Three suggestions from Raul Fabella to boost the Philippine economy

Fabella: A weaker peso protects local producers without mechanisms like tariffs (Pic from UP Economics Society)

THE last time National Scientist and economist Raul Fabella clamored for the peso’s devaluation, a powerful but low-key government body ‘encouraged’* a newspaper columnist to criticize him and other economists who shared the same opinion. [See: Raul Fabella]
Or at least that’s what Fabella claimed after he delivered a lecture about the benefits of a competitive currency at the University of the Philippines School of Economics last November 24.

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.

Risks of Aquino’s straight path

(Jack The Scribbler is pleased to announce its first contribution: An analysis piece published in the Manila Times by its business editor, Arnold S. Tenorio. Arnold, an MBA graduate of the University of the Philippines’ College of Business Administration, deserves a wider audience since he’s one of the Philippines’ lesser-known but intelligent business journalists. And I say that because he’s not charging me anything for this piece, save probably for a few beers.)


In a press conference held shortly after Congress proclaimed him the Philippines’ 15th president, Benigno Aquino 3rd made a slip-up that would haunt his leadership for the next six years.

President Aquino said that unemployment data understated reality because they excluded people not seeking work.

Anyone familiar with the National Statistics Office lexicon — which adopts the International Labor Organization standard — knows that people not seeking work have been counted among the unemployed for the past five years.

Granted an economics degree hardly makes one an expert.

But unlike his mother — the late Corazon “Cory” Aquino who was thrust onto the political stage after the assassination of her husband — the President has opted to lead the life of a professional politician for the past 12 years.

During his nine years in Congress and three years in the Senate, Mr. Aquino served in the committees of trade and industry, and of banks and financial institutions — giving him ample opportunity to learn the country’s official statistics.

Beset by bickering

The President’s gaffe showed that like his mother, the presidency under him would likely be beset by bickering, as key allies entertain the idea of knowing better than their accidental leader.

Like his mother, Mr. Aquino was pushed to seek the highest office in the land largely because of the strong marketing appeal of a political symbol: Cory as the unimposing wife of a martyred opposition leader back in 1986; the 15th President as the unblemished son of two icons of democracy.

Like his mother, Noynoy won the presidency by tapping the majority’s disgust with the perceived corruption of the Arroyo government.

Beyond this criticism of the status quo, Mr. Aquino, as Cory back then, stood for little else.

His diverse political support — running from left to right of the ideological spectrum — indicates his allies also have nothing more binding them beyond their revulsion toward the Arroyo government.

That he secured the support of Big Business and a section of the country’s intelligentsia is owed partly to running mate Sen. Manuel Roxas 2nd, an Ivy League graduate and advocate of economic orthodoxy.

During the campaign, Mr. Aquino made no secret of his deference to Roxas when it comes to the economy.

Break rank
But Roxas’ defeat to former Mayor Jejomar Binay of Makati City, who enjoyed the support of a section of the Aquino family, has emboldened the latter group to break rank from erstwhile allies.

As key supporters wash their dirty linen in public, Mr. Aquino’s presidency risks becoming a parody of his mother’s administration, which was plagued by struggles between left and right-wing supporters.

To be sure, a string of coups similar to those that rocked Cory’s presidency does not loom on the horizon, especially since the ringleaders of military misadventures during the former administration have all but embraced the electoral process, including one faction that threw its lot with the incumbent President.

Popular disenchantment with the polls does not exist, with the huge voter turnout showing that elections remain the preferred mode of replacing leaders.

Economy in better shape

The economy also is in better shape now than when Cory assumed the presidency.

The economic conditions facing her son are far from dire, with the Philippines faring better than its neighbors after narrowly escaping a recession last year.

The impact of the global crisis had been alleviated by government and election-related spending, with the domestic economy rebounding strongly in the first quarter of this year.

Recent official data — rising money supply, resilient remittances, and growing exports — point to the Philippines sustaining its growth momentum in the second quarter.

Bangko Sentral ng Pilipinas (BSP) officials have reveled in the absence of external payments crises over the past six years, with the country’s balance of payments intact despite the recent global financial turmoil.

Catch-all remedy

Beyond the absence of the political and economic bases for extra-constitutional dissent, many Filipinos saw their hopes raised by the victory of a candidate for president who proffered a catch — all remedy to their misery: Without corruption, poverty would end.

For a low-key scion of a wealthy family to enjoy a wide margin of votes over a popular second-runner such as former President Joseph Estrada is owed to more than just the moral overtones of Mr. Aquino’s campaign.

