MANILA, Philippines--AMID the severe impact of the peso's rapid appreciation, economic planners, businessmen and industrialists may find it helpful to take a fresh look at the issue, as physicians endeavor to cure the illness, while addressing the symptoms.
No amount of Lipitor can cure a person suffering from high-blood pressure without a fundamental change in lifestyle including a proper diet and regular exercise. The surge in dollar inflow is not the culprit, but exposes deeper and far-reaching structural problems. It is the sustainable demand for dollars that remains weak, and therefore market forces have caused the price of the dollar to dive. This is compounded by the overall weakness of the US economy triggered by the sub-prime mortgage crisis that continues to unfold, thus further driving remittances consistent with the economic theory of rational expectations.
As this phenomenon unfolds, what can potentially happen is that dollars will continue to flood the market from OFWs and "hot money" inflows that can eventually lead to self-strangulation of the "geese that lay the golden egg"--exporters, BPOs, OFWs and even tourism.
The Philippines could be faced with a crisis worse than Dutch disease (a sudden surge in dollars that makes a country less competitive), because there is no sustainable demand for dollars from importations that serve as input factors to drive productive economic activity--such as agriculture and industry--not just to feed private consumption spending.
A country needs revenues from the export of its products and services, but must also match that with imports that produce a multiplier effect on the economy.
If the US economy is a common denominator to all countries, it should be asked--why is the peso the best-performing currency (or the worst thing that has ever happened to the dollar-earning sectors)? The answer is not in the oversupply of dollars, but in the lack of demand for it. This is best manifested in anemic imports and the chronic contraction of our manufacturing sector. Other labor-exporting countries have also experienced robust remittances from their overseas workers such as China, Mexico and India, or blistering export growth such as China, and particularly Vietnam whose exports have been growing at over 20 percent year-on-year for several years and are expected to surpass the Philippines' total export volume in 2008. Yet, their currencies continue to depreciate or at least remain stable.
How can this happen? Admittedly, part of this can be traced to government intervention which reflects their priority to promote exports as a key driver of the economy, (after all, even the US admits to subsidizing its agricultural economy by $20 billion a year) but more importantly, Vietnam's imports continue to grow even faster at 30 percent, outpacing export growth, thus maintaining a sustainable demand for dollars. This is what helps counteract the impact of the acceleration in exports growth and the overall weakness of the dollar. Why? Because their imports constitute electronics, machinery and equipment as input components to their manufacturing and industrial sectors, or chemicals and fertilizers for agriculture, so that all major sectors are growing to shape a more well-balanced economy.
For the Philippines, the ghosts of our dismal failures--in agriculture and industrialization, infrastructure and power generation, poverty alleviation and income redistribution, over-reliance on advanced countries like the US and Japan for our export markets, the inconsistency in economic development plans due to a "Not Invented Here" syndrome of past administrations, exacerbated by the systematic export of 10 million productive workers, and capped by a system of government that is but a vestige of colonial mentality and which has already been proven to be ineffective among all Asian nations that successfully lifted their people from the bondage of destitution, and further manipulated by the privileged few for their own selfish interests--are all coming back to haunt us, and back with a vengeance, sink their teeth deeper into our marrows.
Below are suggestions that may cure the illness while alleviating the symptoms:
In addition to proposals by some legislators and the central bank to prepay our foreign obligations (which should have been condoned by creditors in support of the post-Marcos administration), reduce foreign borrowing in favor of domestic loans to finance government debt, and issue OFW bonds for infrastructure development and revitalization of the agricultural sector, the following remedial measures that can be undertaken by OFWs, local consumers, government and private business should be considered:
1. OFWs. Seek alternative investments instead of remitting more dollars home. For instance, as heavily indebted Americans are defaulting on their mortgage payments and banks are offering fire-sales on foreclosed properties, it may be time to buy US property in anticipation of a recovery from the burst. This assumes Fil-Ams and US OFWs were not adversely affected by the asset deflation, otherwise, even prospects of the ongoing local real estate boom will be imperiled.
2. Exporters. Rechannel marketing campaigns to the local market, which has benefited the most from the peso appreciation. For instance, instead of shuttering their factories and throwing 20,000 out of work, the country's hard-hit furniture and handicraft sectors should aggressively promote their world-class, export-quality products to the domestic market, capitalizing on the local real estate boom. Imagine giving local consumers an opportunity to buy the same fine furniture available in US department stores, but at local prices without the added costs of transportation and logistics, high rent and wages, import duties and sales taxes.
