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LOOKING FOR SILVER LININGS: Spots of buoyancy noted despite the worldwide pall of gloom and doom Perspective

Written by Teodoro Y. Montelibano / Special Reports Editor
IWednesday, 04 February 2009 18:11
‘You can’t have blood in the streets in Europe and in the United States and say the Philippines will be exempt [from the global financial crisis],” says Henry J. Schumacher, executive vice president of the European Chamber of Commerce of the Philippines (EECP), when asked by the BusinessMirror how he thinks the country will fare in 2009.

This, too, is the view held by Makati Business Club executive director Alberto A. Lim, who says expectations by the banking sector of a 3-percent to 4-percent growth rate this year do not give too much comfort since “we had double that growth rate two years ago and there was already high unemployment in the country.” Thus, he reasoned, the reduced rate of growth expected this year is certain to translate to even higher unemployment.

Apparently, what accounts for the high growth rate experienced by the country in 2007 is what some economists call “jobless growth,” or growth coming from sectors producing high-technology goods with high-value output—for instance, the electronics industry—but where only relatively few workers are employed.

Official figures issued by the National Economic Development Authority (Neda) placed the Philippines’ growth rate last year at 4.6 percent, a substantial reduction from a high of 7.2 percent in 2007. Socioeconomic Planning Secretary Ralph Recto, who heads the Neda, called the government’s growth rate target of from 3.7 percent to 4.7 percent this year a “challenge,” and said he expects the country to survive the repercussions of the global financial crisis.

The Philippines could very well survive the impacts of the international financial turmoil, stated Peter Wallace, president of the Wallace Business Forum, if the “government works and acts quickly, puts an end to corruption and funnels resources into productive pump priming.” Also, to recent reports about moves by solons in the House of Representatives to resume talks on Charter change, he stressed the government “must forget Cha-cha [charter change]; it’s absolutely the wrong thing to do as the uncertainty it creates is the last thing the country needs, particularly during these precarious times. We want to have stability and continuity, and business detests uncertainty.”

Talking with the BusinessMirror, all three, Lim, Schumacher and Wallace, were of the same opinion that while the world outside the Philippines is indeed struggling economically, positive factors exist which could very well insulate somewhat the country from—or, at the very least, mitigate—the effects of the financial debacle worldwide. They cited continuing remittances by overseas Filipino workers (OFWs), the still buoyant business process outsourcing (BPO) industry, a burgeoning domestic tourism, and unceasing activity in sectors producing essentials such as food, pharmaceuticals and telecommunications, among a few others.

A particular positive circumstance pointed out by Lim is the case regarding local banks and the fact that not many of these institutions have been major players in the financial investment field overseas. “Only a few [local] banks were hit and those which were suffered only negligible losses,” he said. “The banks, which were reined in by the Asian financial crisis, thankfully, were late in the game. And unlike their counterparts in the US, they were more careful in lending, which might also be partly the reason why sales of automobiles are still growing, because local banks are still engaged in consumer financing.”

Lim also credited the Bangko Sentral ng Pilipinas (BSP), which, as a result of the Asian financial crisis in the late 1990s, has succeeded in tightening credit, with many local banks junking bad assets and their balance sheets strengthened. “While there was a tightening of regulations here, the opposite was happening in the US. [Former US Federal Reserve Board chairman] Alan Greenspan made money so accessible in the US, he made it easy for everyone to borrow funds. In a way, because of this, he fueled growth in the US but, ultimately, he also precipitated the collapse of the US financial system,” remarked Lim.

The BSP may have played a role in securing banks against the international financial debacle, but there is now some apprehension that the institution, in response to indications of a recession, might relax credit too much to perk up consumer spending. “The BSP has seen that there’s no problem with inflation,” said Lim, “and that is how it should be, one of its roles being to control inflation. Fuel prices have gone down substantially, and so has the price of rice, for instance. Inflation isn’t the problem, so now it looks like the BSP is bent on easing credit regulations to stimulate the economy to grow or not fall below zero to avoid getting the country into a technical recession. Care must be taken about relaxing credit too much because we might end up getting into the same game [banks in the US were playing].”

The BSP said it sees the inflation rate slowing down to as much as almost 8 percent, with the rate continuing to drop an average of 5.5 percent till yearend. BSP Governor Amando Tetangco attributes the slowdown in inflation to lower prices in domestic oil and the strengthening of the peso against the US dollar.

That’s something to feel buoyant about, if not for the fact, pointed out Lim, that already the rate of unemployment is starting to mount. In the US, he recalls, “they didn’t say they were in recession until the fourth quarter last year. Looking back, they saw that they were starting to lose jobs as early as January. It was only a trickle then; by the end of the third quarter, the number of jobs lost was 250,000; and by yearend, 2.5 million jobs were gone. It all came in the fourth quarter.”

The government, through the Department of Labor and Employment (DOLE), sees at least some 50,000 workers overseas losing their jobs as the economic environment worldwide gets dimmer. Even while the number of overseas Filipino workers (OFWs) deployed abroad last year increased substantially, that is, by 24 percent or nearly 1.3 million workers, some cutoffs—by as much as an estimated 5,000—have already been reported in Asian cities like South Korea and Taiwan and Dubai in the Middle East.

The announcement of the world’s biggest computer chip manufacturer Intel shutting some of its plants in Asia, including in the Philippines, would mean job losses for close to 2,000 workers. Also, Texas Instruments has announced that as a result of difficulties brought about by the global financial crisis, some 400 personnel from its Baguio semiconductor factory will be laid off.

