 |
|
THE PARADOX OF 2007 The Philippine Star If skeptics thought that the improved economic performance of 2006 was a fluke, 2007 would have persuaded them to become less cynical, perhaps even more believing, that the country is truly on the mend and on its way to a sustained and hopefully uninterrupted recovery. The economy in 2007 is poised to grow by close to 7 percent – or even a bit higher – for the first time since the 70s. The peso is set for possibly its best annual performance ever, rising to the strongest since the first half of 2000, or months before the jueteng scandal extinguished former President Joseph Estrada's political career. The budget is nearly balanced, thanks to an accounting trick that allows the booking of non-recurring profits from privatization. The stock index is hovering near the 4,000 level for the first time, this time aided by borrowing costs that are at a 15-year low. Current inflation below 3 percent is definitely at a manageable level, while the unemployment rate at its reduced level of 6.3 percent from 7.3 percent a year earlier should certainly pull any economist's satisfaction index up another notch. Indeed, the headline numbers are rosy and indisputable, and this is partly the reason why recent attempts to unseat President Arroyo have become more difficult to successfully mount. It's pretty hard to sway public opinion against an incumbent, no matter how unpopular she is, when the economy seems to be doing well. This is about the same thing that happened in the Keeping the momentum going Now, if only the At the moment, sustainability remains the biggest outstanding issue. That is where the Philippines has managed to score poorly, having earned the distinction of managing to shoot itself in the foot every time it's ready for take off. Other than its sluggish tax collection that could lead to a possible fiscal relapse next year, bank lending data – a fundamental economic health indicator – shows it isn't as sanguine either. While loans of commercial banks, thrift banks, and rural banks grew 7.1 percent in October from a year earlier, rising from the 6.9 percent pace in September, the data isn't exactly what it seems to be. Taking out the amount that banks have parked in the central bank's special deposit accounts and overnight windows, lending growth in October was just 3.2 percent, slowing from 4.8 percent in September. This is telling us that banks are just lending to the BSP, which in turn was forced to offer higher deposit rates starting in May to control money-supply growth and inflation. Even after four central bank rate cuts this year, its six-month deposit rate of 5.75 percent is still more attractive than the government's 182-day Treasury bill rate of 4.637 percent as of the last auction this year. That six-month SDA rate started at 8 percent in May. Thus, banks are naturally enticed to do the no-brainer. Low rates, but no takers And so the central bank, having seen how lenders have taken advantage of its deposit rates and having felt the burden of paying at such high rates, started cutting rates aggressively in July. From 7.5 percent, the key rate is now down to 5.25 percent, the lowest since 1992. In theory, that level of key rate and a 91-day Treasury bill yield below 4 percent should be pulling down bank lending rates to a level enough to attract consumers to buy a car, a house or start a business. At least, policy makers are achieving some modicum of success in overseas workers who are taking advantage of lower interest fees on housing loans especially of the state-run housing agency's 6 percent rate. Overseas workers now account for between 33 to 40 percent of sales of Ayala Land Inc. and Megaworld Corp., and this is good business also for lending institutions. But it would be suicide for banks to rely completely on OFWs' home loans for several reasons, the most compelling argument of which would be the peso. The value of dollar remittances has been eroded by a fifth this year, reducing the purchasing power of the families of our modern-day heroes. At the start of the year, their $500 could buy almost P25,000 worth of goods and services; now that same amount is just worth P21,000, if not less. If the peso appreciation continues, it would be more difficult for this sector to continue its spending spree. What's worse is that some of them may now be having a hard time servicing the loans they've already taken out. And that's going to cause a new round of problems for the banking sector that has been bailed out by government in the past for its inefficient lending ways. So, other than the overseas workers, their families and the general consuming public, who else are the banks' prospects for loans? More importantly, why aren't these prospects taking out loans with the reduction of interest rates? The big corporate borrowers – the bluest of the blue – aren't borrowing because they've found that selling bonds or shares are more cost-effective than a straight-out loan. Bankers bemoan the fact that even big companies aren't just not borrowing. They're actually paying their outstanding obligations! And this has added to the money bubble that's already swirling around, largely responsible for the buoyancy of the peso, partly accountable for the robust markets that have allowed government to sell a lot of state assets at higher prices. No trickle-down effect The bank lending data is telling us that while a lot of things have improved, there's still a lot to be done. The headline growth and interest rate numbers have yet to trickle down to the level that would be significant to the general public. One cannot help being impressed that the economy is expanding its fastest in decades, the peso is at its best showing in at least 13 years, and interest rate is at its lowest in 15 years. But if all this good news does not find its way into the stomach of millions of hungry Filipinos, there's no point in gloating over such feat. “Pag-usapan Natin” at IBC-TV 13 Watch “Pag-usapan Natin,” a segment of the IBC-TV 13 news program News Tonite, from Should you wish to share any insights, write me at Link Edge, 25th Floor, 139 Corporate Center,
| |||
|