Economic storm is already upon us

“It is wrong to say that an economic storm is coming,” University of the Philippines economics professor Benjamin Diok-no said at the Kapihan sa Sulo media forum Saturday. “The truth is that the storm is already here.”

If economic conditions are already bad, added Diokno who was budget secretary under the Estrada administration, they will only get worse next year.

Growth of exports for the first 10 months of the year dropped to1.9 percent from the previous growth rate of 11 percent. In fact, October exports shrank by 14.9 percent, the weakest monthly export performance since December 2001.

The country’s exports will decline as a result of the weaker world economy. The economies of the top 10 destinations of Philippine exports, accounting for about 85 percent of our total exports, are projected to get worse in 2009.

“Under the most optimistic scenarios, these economies are projected to recover in 2010,” Diokno said, “but the recovery is expected to be weak.”

More Filipinos will either lose their jobs or not find any vacancies—a trend that was first detected as early as in January. As a result, some 9.5 million Filipinos are already jobless or underemployed. That figure does not include the 1.5 million new entrants to the job market that the country—thanks to its runaway population growth—generates annually.

Further aggravating unemployment are the growing numbers of overseas Filipino workers (OFWs) who are being laid off in countries also hit by the global financial meltdown.

As if all that were not enough, foreign direct investments (FDIs) are expected to fall sharply in 2009. In fact, Diokno said, FDIs have already contracted to $1.3 billion in the first eight months of 2008 from $2.52 billion in the same period last year. Equity investment inflows from January to September fell by 55.7 percent.

Diokno and other economists see inflation continuing to slow down because of falling oil prices and a slight decline in food prices, but the trend cannot be consider a positive indicator.

“They result from the weakening of the economy,” Diokno said. “With more and more consumers having less and less disposable income, demand for goods and services will also slow down.”

Given the dire straits the economy now finds itself in—and the even gloomier prospects for 2009, what can be done?

Government intervention

In times like these, Diokno said, “we’re all Keynesians.”

He was referring to John Maynard Keynes, a British economist who in the mid-20th century advocated an interventionist government policy. Keynesian economics calls on government to use fiscal and monetary measures to ease the adverse effects of recession, depression and boom.

“By immediately undertaking a massive program of infrastructure maintenance and upgrading the government can stimulate the economy by creating employment precisely for those Filipinos who need jobs the most,” said Diokno.

The administration of President Gloria Arroyo seems to be moving in that direction. The other day Malacañang announced that the government is rushing 21 major road projects, which the Department of Public Works and Highways (DPWH) has targeted to complete by the third quarter of 2009.

In addition, Congress is set to augment the Malacañang-proposed budget for infrastructure, education, health and environment by P30 billion next year to stimulate economic growth and generate more jobs.

Sen. Edgardo Angara, who chairs the Senate finance committee, reportedly said the additional funds would be derived mainly from cuts from the P290 billion originally allocated for debt service in the 2009 national budget.

Business as usual

Diokno, however, was not impressed by these announcements. “There has historically been a disconnect between the announcement of new projects and actual implementation.”

He pointed out the numerous projects announced in the Mrs. Arroyo’s state of the nation addresses since she was catapulted to the presidency in 2001. “Those projects totaled P1.5 trillion, but what do they actually have to show for it?”

Diokno said that, besides the graft that regularly accompanies big new projects, nearly half of the costs goes to “right-of-way” payments—all too often to property owners who had inside information on the projects.

“Our people need jobs now,” Diokno said. “This can be done quickly by embarking on a massive effort to maintain and upgrade existing infrastructure.” The problem is that little or no money can be made—by the usual suspects—in such projects.

Another quick fix is a government policy that would set the exchange rate at P55:$1. “The immediate beneficiaries of a fixed peso-dollar exchange rate are the OFWs and their families who could experience a dramatic rise in their disposable income.”

Diokno estimated the actual value of the Philippine currency to the American greenback at P52:$1. “It has been hovering below P50:$1 only because the Bangko Sentral ng Pilipinas has been defending the peso because of the policy that equates a strong peso to a strong economy.”

An exchange rate fixed at P55:$1 would also boost the export sector whose products would become more competitive in foreign markets.

These and other measures the government can adopt immediately—without resorting to such divisive ploys as Charter change, or “Cha-cha.” “The administration’s fixation with amending the 1987 Constitution merely belies its business-as-usual attitude,” Diokno said.

“In that case, I don’t see any upside next year,” he added. –Dan Mariano, Manila Times

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