As US Economy Tanks, Philippines Gets Set for Downturn

By Carlos H. Conde

Often described as the sick man of Asia, the Philippines appears to be walking an economic tightrope again. Its currency has fallen sharply against the US dollar from a high of P44:US$1 to P50:US$1, a fall of 13.6 percent since August. Three of the pillars of its economy – call centers, electronics exports and inward remittances — are all deeply exposed to the US economy, which is going into the tank.

Yet, for now at least, Simeon Mari Sillona, a human-resource officer at an outsourcing company based here, says he isn’t worried. In charge of recruiting the company’s call center agents, he says his company has not scaled down its hiring nor has it lost any clients.

“No one in my company has been laid off because of the financial crisis,” Sillona said. “So despite what we’ve been reading, things are actually looking up for us.”

His company, the Nasdaq-listed eTelecare Global Solutions, is one of the leading outsourcing companies in the Philippines, with top US clients such as AT&T, Sprint and Dell. Although the company posted a 67 percent decline in profits in the third quarter, it was mainly due to expenses for its expansion. The company, for instance, has put up eTelecare Nicaragua and is looking to expand to other Latin American countries.

If only the 900 employees of another Manila-based call-center company who were laid off this week after a major client in the US went bankrupt could share Sillona’s optimism. Although the company, Advanced Contact Solutions, employs more than 4,000 workers in the Philippines, the firing of the 900 caused concern in the local outsourcing industry, with many considering it a portent of worse things to come.

“This was due to declining business volumes from the ongoing US subprime financial crisis, as well as lingering customer concerns regarding a major US client which recently emerged from Chapter 11,” the company said in a disclosure on Thursday.

The impact of the crisis is not limited to outsourcing. The electronics sector, which accounts for nearly 60 percent of the country’s export revenues, declined by 2.7 percent in September compared to the same month last year, according to the National Statistics Office. Garments, the second biggest export revenue earner, also fell by 5.9 percent. The US has been the primary destination of the two export products.

Rosario Bella Guzman, executive director of the economic think tank Ibon Foundation, said in a recent paper that the Philippine economy will be affected by the global recession because “it is significantly linked to the US economy and other foreign economies” and that “it has basic weaknesses and vulnerabilities.”

“The Philippines has varying degrees of economic dependence on other countries—90 percent of its total foreign trade and investment is with these countries—so there will be a cascading effect through various countries,” she said.

As the crisis spreads across the globe, the primary worry now is its impact on the millions of overseas workers, whose remittances – more than US$14 billion in 2007 – are helping to keep the economy afloat. “In a global recession, immigrants are the first to go,” Emmanuel Leyco, an economist at the Asian Institute of Management, said last week.

However, Guzman hasn’t seen a drastic drop in the number of OFWs, as they are called here, saying that while they may be the first to get fired as the US economy worsens, “they will also be the first to be rehired in cheaper and lower quality jobs as the US economy continues to reel from the crisis.”

“What is likely, however,” she pointed out, “is that OFW remittances will slow down due to falling and negative incomes and social services and mounting debts in the host countries, particularly the United States.”

Apart from boosting consumer spending, which helps explain the popularity of huge shopping malls – some of the largest in the world — these remittances from an estimated 9 million Filipinos abroad, a tenth of the entire population, have likewise strengthened the banking system and the telecommunications industry, to name two industries. These remittances represent the second largest source of revenue for the country after manufactured exports.