RP, Asia face prolonged export crisis

MANILA, Philippines—The Philippines and the rest of Asia may reel longer than expected from anemic exports as demand from the United States and other advanced economies may not immediately respond to pump-priming initiatives, the International Monetary Fund said.

In its latest report on Asia released yesterday, the IMF raised the need for governments in the region to implement measures that will boost domestic demand. It said the Philippines and other Asian countries must rely more heavily on domestic consumption to keep their economies afloat.

“Over the long horizon, Asian economies are at risk of a structural decline in demand from advanced economies,” IMF said in the report titled “Global Crisis: the Asian Context.”

“The spillovers from the global crisis have affected Asia with considerable speed and force. Looking ahead, Asia’s growth path will continue to run parallel to the global economy,” the IMF added.

According to its latest projection, the IMF said it expected Asia to grow an average 1.3 percent this year, a stark slowdown from last year’s 5.1 percent.

For the Philippines, its latest estimate showed a zero growth this year from 4.6 percent last year.

The government, however, is less pessimistic than the IMF and expects the country’s growth in gross domestic product to expand by 3.1-4.1 percent this year.

A lingering recession in the United States and Europe would continue taking its toll on households, the IMF said.

Households in industrialized nations were likely to keep their spending tight as they suffer from dwindling incomes—with unemployment seen to rise further next year—and as they address burgeoning debts.

The debts, largely composed of credit card and home mortgages, are blamed largely on lax lending policies of American banks in the past.

“Households in advanced economies have started repairing their over-leveraged balance sheets, as the era of easy credit to finance purchases of consumer durables could well be over,” the IMF said.

As a result, the IMF added, sales by manufacturing and export sectors in Asia would be adversely affected. Thus, the IMF said, it would do harm for Asian economies to keep their level of reliance on exports for purposes of boosting their economies.

To address this, the IMF urged governments in the region to use both fiscal and monetary measures to beef up domestic demand. It said national governments must sustain stimulus programs started this year through 2010. Also, central banks must take advantage of further room to ease monetary policy to actually reduce key interest rates.

In the case of the Philippines, the Arroyo administration said it was allowing its budget deficit to rise to as much as P199.2 billion this year from only P68.1 billion last year to accommodate higher spending for social services and infrastructure.

The Bangko Sentral ng Pilipinas has also slashed its key policy rates by a total of 150 basis points since December, bringing down the overnight borrowing and lending rates to 4.5 and 6.5 percent.

According to the BSP, recent data showed that exports account for 29 percent of the Philippine economy, down from 50 percent in the early part of this decade. –Michelle Remo, Philippine Daily Inquirer