The moment Lehman Brothers went bankrupt, BSP went on record to assure the public that Philippine banks are sound, safe and stable.

hey’ve been trumpeting this line everyday now for the last weeks that … well, we all know about the lady who protested too much.

The central bank likewise announced a standby facility that banks can avail in case of a liquidity crunch; this was followed up with a cut in banks’ reserve requirements, or amount of funds placed with the central bank as reserves, no doubt to provide liquidity in a very tight market.

Last week, the Philippines hugged the headlines when President Arroyo announced the World Bank was setting up a $10 billion rescue package for ASEAN, even bragging that the Philippines was in the forefront of this effort. The following day, World Bank issued a denial and for several days government economic managers were busy issuing statements to “downplay” the erroneous claim.

I’d like to end this parley with what Economic Planning Secretary Ralph Recto said about whether ASEAN badly needs a bailout package. His reply was: Would you do an earthquake drill when there’s already an earthquake?

That could have been a witty reply, but not if you realize that many people wouldn’t shout “Earthquake! Earthquake!” when there really is none.
The threat is real and we have to brace ourselves and come up with rescue packages relevant to local conditions, Pinoy style rescue programs but with fewer words, please.

Collegiate Champions League update

The stakes are high in the 2008 Philippine Collegiate Championship games presented by SMART, PLDT, KFC and FilOil Flying V Sports. The last team standing will be hailed as the sole national champion with the distinct privilege to represent the country in collegiate international competitions like the 2009 Universiade at Serbia.

Apart from these bragging rights, FilOil Flying V group of companies is giving directly to the schools represented by the winning teams the following grants to support their sports development programs: P500,000.00 to the champion, P200,000.00 to the runner-up, P100,000.00 and P50,000.00 to the third and fourth placers, respectively.

On top of the above, Manny V. Pangilinan, president of Samahang Basketbol ng Pilipinas (SBP), has volunteered to put up an additional amount of P850,000.00 to be awarded directly to the coaching staff and players of the top four teams in recognition of their extra time and effort in preparing and competing in the search for the national champion.

For more details about the biggest collegiate basketball event for the year presented by SMART, PLDT, FilOil Flying V and KFC visit the official website, www.CollegiateChampionsLeague.net and www.gameface.ph, internet media partner of PCCL.

Should you wish to share any insights, write me at Link Edge, 25th Floor, 139 Corporate Center, Valero Street, SalcedoVillage, 1227 MakatiCity. Or e-mail me at reydgamboa@yahoo.com. For a compilation of previous articles, visit www.BizlinksPhilippines.net.