The Economic Crisis in Context

Former Chief Justice Artemio Panganiban’s column on the Sunday edition of the Philippine Daily Inquirer is what we ordinary citizens need during this period of global economic crisis — an opportunity to understand what is happening objectively, and to understand everything in the proper context.

Panganiban explained in very simple terms why the Philippine economy has not suffered the full brunt of the global economic crisis, in contrast to other highly export-oriented countries like the US.  I am posting it below.

Of course, this is not to say that we have been completely cushioned from the crisis.  We do feel the effects of the slowdown, and we now witness it everyday in the news. Just say Intel, and you’ll know what I mean.

So yes, the crisis is around us.  But we should not be misguided.  And we should be extra careful with the things that we hear as well.  Let us not overlook the need for accurate, properly-contextualized information that will help us respond to this crisis well.  Let us not base our actions on mere speculation and inaccurate information.

Obviously, for this, the government and the media have a crucial part to play.

Very recently, I called the attention of a friend, who happens to be part of a tv news program, about the inaccurate story of a reporter.  As the reporter’s story centered on lay offs in special economic zones, it included Fedex as one of the companies that closed its operations in Subic because of the crisis.  This is not entirely true.

As a journalist, I encountered the Fedex story as early as 2005, years before this present global crisis.  The real score is: Fedex had decided to move its hub to China as early as then because it could no longer expand, given the physical/geographical limitations of Subic.  Naturally, the cost of labor was also a consideration.  As early as this time, I remember Sen. Richard Gordon criticizing the national government and the Subic Bay Metropolitan Authority for its inability to convince Fedex to stay in Subic.

Reporting the “closure” of Fedex because of the crisis and mentioning it with Intel totally put the story out of context.  And of course, the wrong information can lead to more panic.  It was unfortunate that the reporter of the story did not have a background in business.  I’m sure that the business reporters in Makati were cringing when they heard the story.  They’ve always known what was behind the Fedex story.  If not, they would have gone the extra mile to simply make a call and ask, instead of just making generalizations.

There is need to be very careful to what we hear.  During the height of skyrocketing oil prices, a tv reporter mentioned that the Philippines imports its oil from the US!

I am also very careful about listening to politicians’ commentaries on the economy, especially those of the presidentiables.  Yes, the economic situation now, whether there is a crisis or not, is lamentable.  Just go to Isla Puting Bato in Manila and you will know what I am talking about.  But I wouldn’t want to be fooled either by exaggerated commentaries, that are ONLY meant to position candidates for 2010.  Come to think of it, now is the time to look more in detail at the business backgrounds of candidates — as well as the positions they have taken on economic issues, since most of the presidentiables are senators.


With Due Respect
Saving the economy

By Artemio V. Panganiban
Philippine Daily Inquirer

IT is said that when the United States sneezes, the Philippines catches a cold. Well, the US (together with much of the developed world) is down with pneumonia but, thankfully, the Philippines is not in coma. Only in sniffles… so far. Why?

Insulated from shock. In his well crafted address before the Management Association of the Philippines (MAP) last week, business leader Manuel V. Pangilinan (MVP) explained that the “intrinsic structure of our economy provides us with a fair degree of protection from the external stresses” that have “turned the world on its head.”

He said that 84 percent of our gross domestic product (GDP) is accounted for by domestic consumption and government expenditures. Our net exports constitute only 4 percent of GDP. Hence, the expected decline of our exports translates to a modest 2 percent of GDP. This simply means that the contraction of the world economy may strain some sectors (job losses, factory closures, etc.) but will not devastate us, like it does other countries.

Other factors that will help us survive the world crisis include the “positive, albeit slower, growth in OFW remittances… lower inflation rates reflected in reduced food and fuel prices… low interest rates… healthy and liquid banking system and a corporate sector that is not, on the whole, heavily leveraged… (and) improved macro-debt dynamics such as lower government debt to GDP ratio, a decrease in total external debt to GDP, and—because of the EVAT—a slightly higher tax revenue to GDP.”

Government’s role. Like other countries, our government is planning a menu of incentives to resuscitate the economy. This idea of throwing money to cure recessions via deficit spending was formulated long ago by John Maynard Keynes. However, MVP aptly advises that the success of the recipe “hinges on three critical ingredients: the size of the package; the quality of spending; and the credibility of the government and the confidence it inspires.”

Malacañang’s “economic resiliency plan” of P330 billion, equivalent to 5 percent of our GDP, appears miniscule compared with the aggregate US bailout of about $1.2 trillion, equivalent to 10 percent of their GDP. But already, some solons, like Senators Edgardo Angara and Aquilino Pimentel Jr., are asking where the money would be sourced.

Assuming the money can be properly sourced, the quality of how it is spent is as important as its size. For instance, the maintenance and repair of roads and bridges immediately creates jobs and stimulates other industries. Concentrating infrastructure expenditure in core growth areas will have maximum ripple effects.

In our politics-driven country, a huge fund in the hundreds of billions attracts a lot of pork barreling, corruption and raucous spending. “Corruption is a real concern,” warned former United Nations secretary general Kofi Annan.

The third point of MVP refers to the government’s capacity to execute the stimulus plan. I think that, considering her consistently negative trust rating, President Macapagal-Arroyo—more than ever—will need to show transparency and accountability to convince our people that this humongous stimulus package would not migrate to fatten private pockets, or to propel Charter change and other partisan agenda.

Private sector’s role. Noting that corporate greed, opaqueness and regulation failure were the main causes of the American crisis, MVP did not forget the private sector. Along with prudent regulation is the need for chief executives who would “focus on the long term rather than the next quarter.” From the Davos Forum in Switzerland, Jacob Frenkel, vice chair of beleaguered AIG, affirmed to BBC News that, indeed, lack of transparency and faulty regulations were the main culprits in the meltdown.

To the crème of Philippine business, MVP pleaded for more corporate social responsibility, stressing that the poor will be impoverished all the more by the downturn. Indeed, he knew whereof he spoke. He heads not only the nation’s most profitable company; he also chairs the country’s prime corporate philanthropist, the Philippine Business for Social Progress.

In the end, the most vital element to save the economy is participative and credible leadership. As MVP fittingly exhorted MAP, “it is ourselves who can best solve our problems because there is no greater empowerment than self-empowerment.” Similarly, philosopher Lao Tsu once said: “the poor leader is he who the people despise; the good leader is he who the people revere; the great leader is he who the people say ‘we did it ourselves.’”

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