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THE
financial bailout of American financial institutions,
which the US Congress tentatively approved at the
weekend in time for Monday’s markets opening, still
won’t allow Filipinos to heave a sigh of relief; and the
details and the actual outcome of the plan are crucial
to ensuring growth not only in the US, but also in the
Philippines, according to a former budget secretary.
Early on
Sunday the US Congress was reported to have made
progress toward approving the $700-billion plan made by
the US Federal Reserve to rescue ailing US financial
institutions and prevent them from plunging the country
into a deep recession, while roiling markets abroad.
Former
budget secretary Benjamin Diokno, meanwhile, said that
with the inextricable link between the Philippine
economy and the US, mere approval of the bailout by the
US Congress is not enough assurance that the Philippines
is already out of the woods.
While
Diokno does not see a recession in the Philippines in
the near term, the US financial crisis will definitely
slow down economic growth to between 4 percent and 4.5
percent this year and next year, he said—assuming there
are no weather disturbances that will hamper agriculture
growth and bring down this low estimate further.
“It’s
too early to say until we know the final details. At
best, it could avert a major and prolonged economic
recession. Without it, a major crash is a near
certainty. At this point, the Philippine economy is so
much linked with the US economy’s future,” Diokno said
in a text message to BusinessMirror on Sunday.
For his
part, former director general Cayetano Paderanga of the
National Economic and Development Authority (Neda) said
the rescue package itself and the success rate of the
plan will be important things to look out for before
making any conclusions on economic growth.
Paderanga said maintaining a “wait-and-see” attitude
will be a prudent move for the Philippines.
Latest
reports said the bailout involves the proposal for the
Treasury Department to buy out distressed
mortgage-backed securities and other bad debts from
banks and other financial investors at a discounted
rate. The government will later on sell these loan
packages at a reasonable price.
The plan
also involves a program to encourage owners of
mortgage-backed securities to keep these financial
instruments and buy government insurance to cover
defaults.
Under
the broad outlines of the plan, the government will also
receive stock warrants in return for the bailout. The
plan also seeks to reach out to homeowners by requiring
the government to re-negotiate the bad mortgages and aim
to lower borrowers’ monthly payments for homeowners to
keep their homes.
Earlier,
US President George W. Bush confirmed that the US has
already plunged into a serious financial crisis,
prompting local economists to expect the Philippines to
experience a slowdown in economic growth this year and
in 2009.
Philippine Economic Society president Fernando Aldaba
said the country’s growth prospects at this point are
“grim,” considering that the US is still considered as
the Philippines’ major export market.
Apart
from exports, Aldaba said the US financial crisis will
also affect the flow of foreign direct investments into
the country. This is not only because US investments in
the Philippines will slow down, but also because the US
crisis is also affecting other rich economies.
For
2008, Aldaba expects the country’s gross domestic
product to slow down to around 4.5 percent to 4.7
percent. The high end of the projection was earlier
considered by Neda Director General Ralph Recto as a
“respectable” growth rate for the country this year.
Aldaba
said the government should also work toward
strengthening the domestic economy in order to somehow
cushion the impact of a US recession.
He added
that there is also a need for businessmen to create new
businesses to help stimulate the economy. He also said
the government should also step up and increase its
public infrastructure spending next year. |
