HSBC economist James Pomeroy, writing in the latest edition of the bank’s “Macro Health Check,” offered some clear insights into what the private sector of the Philippines has been doing right for many years.
It has always been our contention that the Philippines and our economy has been saved from severe damage by ordinary Filipino businesses, both large and small.
Prior to the 1997 Asian Financial Crisis, when the Philippines was a “basket case,” it would have been more profitable for Filipino companies to have followed their counterparts in the “tiger economies,” borrowing dollars at very low interest rates against a stable peso exchange rate.
Prior to when the current crisis hit in 2007 or 2008—depending on which event you use to mark the economic collapse—it would have been more profitable for Filipino banks to have joined the rush into buying all those high interest-paying subprime mortgage loans.
But in both cases Filipino businesspeople decided that they just were not ready to join the “big boys” and high rollers of the world and just kept on doing their business in a conservative manner just like before.
Pomeroy relates that he is concerned with the economies of Indonesia and Malaysia because of both nations having increased their trade with China to the point of near-dependency. Here in the Philippines, although China is our largest trading partner, the percentage of total trade among China, Japan and the US are almost the same. Japan is our largest export market.
From Bloomberg.com: “Regarding the Philippines, HSBC says that this is one of the only emerging markets that is fairly unexposed to slower Chinese growth and lower commodity prices—two characteristics that differentiate it from a whole lot of other EM nations.”
Although the Philippines is not a large producer of raw materials that China would have been buying, Filipino businesses export goods to China that are not very “sexy” or subject to wild fluctuations in demand—machines engines and pumps.
However, it is not just local businesses that are not in touch with modern times. Filipinos are constantly reminded that we do not use banks the way everyone else on planet earth does. Findings from the World Bank show that only 5 percent of Filipinos have a credit card and only 10 percent have ever taken out a bank loan. Don’t Filipinos realize that this is the 21st century?
But then again, household debt in the Philippines is only 6 percent of GDP, compared to 20 percent in Indonesia and an average of 25 percent in all emerging markets. Perhaps that is a reason that all the wailing about asset price bubbles in the Philippines has not come true.
Remember the old saying “If it’s not broken, don’t try to fix it”? There might be some things in our country that are “broken” but maybe managing businesses and personal finances is not part of our problem.