His campaign’s deft appeal to the deep religiosity of Filipinos was most evident in the then candidate for president’s final TV ad urging voters to opt for his straight path, not the crooked one laid down ostensibly by the former administration.

Expectations consequently ran high that the new government would improve the people’s condition. Whether the new President can deliver is another matter.

Uneasy alliance

During his inaugural speech, Mr. Aquino admitted that the road ahead is difficult.

His first year in office will indicate which faction in the President’s support base would have to go.

Given the diametrically opposed views on economic reform held by key allies, the new administration would likely suffer its first blood-letting when it takes on the urgent task of ensuring the country’s recovery from the global crisis.

For underneath the very public wrangling for credit on who brought the most to Mr. Aquino’s successful campaign is a more fundamental policy difference among supporters.

His straightforward campaign slogan hides an uneasy alliance between those who opt for huge social spending to eliminate poverty, and those who fear that such tack would unsettle the sound macroeconomic fundamentals already laid down by the former government.

Cracks to grow bigger
The President’s insistent refusal to raise taxes despite the contrary view held by the country’s foremost economists may please both strong-state and neo-liberal supporters in the near term.

But when the time comes to foot the bill, the cracks in the Aquino administration are likely to grow bigger.

The challenge of rebuilding the economy after the worst global financial crisis in decades, two deadly typhoons, and a prolonged dry spell point to the need to keep the public tap flowing.

In a symbolic break from the previous administration, the new government announced it was ditching its predecessor’s balanced-budget goal in favor of “managing” the fiscal deficit by raising the tax effort.

Having sworn against additional levies, the Aquino government is anchoring its revenue generation on pursuing smugglers and tax cheats, on top of administrative measures aimed at tightening collection.

Estimates of any windfall from these initiatives, however, come close to meeting only half of the expected budget deficit for this year.

Zero-base budgeting
The new government is also toying with the idea of instituting zero-base budgeting in a veiled attempt to reduce overall spending by limiting expenditures to priority programs and projects.

This entails redoing the budget proposal drafted during the previous administration, and risks a clash with a legislature that is used to dispensing the national spending bill as largesse.

A more dangerous proposal is to rechannel the proceeds of state asset sales to profit-making sectors. This is a roundabout way of enlarging the state’s presence in the market, and would undo more than two decades of privatization.

Financing the huge social spending requirements through borrowings also has its limits.

On the international front, Europe’s own debt crisis has unsettled financial markets worldwide, threatening another credit crunch.

In the domestic market, it remains to be seen whether liquidity would be ample, especially as businesses crank up borrowing to take advantage of record-low interest rates and to build up capacity.

This early, the private sector is asking the Bangko Sentral ng Pilipinas to lift its single-borrowers’ limit on banks, thus signaling robust business appetite for funds.

Serious loss of face

The resilience of remittance-led consumer spending points to this pillar of growth as a source of additional funds for pump priming.

Raising taxes is the path of least resistance as far as revenue generation is concerned, but doing this would result in a serious loss of face for the President, eroding the goodwill that he earned during the electoral campaign.

This brings us to a second key issue his government must face: What to do with the former administration’s perceived corruption, given Mr. Aquino’s campaign promise to go after graft starting at the top.

Recent history is replete with lessons on how not to pursue one’s predecessor.

The previous administration sowed social strife when it prosecuted Estrada, while Cory’s attempt to deliver justice to martial-aw victims also ended in failure.

Distaste for corruption

Mr. Aquino’s key supporters may share a distaste for the perceived corruption of the previous administration.

But not everyone who backed him may agree on how and when to deal with this matter.

Unlike Estrada who was driven out of power, former President Gloria Arroyo has secured a seat in the House of Representatives — a toehold on power that she can use to parry the new government.

A policy of vindictiveness would roil Congress, distracting it from the task of securing economic recovery.

This in turn risks eroding business confidence, and wasting the country’s rare opportunity to have emerged from the global crisis relatively unscathed and ahead of its neighbors.

Equivocation on the issue of corruption, however, is equally fraught with risks.

Inaction would derail the President from his avowed straight path and dash the people’s newfound hope for meaningful change.

Consumers buy in bulk, depleting supermarket supplies

Metro Manila residents are buying goods in bulk, depleting inventories of supermarkets, hours before a typhoon is expected to make landfall.

Consumers have made a mad scramble for items such as sardines, biscuits, instant noodles, candles, batteries, and flashlights, the president of a Philippine supermarket association told GMANews.TV.