At worst, DOLE anticipates as much as 60,000 workers laid off in the electronics sector alone by yearend. DOLE Secretary Marianito Roque has also said that daily, the department has been receiving notices of retrenchments, a reduction of work shift and cuts in work hours and shortened work week. Electronics aside, the other sector to get the brunt from the financial crisis is garments, with the crunching of the economy of its largest export market, the US, which buys close to 70 percent of total Philippine garments exports.

Schumacher said the ECCP has been quite impressed with the responsiveness of the DOLE in dealing with the gloomy prospect of joblessness in the country. Roque, he said, has agreed to meet with the ECCP, among other concerned organizations, on a monthly basis to talk about ways and means by which an impending crisis in the labor sector is addressed effectively. “In our discussions with DOLE recently, we’ve conveyed with Secretary Roque the need for flexible work conditions and a more flexible interpretation of labor rules and regulations. And surprisingly he has agreed. We’ve had three meetings now and rarely have I seen a government agency as responsive as the DOLE,” he said, obviously enthused.

Very recently, the DOLE and the Philippine Overseas Employment Agency (POEA) gave a nod to a suggestion made by Schumacher for the creation of a website designed to match laid-off skilled workers with what jobs there are available. Another activity he’s discussing with the DOLE is the possibility of providing training for knowledge workers but for local research and development (R&D;) and high-technology purposes. “We don’t want to train people if the government continues to encourage them to leave the country,” he said, stressing further that “we have to change the Filipino’s mind that he has to leave the country for a job and change this paradigm of saying every Filipino who leaves the country for work overseas is a hero.”

The EECP head said he believes that opportunities for the local job market can be developed beyond the BPO industry or doing mere assembly work. “We have to move up the value chain and promote more sophisticated skills; we have to try and attract R&D; activities into the country and we can only do that if the government does not push Filipinos to go out of the country.”

Despite this general pall of gloom and doom in the world economy, there are some areas that could yield hopeful prospects in the country. The more apparent sector that comes immediately to mind is the local BPO industry, which Schumacher, Wallace and Lim believe will continue to be attractive. He predicted a slowing down of what had been a “very” fast growth rate for the industry, rather than a decline.

For his part, Lim, who thought similarly about Philippine BPOs, said at worst, growth for that particular industry will be flat for a while as companies in the US and elsewhere overseas assess their precise requirements. “But,” he stressed, “as they keep on cutting costs, they will outsource more and even if, for instance US President Barack Obama wants to keep jobs in the US, these aren’t the jobs he wants to keep but rather jobs in manufacturing, in energy, in [the car industry in] Detroit.”

Still, he said, there will probably be some kind of a lull before local BPO firms are perked up by new jobs. But the Philippines, he surmised, will have better opportunities than such countries as India, which has been the primary outsourcing destination, because of the latter’s political problems. Also, Lim thought, “as India hits its capacity, I see more BPO contracts coming our way, and the nice thing about BPOs is that they can be spread around the country where there is good English proficiency. I was in Iloilo two years ago and I was amazed at the number of call centers there!”

The local BPO sector aside, Schumacher also gave a nod toward the retirement industry as the Philippines offers an attractive alternative to retirees overseas in search of a less costly place to retire where their need for a quality lifestyle is not compromised.

Another bright spot is domestic tourism, which, Lim said, will most likely yield some growth. Lim, who used to head Ten Knots Development Corp., which owns and manages resorts in El Nido, Palawan, before replacing Guillermo M. Luz in the MBC, said, “I was in the tourism sector before and when the SARS epidemic hit in 2003, most people didn’t go abroad,” he said. “Now, we have the same effect as SARS and with budgets tightened, people are just going to see their country.”

He underlined the positive effects of domestic tourism as a jobs multiplier, benefiting not only hotels and resorts but also such local industries as food and handicrafts. Wallace, likewise, indicated that he is hopeful about the prospects in the local tourism industry in this otherwise gloomy era. “I feel upbeat about Philippine tourism. We’re seeing a considerable shift to Asian tourists coming in—Koreans, Japanese, Taiwanese, in that order, and with politics continuing to rock Thailand periodically, people in the region are looking for somewhere a bit more secure to visit.”

Wallace also informed that he had just met with Tourism Secretary Ace Durano about the making of a promotional film on the Philippines to be funded by Australia. For initial viewing in Australia, such material will subsequently be used by the Department of Tourism (DOT) to promote the country in other parts of the world.

The rise in costs of most everything, according to Lim, might even tend to favor the production of home videos and videogames. “This,” he said, “is what they call cocooning, that is, people staying home and amusing themselves by watching home movies and playing videogames, which would be good for strengthening family bonding.”

These indications of buoyancy in the local scenario notwithstanding, persistent questions about how and when the international financial crisis will even begin to ease continue. A slew of the world’s major business and political leaders in the World Economic Forum just concluded in Davos, Switzerland, think it might end in 2010, with a lesser number of attendees hoping it would by yearend. And how would such crisis finally be resolved, one wonders.

A grim picture was painted by Lim as he recalled America’s Great Depression, which was triggered by the US stock market crash in October 1929, ending a decade later with World War II and the onset of America’s war economy. “People are saying this could be a very long and deep recession and could be as bad as the Great Depression. The US got out of that through a world war. They had to gear up for World War II and the only time they started to get out of depression is when they put up factories again to build tanks, trucks and planes. But for a long time 25 percent of the US work force was unemployed.”

One wonders, indeed, how the leading economy in the world will manage to squeeze out of the fix it’s currently in. Until that happens, the rest of the world, the Philippines included, will have no choice but to be creative about surviving, and surviving the crisis well.

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