A bold forecast

While at the helm of the Philippines' central bank, Amando Tetangco Jr. was able to help boost economic growth to its highest levels in more than three decades.

[Blogger’s note: Here’s another piece — an editorial — written by Arnold Tenorio, the Manila Times’ business editor, for the paper’s February 21, 2011 issue. The piece may be “dated,” he himself told me in an email message, since “it was written before the BSP raised policy rates.” [See: Manila Times]
“But I believe the value of this piece is that it pointed out the structural impact of OFW [Overseas Filipino Workers’] remittances and to a lesser extent of the BPO [business process outsourcing] sector not only on the [Philippines’] external payments position, but also on GDP [Gross Domestic Product], particularly PCE [personal (or private) consumption expenditure],” his email said. “As always, I appreciate a little space in your precious blog. Thanks.” (Yeah, right.) So here you go, another piece by Arnold.]

THE Bangko Sentral ng Pilipinas (BSP) forecast of a seven to eight percent growth in the country’s gross domestic product (GDP) this year is the boldest official pronouncement yet of what’s in store for the domestic economy this year.

Speaking before members of the country’s organization of business journalists, BSP Gov. Amando M. Tetangco Jr. said GDP growth would come in faster than the 34-year record of 7.3 percent last year given the uneven growth trajectories of the advanced economies on the one hand, and their emerging peers on the other.

The BSP chief also pointed to higher interest rate differentials, which have benefited emerging markets in terms of a greater share of capital flows.

In fact, monetary authorities recently raised their forecast for the country’s balance of payments (BOP) to reach $6 billion to $8 billion this year, and our gross international reserves (GIR) to hit a record $70 billion.

Aside from these international developments, Tetangco pointed to the BSP’s macro-prudential measures, which have prevented asset bubbles from emerging in the Philippines.

According to the governor, asset valuations in the country have yet to reach bubble-like proportions because of the strong underlying macro-fundamentals and the BSP’s prudent regulatory framework, which has provided safety valves and has channeled resources to those sectors that most need them.

All these local developments have contributed to the country’s low and stable inflation, in stark contrast to the surge in prices among neighboring emerging markets.

This is why, the BSP insists, they are not behind the curve as far as monetary tightening is concerned.

According to our monetary authorities, the Philippines has been among the few countries that have enjoyed positive real interest rates, thus requiring no policy tightening despite the return of what appears to be the inflation surge of 2008 all over again.

In the Philippines, inflation last year averaged 3.8 percent, at the low end of the central bank’s target of 3.5 to 5.5 percent.

A crucial factor explaining this low inflation environment is the country’s ample GIR, which in turn is a function of the Philippines enjoying BOP surpluses in recent years.

Last year, our GIR grew by 40 percent to $63.608 billion from $45.591 billion in the same period in 2009, reflecting a new record high.

The country also registered a BOP surplus of $14.403 billion, or 124 percent higher than the 2009 surplus of $6.421-billion. The 2010 surplus was more than $6 billion higher than the revised $8.2-billion forecast for the period.

Largely contributing to this whopping performance was the rebound in exports, as global trade flows recovered from the slump of the previous two years.

In the particular case of the Philippines, two other factors that led to the robust external payments position were the resilience of overseas Filipino worker (OFW) remittances and the country’s growing share of the outsourcing and off-shoring market.

Money sent home by OFWs rose to a new record of $18.763 billion, slightly exceeding the BSP’s forecast of $18 billion for 2010.

As for the country’s share in the global outsourcing pie, anecdotal evidence points to the Philippines’ lead as far as employment levels in the call center segment alone are concerned.

What the two phenomena — rising OFW remittances and call center employment — suggest is that the Philippines not only has strong sources of foreign exchange besides the traditional external trade of merchandise goods.

Equally, if not more important, is that the country has a steady and growing source of dispensable income, which fuels personal consumption expenditure (PCE), heretofore the main engine of Philippine economic expansion.

That PCE didn’t contract owed to the steady income of these two demographic groups — OFWs and call center agents.

They are the heroes who helped prop up the Philippine economy amid the worst global financial crisis in decades, and — we suspect — the same groups that would sustain our growth this year and well into the medium term.

Companies are aware of the two groups’ economic influence, and have since deployed their marketing efforts to corner a piece of their incomes.

We hope the government likewise would realize this potent force that has prevented the domestic economy from unraveling during the depths of the recent global crisis.

From where we stand, the OFWs and call-center workers most likely will be responsible for a big chunk of the bold economic growth forecast set by the BSP.

Lewis on defending the boom

“It is deplorable that some executives fiddled their books and stole from companies. But their behavior was, in the grand scheme of things, trivial. Less than trivial: expected. A boom without crooks is like a dog without fleas. It doesn’t happen. Why is that? Why do periods of great prosperity always wind up being periods of great scandal? It’s not that it happens occasionally. It happens every time. The railroad boom makes the Internet boom look clean. The Wall Street boom of the 1980s, the conglomerate boom of the 1960s, when they came to an end, had their evil villains and were followed by regulatory zeal that appears to have had exactly zero effect the next time the stock market went up.

Is it possible that scandal is somehow an essential ingredient in capitalism? That a healthy free-market economy must tempt a certain number of people to behave corruptly, and that a certain number of these will do so? That the crooks are not a sign that something is rotten but that something is working more or less as it was meant to work? After all, a market economy is premised on a system of incentives designed to encourage an ignoble human trait: self-interest. Is it all shocking that, when this system undergoes an exciting positive transformation, self-interest spins out of control?

Of course, it is good that the crooks are rounded up. We all can move on feeling as if justice was done, and perhaps the next time around fewer people will succumb to temptation. But in the meantime it’s worth asking: how did the crooks get away with it in the first place? Where were the bold regulators and the fire-breathing journalists five years ago, when it actually would have been a little brave, possibly even a little useful, to inveigh against the excesses of the boom? Where in the stock market of five years ago was Eliot Spitzer? (Fully invested with Jim Cramer, who wrote the book about how to use the media to juice one’s own portfolio.) Where was the press? Egging on the very people they now seek to humiliate. The very people who are now baying so loudly for blood were in most cases creating the climate that rewarded corrupt practices.

Around the time the Enron scandal broke last October, there was a good example of just how effortlessly the celebration of the 1990s became a retribution of the 2000s. As gleefully reported by Forbes magazine, Fortune magazine was about to go to press with a cover article for its November 26 issue about the post-9/11 economy in which “the smartest people we know” were consulted. As it happened, one of those people was Kenneth Lay, the chairman and chief executive of Enron Corporation. The issue was laid out, with Lay’s picture right there on the cover when the Enron scandal broke. You might think that would pose a big problem for Fortune magazine, but if it did, the magazine didn’t show it. Using a nifty 1990s piece of photo-editing software, the editors were able to erase Ken Lay. Fortune published on schedule and, ignoring all the flattery it had lavished on Enron over the past few years, piled right onto the scandal. It took only a few months before two of Fortune’s writers had sold their Enron book for $1.4 million.

Good for them, I say. We all have to earn a living. But the next time some editor, or regulator, or politician seeking re-election, begins to shriek about the iniquities of the boom, someone needs to turn to him and ask: where were you when it was happening? And if the answer happens to be, “Making the boom work for me,” the best thing you can do is forgive him for it. Really, it wasn’t such a bad way to spend your time.”

— Michael Lewis, In Defense of the Boom first published in October 2002 issue of The New York Times Magazine and anthologized in a 2009 book he edited entitled Panic: The Story of Modern Financial Insanity