3. Real estate and construction. Promote more patriotic designs in future development projects to inspire a renaissance in Philippine-themed architecture, which will in turn require and utilize the world-class products of our beleaguered furniture and handicraft exporters, as opposed to importing European furniture. Even Quentin Tarantino did the country a favor by wearing a barong at an event.
4. Outsourcing. In the same way that US companies have resorted to outsourcing their back-end operations to India and the Philippines to save costs; or how Hong Kong transplanted their factories to Shenzen and Guangzhou, leading to affluence in the Pearl River Delta; and how Nike produces its sneakers via global OEMs, Philippine exporters may do well to consider cooperative production agreements with countries enjoying lower cost-structures like Vietnam to take advantage of cheaper raw materials (wood), electricity, manpower ($3/day vs our $10/day) and lower logistics to the Indian subcontinent, Middle East and European markets. This will be a bold step in the right direction as Asean moves to closer regional integration as an economic community by 2015, when 10 nations coalesce as a single production hub and market base of 550 million with $800 billion GDP.
5. Industry. The government must take the lead in reviewing and redefining the roadmap for our industrialization amidst an environment of uncompetitiveness. Our current lack of competitiveness cannot be an alibi to justify not doing anything about our lack of competitiveness driven by the cost of food, fuel and power, because even our sunshine industries like BPOs and tourism will be faced with pressure in rising cost structures aside from the weakening of the dollar versus the peso.
This attitude is tantamount to giving up in a contest without a fight. We will be forever reacting to the exigencies of a global market and remaining at the bottom of the food chain, e.g., low value-added electronic assemblies and call center BPOs (which will eventually relocate to lower cost countries by virtue of their business model), as opposed to taking the lead in higher-value silicon wafer fabrication, computer software development, and agriculture biotechnology.
6. Agriculture. Revitalizing our agricultural sector is the ultimate panacea to our short-term ills and our insurance for the future. This will require a collaboration between the Department of Agriculture and Agrarian Reform to develop a comprehensive approach consisting of an enhanced CARP supported by advanced R&D and biotechnology, farm financing and irrigation, high-yield seeds and feeds, organic fertilizers and pesticides, farm-to-market infrastructure and post-harvest facilities. Achieving self-sufficiency in food production will alleviate poverty and malnutrition, encourage reverse migration from urban to rural areas, replenish farm employment, and contain the proliferation of informal settlers in urban slums. It will prepare well-nourished youth for education to become highly skilled workers in a globally competitive world, and even produce biofuels that can replace expensive imports of environmentally harmful fossil fuels, if not become the source of the "green oil" that will fuel the world and clean the air.
7. Overspending. Partly an offshoot of the American lifestyle of instant gratification, overindulgence, and "keeping-up-with-the-Joneses," combined with the Spanish culture of fiestas, and worsened by low wages squeezed by higher costs of living, we as a people need to correct our low propensity to save which will be needed to self-finance future investment requirements. Already, our banks and financial institutions are reporting mounting credit card receivables and past due accounts. ATM cards are pawned as collateral for lenders to withdraw our employees' salary transfers, and yearend bonuses discounted months in advance. Some real estate developers are beginning to report rising defaults on monthly housing loan amortizations--hopefully not a portent of things to come.
In summary, to lower the "high-blood peso" and restore the competitiveness of our dollar-earning sectors, the Philippines can:
(1) replace foreign borrowing with local sources;
(2) prepay dollar obligations, but fight for condonation of behest loans;
(3) issue OFW bonds to finance physical infrastructure, agriculture and power-generation;
(4) buy deflated dollar-denominated properties;
(5) sell export overruns in furniture and handicraft to the local market and promote "Buy (World-Class) Filipino";
(6) build Philippine architecture;
(7) explore outsourcing with lower-cost Asean member-states while maintaining Philippine branding and marketing;
(8) enhance competitiveness of our industry;
(9) revitalize our agricultural sector; and
(10) spend less, save more and invest wisely for the future.
As for OFWs, who now have to work harder to earn and remit 30 percent more dollars just to send the same amount of pesos to their relatives, let us give them a reason to return, just like China, India and Vietnam, which are enjoying reverse migration. If people indeed are a company's strongest asset and a country's greatest wealth, then why do we send them away in the millions each year at great personal or is that just lip service?
