The expanding global financial crisis is expected to slam the country with the force of a tsunami, which began as a ripple in a far-away land but will be at the height of its force when it hits Philippine shores. The storm signals are up.
According to blog site Innovation Journalism, the shock waves throughout the U.S. and global economy and the fallout from the most colossal financial calamity since the Great Depression has only just begun.
The government urged the public to prepare for a “worst-case scenario” amid the steady negative impact of the US financial implosion on markets elsewhere in the world. For the Philippines, an already difficult situation is about to become worse.
Press Secretary Jesus Dureza said the country would not be insulated from the global financial crunch despite its supposedly sound economic fundamentals, particularly in the banking system. That’s understating the problem. Not only will we “not be insulated” but we stand to bear the brunt of the blow in our part of the world.
The economy is already starting to contract. Government economic experts said that economic growth would likely fall to 4.3 percent this year and 4.2 percent in 2009. This is a significant drop from the claimed 7.2 percent growth of last year.
The Ibon Foundation predictably blames flawed government policy. But it gives us some sobering facts which merit deeper consideration:
The government overplays the so-called decoupling effect where the Philippines is supposedly much less dependent on the US market. On the contrary, developments in the US will still have a severe impact on the local economy as the US remains one of the country’s top exports and investments partners. Third-party partners such as South and East Asian markets are also finally linked to the US ambit.
Drops in US consumption and investments will be deeply felt as the largest part of Philippine exports directly or indirectly goes to the US. Around 20% of foreign investment in the country comes from the US. Further, some 20% of exports already directly go to the US but a large part of exports to Japan, China, Hong Kong, South Korea, Taiwan and Malaysia which take up another 50% of exports, are actually components for assembly into products whose final destination is still the US. Slower growth in third party countries that depend on the US and which the Philippines deals with will also have adverse effects on Philippine exports manufacturing.
Even the vaunted local information technology (IT)-enabled industry will be likely hit hard because of its considerable dependence on the US market, further aggravated by the continued peso appreciation. The US is an overwhelming presence in the business process outsourcing (BPO) sector and accounted for nearly 90% of total BPO exports revenue and over two-thirds of foreign equity in 2005. The impact will be most felt in the National Capital Region (NCR) where an estimated 80% of BPO employees are located.
Naturally, slow global growth will restrain overseas deployments and lessen remittances which constitute our traditional buffer against financial cataclysms. The global financial crunch could also result in further cuts in the salary and benefits of OFWs as employers react to the crisis.
Already, Filipino domestics are fearful of losing their jobs.
But a former financial adviser of President Gloria Macapagal-Arroyo warned that the much-feared collapse of the country’s financial system could happen because of “our own doing.”
According to Corazon Guidote, former presidential consultant for investor relations:
Panic in the market creates rumors. It triggers stampede which is what’s happening in the US and Europe now. The emotional contagion which began in the US is now spreading like wildfire across the globe. Confidence is the best defense in a market like this. The best way is to stay calm and ride (out) the storm.
Good advice. If we panic now, we’re dead meat. But we have to brace for the worst. Which will not be long in coming.
Sad Christmas for OFWs’ families.
The worst is not over, says the Inquirer. In fact, the economic plunge is just beginning and we’re a long way from the bottom.