In 1990, there was $1.2 trillion in international mobile capital, with $468 billion in syndicated bank loans and $756 billion in stock and bond markets. By 1993, international mobile capital almost tripled to $3 trillion, $555 billion in bank money and $2.3 trillion in stock and bond markets. And when the myth of newly-industrialized countries was about to burst, there was a massive flight of capital in portfolio investments causing the 1997 Asian financial crisis. The financial crisis caused a slump in the stock market, a real estate glut, and a plunge in the value of Asian currencies, with the Philippine peso dipping from P25 to P 40 to the U.S. dollar.
Currently, international mobile capital has reached a staggering $160 trillion. If the sudden movement of around $3 trillion in capital wreaked havoc on the economies of Southeast Asia in 1997, imagine the damage $160 trillion would do now.
No real contribution
Funds for portfolio investments are placed mainly in stock markets. In the Philippines, for example, during the first quarter of 2007, 78 percent of portfolio inflows went to the stock exchange.
Investments in the stock market have no real contribution to the economy, as it is mainly a secondary market. Except for Initial Public Offerings (IPOs) which are not that many considering the daily volume of transactions, it is not real stocks that are being traded but stock certificates; and any gains in the purchase and sale of the certificates no longer accrue to the company to augment its capital for production because these shares have been traded many times over. It is also not the real value of the shares that serve as basis for transactions but its speculative value. The only benefit an economy derives from the stock market, and any type of portfolio investment, for that matter, is that it makes capital and foreign exchange available. But the benefits are only temporary as mobile capital is flighty and stops only where it earns the best yield.
Worse, stock markets give a country a false sense of security and prosperity while at the same time causing bankruptcies; commodity and oil futures push prices up; real estate investments cause the further concentration of land which is being developed not on the basis of need and proper planning but on saleability; bonds bring countries deeper into debt; and money markets cause instability in the value of currencies and interest rates. All of these are being done in the name of profit. Otherwise, how would speculators in portfolio investments gain a hefty profit without producing anything?
It is also local
The Philippines is very vulnerable to the profiteering designs and the volatility of international mobile capital because it is dependent on foreign investments and capital; it consistently incurs a trade deficit preventing it from accumulating capital; its export industry is dominated and controlled by multinational corporations; and the backwardness of its agriculture and industry relegates it to raw material extraction and semi-processing, and to low value added manufactures.
To make matters worse, the policy of liberalization is killing local industry and agriculture; deregulation provides the conditions and the license for foreign corporations and hedge fund managers to earn super profits at the expense of the Filipino people; and the policy of privatization feeds the people to the profiteering designs of multinational corporations. At the same time, the government is abdicating from its role of developing the domestic economy, and protecting the interests of the Filipino people; in its stead the Arroyo government is contributing to the further deterioration of the economy to enable multinational corporations and finance investment firms to gain the highest yield.
The declines in the stock market and the values of Asian currencies may aptly be described as a bursting of the bubble because it reveals a lot of things: the real state of the world economy and the dominance of international mobile capital; the fundamental weakness and vulnerability of the Philippine economy; and the empty boasts of the Macapagal-Arroyo administration regarding her achievements in the economy during her state of the nation address. Moreover, by sinking the economy deeper into crisis through its policies of fast-tracked globalization, the Macapagal-Arroyo administration is showing whose interests it protects and promotes: definitely not that of the Filipino people.(Bulatlat.com)
