Defending the Philippines

MONEY, investments and almost every other decision we make in life are based on our perception of reality, not on reality itself. You married your spouse because of your perception that he or she is the best person to spend the rest of your life with. You bought that new shirt and pair of shoes because of your perception that you would look good wearing them. You invested because of your perception that you would make more money.

Our positive and negative perceptions are not whims, but are built on digesting the facts we know and trying to draw sensible and logical conclusions from them. However, we never have all the facts, and we may draw conclusions that turn out to be wrong.

Countries face the difficult job of trying to correct misconceptions so that outsiders will hold a positive view of them. The Philippines is no exception: It faces an uphill battle to make sure that the world knows the facts about the country and to help it have the right perception.

On Thursday Bloomberg.com published an article that includes comments from President Aquino, titled “Aquino dismisses risk of bubble forming as economy grows.” To say the article was a “smear job” would go too far and show disrespect to some local journalists who are already experts at doing that. But what the article does is use the President’s words and then quotes some expert who has a contrary opinion.

That is what creates a negative perception, as the facts are not fully disclosed and what are presented are actually sound bites. It is wrong and it is damaging to the nation.

Here is an example: Since September 2012 the Bangko Sentral ng Pilipinas (BSP) has set the official interest rate, the overnight borrowing rate, at 3.50 percent. This is a historic low. A central bank’s benchmark rate is supposed to be the interest rate from which all other borrowing rates are based. The overnight borrowing rate is the rate at which banks borrow money from the BSP to keep enough cash in their vaults for client withdrawals.

Theoretically, all other interest rates—housing mortgages, credit card and business loans—should go up or down with the benchmark rate. But this is the Philippines. If you have had a credit card with a due balance on it from early 2009, I challenge you to show me where the bank is charging you less interest today. If your credit-card interest rate followed the benchmark rate, your interest rates should be about 50 percent less than what it was in 2009.

While the interest rate paid on government debt is very low, that is because all governments, every one of them, have low interest rates. Why should the Philippine government pay more to borrow than other governments, just because they have a liquidity and budget-deficit problem?

The Philippine government rejects borrowing every time the banks try to raise the interest rate. The other countries do whatever it takes to borrow because they are desperate for money.

Also creating wrong perceptions is a comment by Michael Wan at Credit Suisse Group: “Keeping policy settings too loose for too long risk a return to the boom-bust cycles the nation has been known for.” That statement hung in the air with no rebuttal. The truth is that the Philippines has not had a boom-bust cycle for 25 years. It has virtually been all bust. Coup attempts, major political turmoil and a government that never had its fiscal house in order until 2009 stopped any boom.

In fairness, the article does, at the end, quote some experts who said favorable things about the Philippines. But the perception was that this was nothing more than political hype coming from the country’s financial leaders.

The article describes the Philippines as “once called the Sick Man of Asia.” Isn’t it time to put that tired, old phrase away? But perceptions last. The international media are still talking about Imelda Marcos’s shoes as a significant part of 21st-century Philippines.

We know the problems confronting the nation. Maybe these problems are not being addressed properly. But the bad, incorrect perceptions must be countered. The Philippines must be defended against these perceptions because it has a deleterious effect on the investments that are coming in.

Maybe the next time we hear someone use the phrases “sick man” or “basket case” to describe our economy, we need to say, “That was the old Philippines; this is the new Philippines.” We aren’t where we want to be, but we are definitely not where we once were. –John Mangun, Businessmirror