“People are alarmed and they are buying more than what they need,” Steven T. Cua, president of the Philippine Amalgamated Supermarkets Association Inc., (Pagasa), said. The industry group is composed of supermarkets that serve the low to upper-middle market.

“Selling areas are crowded and queues are very long,” he said on Friday evening as television news programs aired reports of empty grocery shelves.

Demand for instant food items have surged since these can be prepared and consumed easily, Cua said.

These food items can also be transported with minimal difficulty should consumers be forced to relocate and/or leave their homes in case of floods, he added.

For the past few days, appetite for instant food items was driven by bulk-buying for relief operations for victims of the storm Ondoy.

But on Friday night, consumers stocked up on their supplies, alarmed that a new storm may unleash effects similar to those wrought by ‘Ondoy’ just a week earlier.

In the meantime, demand for candles, batteries, and flashlights was spurred by rumors that the Manila Electric Co. (Meralco) will be cutting off power in its areas upon the arrival of typhoon “Pepeng.”

Meralco, Metro Manila’s lone electricity distributor, has denied the report.

To ensure that inventories are well-stocked, supermarkets have switched brands, especially if quality, price, and sometimes even the manufacturer are the same, Cua said.

He also acknowledged that inventories have been reduced as some deliveries were delayed by floods that were caused by record amounts of rainfall a week ago.

But buffer stocks of basic goods remain stable, Cua said.

This view is shared by Corazon C. Curay, logistics director at the Makati-based XVC Logistics Inc. Curay is also the president of the Supply Chain Management Association of the Philippines (SCMAP), an industry group that represents firms that store and deliver goods made by manufacturing giants such as San Miguel, Nestle, and Johnson & Johnson.

Damage to inventories has been minimal, Curay told GMANews.TV in an earlier phone interview held four days after Ondoy submerged the Philippine capital.

“Manufacturers just have to catch up on production,” she said, adding that some companies may be forced to sell their products in larger or smaller sizes, depending on their stocks.

Although Curay expects an increase in bulk prices of raw materials, companies will refrain from passing on the hike to its customers since it may translate to lower market share.

She also downplayed apprehensions that delayed deliveries and increased demand will boost basic goods’ prices.

Cua agreed.

Despite reports of increased bulk-buying – which raises the possibility of higher goods prices – neighborhood groceries have yet to buy double of what they usually purchase, Cua said. This indicates that they do not expect higher prices in the short term, Cua explained.

“If they wanted to take advantage of higher prices in the future, smaller stores would have bought more,” Cua said.

“People are just reacting too quickly to news of the storm,” he said. “Consumers should just buy supplies good enough for one and a half days, instead of three.”

Score one for sex video scandals, zero for the economy

Score one for sex video scandals, zero for the economy
Or make that 0.4 percent for the economy, the rate of its growth for the first three months this year.
Besides being the lowest in ten years, the first quarter turnout is also below government expectations.
This has prompted Manila to warn of a recession, defined as an economic decline for six months or more.
But who’s keeping track? Or more appropriately who cares?
No one, save for businessmen, economists, geeks, and business reporters who are required to ensure the veracity of their facts and figures.
A recession — or even the possibility of it — is bad news.
And to many Filipinos, bad news is old hat.

Katrina Halili in an FHM glam shot before her sex video reached the internet

Katrina Halili in an FHM glam shot in better times.

Whether in the form of a power rate hike, a fare increase, or yes, even a recession, such developments are taken as a matter of routine; the knee-jerk reaction of a people who have long been deprived of their rightful share in the country’s financial bounty.
As a result, even after the government dared mention the “R” word, it barely caused a stir.
Sure, a continued slowdown raises the specter of factory closures and job losses.
So what else is new?
In a country where the number of jobs is — and has always been — as inadequate as the number of honest and competent officials, news of the economic slowdown is par for the course.
This explains why on Thursday — the same day the government warned of a recession — the whole country was agog with activities in the Philippine Senate.
Unfortunately, it was for reasons barely connected with legislation.
The august chamber was holding an investigation into a sex video scandal, involving actress Katrina Halili and her doctor, Hayden Kho Jr.
Not only was it given full, blow-by-blow coverage by television, radio, and internet news Web sites, the Senate hearing was unquestionably the day’s biggest event.
And that was just the beginning.
The event may yet attract more cameras and commentary as the Senate proceeds with the investigation supposedly in aid of legislation.
Meanwhile, substantial airtime and bandwidth alloted to the sex video scandal prompted a concerned citizen to send an email to GMANews.TV, which is my employer.
It could have been addressed to anyone.
“It’s time you all started to deal with, and report, the important issues facing the Philippine Republic,” the email message said. “I love this country, the people are the nicest in the world, but it may be about to go into recession and OFWs around the globe are already feeling the effects of the international recession.”
“It is no secret to the rest of the world that the Philippines is plagued with rampant corruption that reaches the highest levels of government, and you choose to waste 45 minutes discussing a sex tape for days on end?”
Point well taken.
Thanks F. for the reminder.
Except that between sex and serious business, very few would arguably choose the latter.

