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Why the Philippines is least affected? By Ray Butch Gamboa

I found this article from one egroups where I belong. A very encouraging observation. Please read on

Why the Philippines is least affected?
BUSINESS & LEISURE By Ray Butch Gamboa
Saturday, November 1, 2008
 

At the recent successful launch of the 34th Philippine Business Conference & Expo, our business leaders exuded confidence. Guarded, yes, but the consensus seemed to be that the Philippines appears to be the least affected in the region by the growing global financial mess whose tentacles have reached prosperous countries with highly sophisticated banking systems.
 
Just how insulated are we? These are perilous times indeed and no government can afford to blink in the face of this growing meltdown which many say will not spare any economy. So why do our business leaders say there is no need to panic because we are the least affected, and we are in fact insulated, at least for now?
 
The reforms that the government initiated in the banking sector now clearly show how conservative policies can work well in the long run. The crash of the Thai baht during the Asian financial crisis (which miraculously saw the Philippines come out with just a few scratches compared to our Asean neighbors, thanks to a very timely and wise intervention by the Central Bank) over 10 years ago also had its roots in the construction and development boom. Back then, there was so much building going on in Thailand – subdivisions were sprouting like mushrooms, they were building country clubs and golf courses like mad in those days as part of their tourism boom. Like other parts of Asia, there was also a lot of bank lending to the real estate sector going on in the Philippines, but it was in Thailand that the crisis erupted. Financing with short- term money was just too extensive, and while the prices of real estate kept going up, this couldn’t be sustained
for too long. The structure had to come crashing down.
 
Alarmed at what was happening to Thailand, other governments including the Philippines set up banking reforms which, in effect, limited the banks’ portfolio for real estate lending to a more conservative and manageable level and established a comfortable ceiling for collateral values to provide the necessary cushion in case of defaults. For any economist worth his salt, this is a simple, basic knee-jerk reaction which did not require a masteral stroke but it certainly worked well for us. It’s too simple that Americans overlooked it. Money in America was too easy, mortgage brokers and banks were making a lot of money on paper, no collaterals were required for new home owners, easy terms were hard to pass up. When the squeeze finally came, the ante was raised, the homeowners couldn’t meet their obligations, the banks had no collaterals to hold on to. These toxic loans were sold to other financing institutions and before the dam broke, there were
several dead or dying financial institutions that had to be bailed out by the US government. Other institutions were deemed too weak to be worth a rescue, among them Lehman Brothers.
Many countries in Europe were greatly affected because of their strong links to the US economy. As many of us know by now, Iceland’s government faces an imminent collapse. Spain’s banks invested too much in speculative derivatives, and their real estate sector has also crashed because of runaway rates.
 
In Asia, fortunately, we have not felt the tremors as strongly. Singapore is also a heavy financial player and has suffered some repercussions in the market, but they have shored up their reserves over the last decade that they can absorb it well enough. Australia which is a producer of commodities is also now experiencing a slow down because of lower commodities prices. 
 
Malaysia is another country which seems to be insulated from the ongoing turmoil. For one, it is not export-oriented, and it has a healthy fuel reserve to rely on when the crunch comes. It is the export-oriented countries like Korea, China and Japan that are feeling the pinch now because of declining commodities prices. China exports heavily to the US, and with the American economy at an all-time low, the Chinese cannot expect to export substantially in the next couple of years. Chinese economy has slowed considerably in the third quarter, though still registering a nine percent growth. Still, they have had mass lay-offs. Some toy factories and food manufacturers have shut down, and Chinese products now have a tainted image. They are still lucky, though, because they have built up fantastic reserves over the years, like Korea and Japan. Japan, on the other hand, has been suffering from economic stagnation, but their deficit spending helped them ride it
out.
The Philippines has a relatively healthy export sector, according to PhilExport’s Sergio Luis-Ortiz. This year, they expect to meet their target of three to five percent, but they declined to make a forecast for next year. Traditionally, the electronics export is our biggest money- maker, and it is still the strongest up to now. They see a big change in habits of Americans now – more and more Americans will likely stay home and avoid spending, so more entertainment products, electronic games, etc will be produced, giving another boost to our electronic exports.
 
Our agricultural products are still very much in demand, so one of the points raised in the 34th PBC is the need to increase our agricultural production, particularly rice and our biggest sellers like bananas and mangoes. Our service sector (BPOs, call centers, etc.) will continue to be in demand and will likely retain its standing if we do not renege on the standards we have established which currently meet global standards.
 
At the moment, however, what is clearly emerging as the sunshine industry to watch is our mining ore export. This could very well replace our electronics export if fully explored. Such is the potential of our local mining industry. We just hope we have the right legislative measures in place and vigilantly implemented for responsible mining of our resources, tight controls at our ports of exit to avoid unauthorized export of these resources, and the right programs for sustainable development of this potentially rich industry. Of course, it goes without saying that there are moral obligations to uphold - one is to the environment, and another is to the host town or province where the mining site is. Many of these are in ancestral lands where the natives suddenly find themselves disenfranchised. The government, and the mining companies involved, should protect their rights as well.
 
 
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Mabuhay!!! Be proud to be Filipino.
For comments: (e-mail) businessleisure- star@stv. com.ph