Worsening Storm for Philippine Economy?

While the country has been made vulnerable to external shocks and made internally weaker by globalization, the government is still pushing for more of the same through the Charter change (Cha-cha).

By Sonny Africa

IBON Features—Every reason for optimism that the Arroyo government has built amid the global financial crisis has fallen flat as quickly as they were raised.

At the start of 2008 it was argued that the Philippines was “decoupled” from the US economy, even as the country has been more and more “coupled” to the world economy. Soon after the financial tumult in the US in September, it was argued that China and other “emerging markets” would be engines of growth compensating for the problems in the advanced capitalist countries, even as they, like the Philippines, are facing great problems of their own.

The economy has already been deteriorating steadily, especially in recent years and despite much government hype. The onset of global financial and economic turmoil however now pushes it into a deeper crisis that it is poorly equipped to deal with. This is a reality that government diverts from by playing with the semantics of a “slowdown” versus “recession”– but it is a reality that they will be less and less able to deny.

Vulnerable economy

The country is going to be badly affected because the last decades of globalization policies have made it extremely vulnerable. While the tumult is descending upon a fragile Philippine economy that has become more exposed to external shocks while also made internally weaker, the government is still pushing for more globalization through the Charter change (Cha-cha).

Free market policies have also drastically eroded domestic manufacturing and agriculture. The economy’s foundations and its ability to grow, create jobs, provide incomes and cope with crisis have been weakened.

The Philippines is more dependent than it has ever been on exports, foreign capital (investments, debt and aid) and remittances. Trade, or combined exports and imports, measured as a percentage of gross domestic product (GDP) has doubled since the early 1980s to hover between 95%-105% in the last few years. In particular this reflects how a much greater part of domestic production and employment is now tied up to exports.

Over that same period inward foreign direct investment (FDI) flows increased from being equivalent to less than one percent of gross fixed capital formation to between 15%-18%, with the inward FDI stock totaling US$19.0 billion by 2007. Meanwhile the US$14.5 billion remitted last year by some 9.2 million Filipinos in over 190 countries was equivalent to around 10% of GDP.

All these mean that economic problems in the country’s main trade and investment partners and in the destinations of overseas Filipinos will be quickly and acutely felt. It is difficult to give precise estimates but the general direction in the coming period is clear: the worsening of an already bad situation.

Greater job losses

Joblessness is certain to increase this year and in 2009 and add to the 4.1 million unemployed– estimated to include the jobless statistically removed from the labor force to lower officially reported figures– and 6.8 million underemployed as of 2007.

Retrenchments and closures will be most immediately felt in the goods and services export sectors. Particularly affected will be the major subsectors of electronics (67% of exports in 2007), apparel and clothing (5%), and furniture and woodcrafts (2%). The US for instance is the world’s largest end-consumer of electronics, as well as the largest buyer of Philippine garments and furniture.

Even the vaunted business process outsourcing (BPO) industry is likely be badly affected with the US accounting for over two-thirds of foreign equity and 90% of BPO export revenue. The grand target of 940,000 BPO jobs by 2010 is impossible especially with employment at just 320,000 now and the overall jobs generation capacity of the economy over a five-year period. Similarly with local tourism and business travel outfits where hotels and restaurants, for instance, will feel the pinch of less foreign and domestic visitors.

The manufacturing sector had by July 2008 already lost 125,000 jobs from the year before. Even the erstwhile “growth” sectors telecoms, wholesale/retail trade, real estate, and construction will slow down. Small and medium enterprises will have a harder time borrowing with creditors preferring perceived “safer” large borrowers.

Impact on Filipinos

Filipinos working overseas also stand to be hit by job losses in distressed countries and sectors– not just in the US where the crisis first erupted but also wherever in the world they might be with no country untouched by the tumult. The US is notable though for hosting almost three million or a third of all Filipinos overseas and with over half of all remittances coming from the US or via US-based banks.