A slightly altered version of this piece can be found here.

Book Review: Poverty of Memory by Renato Redentor Constantino

HOWEVER cleverly written, newspaper columns have never been given a decent break.  Treated as the poor cousin of the essay, opinion columns and other similarly-configured pieces of writing have been disallowed membership into the literary club.  Which perhaps explains why in the early nineties, Adrian Cristobal decided against asking fellow columnist and current Makati representative Teodoro M. Locsin Jr. from writing the foreword of Pasquinades, a collection of Cristobal’s pieces printed in the weekend supplement of the defunct Daily Globe, of which Locsin was publisher.  “…I believe that a collection of newspaper columns in book form is sheer vanity: what is perishable—and newspaper pieces are perishable—should be allowed to perish without benefit of clergy,” Cristobal said in his book’s introduction. “[B]eing a ruthlessly honest writer, [TeddyBoy] might go at it too well for my comfort, and I happen to perversely value his friendship more than his honesty.”  Although Locsin was able to defend himself in a speech he delivered at the book’s launch which was later published in the Philippines’ Free Press, their witty exchange emphasized the amorphous position occupied by well-written, non-straightforward news pieces published in dailies, weeklies, and some glossies.  Are such pieces simply just passing fancies, perishable goods to be consumed today and discarded tomorrow? Is there a clear demarcation between the non-fiction piece written under a tight deadline as opposed to the one that was produced leisurely?  An easy enough answer is provided by American critic Cristina Nehring in a May 2003 Harper’s Magazine essay.  “[T]here is only good writing and bad writing, strong thinking and weak thinking,” she said, in a piece entitled, Our Essays, Ourselves: In Defense of the Big Idea.  Going by the Nehring protocol, the collections and anthologies of a number of Filipino writers are not going to lose their luster anytime soon. Besides the work of Cristobal and others, among these anthologies include Renato Redentor Constantino’s The Poverty of Memory: Essays on History and Empire.  With four sections discussing an impressive array of topics—an American anti-imperialist group protesting US annexation of the Philippines to a profile of Iran’s pro-poor prime minister Mohammed Mossadegh—Constantino’s collection is more than just a samples of good writing and in-depth research. It is proof that combining talent, tenacity, and noble intentions can do more than just beat deadlines: it can stimulate ideas, widen perspectives, and help propose alternatives to the current local millieu, which has only helped to deepen oppression, encourage mediocrity, and tolerate ignorance.  In “The vitamins of Erma Geolamin,” Constantino relates the life and times of a domestic helper who has spent 14 years in Hong Kong only to find out later that the money she sent home was squandered by her husband who has been living with another woman.  “Another familiar story…It’s like the relationship between overseas Filipino workers and the Philippine government,” Constantino says, referring to the larger, menacing yet often-overlooked form of squandering: the Philippine government’s automatic provision of using precious dollars earned by the likes of Geolamin to pay for fraudulent, graft-tainted debt, exemplified by the Bataan Nuclear Power Plant (BNPP). These automatic debt payments, Constantino adds, is “a monumental barbarity that re-exports the dollars remitted by overseas Filipino workers.”  While also celebrating the achievements of these unsung Filipinos, Constantino nevertheless offers a few rules for those intending to secure a brighter future for everyone.  “Rescuing tomorrow from those who wish to appropriate it carries some requisites,” he says in the introduction. “History must penetrate memory. Memory must permeate history. Act deliberately but with dispatch. Understand. Listen. Reach out. Act with others. Rescue tomorrow together. Hope abounds. “The future’s already here,” said the writer William Gibson. “It’s just not widely distributed yet.” Thankfully, in less than 300 pages, Poverty of Memory succeeds in its attempt to enrich and enliven Filipinos’ collective consciousness.


This shortened version of a longer unpublished review will finally see print in the March 2 issue of Personal Fortune, the monthly magazine of Business Mirror, a Philippine broadsheet