There is a powerful disconnect between the glowing Malacañang press releases as well as the overly optimistic predictions of stock market analysts on the economy versus what the ordinary man/woman on the street feels in his/her gut.
When the headlines say that the peso is the best performing currency in the region, that doesn’t translate into more food on the table and less scrounging around for money to pay the house rent and water and electricity bills.
For most of us, the peso has actually been shrinking in value while our earnings haven’t grown at all. Because the trend has been going on since anyone can remember, the peso’s continued devaluation appears to be a god-given thing (by Mammon, the god of money, that is.) In fact, the current phenomenon of an appreciating peso must be an aberration.
Now since they’re the experts and we just happen to exist on this part of the planet, how can they be wrong. Things must indeed be getting better and the benefits of this economic turn-around should be trickling down to the middle class any moment now. The masses will have to wait just a wee bit more. (Like forever, maybe.)
Sarcasm aside, let’s tackle the claims on the macro economy head on.
Mrs. Gloria Macapagal-Arroyo, our de facto president, says that the peso appreciation indicates that the fiscal reforms her administration undertook, in particular, the expansion in coverage and the impending 20% hike (from 10 to 12%) in the expanded value added tax was correct. This has supposedly resulted in increased investor confidence in the Philippine economy, validated by the influx of speculative investments this last three months of 2005, despite the gloom and doom political scenarios that have kept the Arroyo administration on the brink.
The truth is the much-hyped “good news” on the economic front is ephemeral because it is unsustainable and highly vulnerable to the vagaries of the international market and the volatile domestic political climate.
We dare say, the Philippine economy is fundamentally unsound. Because of the backward, pre-industrial character of the economy, the country never produces enough export goods to pay for its imports, both for consumption and production, leading to a chronic trade deficit that we hardly ever break out of. This in turn necessitates foreign and domestic borrowing, the servicing of which has taken up two-thirds of government revenues. This year it is projected to take up to 87% of the national government’s earnings.
Thus the strengthening of the peso can not be taken as an absolute indicator of the health of the economy. In fact, it is when the peso is weak that exports are relatively stronger; i.e. Philippine exports are more competitive price-wise and ergo sells faster and better.
However, with the peso weak, imports become costlier and generally, leads to a slow down in production, especially of export goods that are more than 90% dependent on imported material for their production, e.g. electronics and garments.
On the other hand, when the peso is strong, Philippine goods for export become more expensive, and thus less competitive in the international market. This leads right back to the situation where the country can’t earn enough foreign exchange from exports to pay for imported necessities such as oil and machineries all the way to consumer goods such as computers, household appliances and make-up. Moreover, servicing of the $56 B foreign debt is still top priority in the government’s allocation of scarce foreign exchange earnings.
It’s a classic case of damned if you do and damned if you don’t. Except that in the case of the economy, it is the IMF-World Bank-WTO combine, multinational banks and firms and our spineless political leaders that have damned the country to a perennially poor, underdeveloped and debt-ridden status.
On the claims of increased investor confidence, on the contrary, it can be said that increases in the sales of stock certificates and other portfolio investments could be viewed more soberly as a vote of no-confidence as compared to the entry of more foreign direct investments that reflect the intention to do business in the country and not to take flight at the slightest hint of trouble in the economy or the country as a whole.
The 1997 Asian financial crisis has shown how predatory speculative investments are. The spike in portfolio investments under the Ramos administration from less than fifty percent to more than eighty percent of foreign investments was merely a momentary boost to the country’s dollar reserves. With the complete liberalization of foreign exchange controls, the hot money that flowed in just as quickly flowed out when domestic and regional conditions spooked currency speculators or attracted them elsewhere.
The so-called confidence that the foreign investors display in the Philippine economy has been at the expense of the people who have been at the receiving end of the kinds of policies the former have been hankering for; i.e. higher taxes, wage freeze, labor contractualization, prioritizing debt service in government expenditures over social services, cutbacks in government subsidies for producers such as rice farmers, removing protection for local manufacturers, opening wide areas of investment including those reserved for citizens such as mining etc.
As mentioned earlier these policies do not translate into alleviating the misery of the poor and hungry but, in fact, aggravate their already sordid and desperate conditions.
The Arroyo government’s deliberate attempt to misrepresent the improvement of the peso as a turn-around in the economy and as indicator that she has weathered her worst political crisis shows that it has not changed its old, discredited ways.
Its still is a no good, lying presidency.
Jan. 6-7, 2006