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Go to
your calendar and put a big circle around the date July
15. Note this day as the turning point for 2008.
No, this
is not the date that prices on the Philippine Stock
Exchange started up. No, this is not the date that
gasoline prices went back to P40 a liter. No, this is
not the date that saw inflation drop and economic growth
go to 7 percent. But that date marks the start of all
those favorable events.
This has
been a tough week to be part of the US and European
economies. The United States experienced its
third-largest bank failure in history. Inflation rose to
levels not seen in 27 years. The quasigovernment-owned
mortgage lending institutions, Fannie Mae (Federal
National Mortgage Association) and Freddie Mac (Federal
Home Loan Mortgage Corp.), went bankrupt. The US dollar
hit a historic low against the euro. European industrial
production fell the most in almost 16 years, with France
alone down 2.6 percent. In Spain, new-car sales
decreased by 31 percent in June, retail sales fell 5.3
percent while unemployment hit 9.9 percent.
There
are several reasons you should be glad you are part of
this economy.
The
Philippine banking system is strong for the times the
world is facing.
Much
criticism, including from me, has been leveled at
Filipino banks. It is a tightly controlled industry
dominated by only a few banks. Bank-lending habits have
been severe, particularly since 1997, and that has
constrained the country’s economic growth at times.
Yet
those factors are exactly why we will not face the
situation that occurred in Thailand in 1997 and is
occurring in the United States and Europe today. Smaller
and potentially less solvent banks have been swallowed
up by the giants. The failures in the Philippine banking
system in the last decades are almost impossible now,
given the size of the remaining banks. Further, the
government does not have the same type of financial
safeguards in place as in the United States that can
provide a bailout and cushion for bad banking practices.
Our
banks ratio and actual peso amount of nonperforming
loans is very low and controlled due in large part to
banks being very tight with their lending. The
“pawn-shop” mentality of requiring very high collateral
is a blessing is disguise. Our banks can weather these
global financial storms better than in most nations.
The
United States and, to a degree, the European financial
problems, are caused by a bloated and unrealistic
real-estate market. Property developers built too many
units that went unsold, dragging down prices. Too much
supply. Further, in consort with the banks, loans for
property purchases were too easy, creating artificial
buyers. Too little genuine demand.
Unlike
in the West, Filipino property developers rarely break
ground for a project until a substantial number of units
are presold. This eliminates empty villages and empty
towers of unsold units creating an oversupply. Thailand
faced a glut of thousands of unsold condos when the
crisis hit in 1997.
You
cannot buy property in the Philippines with just a big
smile and your signature, as in the United States.
Philippine real-estate lenders require something
uncommon in the West over the last few years: reasonable
cash up-front. Yes, this type of tight lending does
limit access to new and better housing to many
Filipinos. But it helps keeps the financial system sound
and solvent. Much better not to be able to afford a new
house today than to lose everything buying something you
cannot afford.
The
collapse of the real-estate market in both the United
States and Europe triggered much of the financial
disaster that we are seeing now. From Reuters: Madrid,
July 15: “The failure of Spain’s largest real-estate
company Martinsa Fadesa may be the first in a string of
high-profile property-sector collapses that hammer banks
and propel the economy toward recession. Martinsa
Fadesa was the first large publicly traded company to
buckle under tighter lending conditions and a 30-percent
drop in house sales this year. More failures are
considered inevitable, and even necessary, given Spain’s
heavy economic dependence on the construction and
real-estate sectors.” Spain now has a surplus of 1.5
million new houses.
This
kind of scenario will not happen in the Philippines.
Crude-oil prices are turning downward. Poor economic
conditions are killing demand and oil prices will
plummet. And that is the best reason to be glad you are
a part of the Philippine economy. Our current high
inflation and slower growth is due only to high oil
prices. Our economy is otherwise strong and stable.
Overseas remittances reach new records every month
because no one wants to spend money in the West.
Outsourcing continues to grow as the West looks for more
cost-efficient locations to service their companies. Our
exports are growing at a slower rate but still growing.
In fact, receipts from exports to the United States
actually increased by 2.7 percent to $657.6 million.
Even with a large drop in electronic exports, the
Philippines is still expected to show a
balance-of-payments surplus of $2.5 billion for the
year.
Don’t
let the “gloom-and-doomers” get you down and affect your
business plans. They are wrong. They either cannot
understand the data or ignore the facts because these do
not fit into their negative mindset. And by
Christmastime, you won’t be hearing a word from them.
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