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Amid the
severe impact of the peso’s rapid appreciation, our
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, regular exercise and
work-life balance. The surge in dollar inflow is not the
culprit, but simply exposes deeper and far-reaching
structural problems in our economic foundation and road
map, or lack of one. It is our sustainable demand for
dollars that remains weak and, therefore, market forces
have caused the dollar to dive. This is compounded by
the overall weakness of the US economy triggered by the
subprime-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,
émigrés 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. We 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, we
should be asking, why is the peso the best-performing
currency (or the worst thing that has ever happened to
our 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 20 percent
year-on-year for several years and are expected to
surpass our total export volume in 2008. Yet, their
currency continues to depreciate, or at least remains
stable.
How can
this happen? Admittedly, part of this can be traced to
government intervention, which reflects its priority to
promote exports as a key driver of the economy (after
all, even the US admits to subsidizing its agricultural
economy by $20 billlion), but more important, 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, overreliance on advanced countries like
the United States and Japan for our export markets, the
inconsistency in our 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.
Allow me
to share 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 as a sign of
support for the post-Marcos administration), reduce
foreign borrowing in favor of domestic loans to finance
debt, and issue OFW bonds for infrastructure development
and revitalization of our agricultural sector, we can
look into the following remedial measures that we can
undertake together as OFWs and local consumers,
government and private business:
1. OFWs/Émigrés—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 property, 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 would 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, our hard-hit
furniture and handicraft sectors should aggressively
promote their world-class, export-quality products in
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 and 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 would, in turn,
require and use the world-class products of our
beleaguered furniture and handicraft exporters, as
opposed to importing European furniture. Even Quentin
Tarantino has done us a favor by wearing our 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 its 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 would be a bold step in the right
direction as Asean moves closer to 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 road map for our industrialization
amid an environment of uncompetitiveness. Our current
lack of competitiveness cannot be an excuse 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 would 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 must find creative solutions by capitalizing
on latecomer advantages, or we would forever be 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 would
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 would require
collaboration between the Departments 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
postharvest facilities. Achieving self-sufficiency in
food production would 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
would 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
would 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 would 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’ fortnightly salary transfers,
and year-end 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 our high-blood peso and restore the
competitiveness of our dollar-earning sectors, we can:
(1) replace foreign borrowing with local sources; (2)
prepay dollar obligations, but fight for condonation of
behest nonperforming loans; (3) issue OFW bonds to
finance physical infrastructure, agriculture and power
generation; (4) buy deflated dollar-denominated property
in the US mainland; (5) sell export overruns in
furniture and handicraft to the local market and promote
“Buy [World-Class] Filipino”—including food and fashion,
garments and accessories; (6) build Philippine
architecture; (7) explore outsourcing with lower-cost
Asean members while maintaining Philippine branding and
marketing; (8) enhance competitiveness of 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 sacrifice, or is that just
lip service? |
