Contrary to government officials’ claim that the current U.S. financial crisis has little impact on the Philippine economy, independent think-tank IBON Foundation deems otherwise.
BY RONALYN V. OLEA
During the forum Usapang Ibon (Bird Talk) held Sept. 24, Rosario Bella Guzman, IBON Foundation’s executive editor, said that ‘the Philippines will inevitably suffer the implications of the U.S. crisis because it is linked to the U.S. and global economy; it is a country with basic weaknesses and vulnerabilities; and it is a client of imperialist globalization.’
Links to the US Economy
Guzman cited several vulnerabilities.
Seven Philippine banks have exposures in the bankrupt Lehman Brothers in the amount of $386 million or about P2 trillion.
Twenty-five percent of agricultural exports go to the U.S. Twenty percent of other Philippine exports go to the U.S.
Another 44 percent of exports go to third markets (Japan, Hong Kong, South Korea, Malaysia, Thailand, Taiwan), which are intra-transnational corporations’ trade. She said these are exports sent to these third markets but also end up in American market.
Twenty percent of foreign investments are from the U.S. mostly in manufacturing, BPOs and financial services. Guzman said these investments may slow down or decrease. She said U.S. corporations may also be ‘more ferocious in extracting profit.’
Guzman added the country’s lifeline, the overseas Filipino workers, will be greatly affected. Thirty-two percent of 8.2 million overseas Filipinos are in the US. At least 52 percent of remittances are from or via the U.S.
She said, “Maapektuhan din sila ng pagbaba ng kita. (They will also be affected by income losses.) In fact, some of them may have been laid off.”
She said that OFWs in the US would still be a priority in re-hiring; austerity measures of U.S. corporations will lead to hiring of cheap labor.
Job losses, business slowdown
Guzman said the U.S. financial crisis will cause exports, investment and capital from abroad to fall.
She foresees job losses and increased wage pressures in economic processing zones (EPZs) especially in garments and electronics.
Investment destinations will also be affected especially in manufacturing and BPOs. “There will be additional job losses and other labor problems,” said Guzman.
There will be a business slowdown, said Guzman as investment in the economy is 54 percent foreign and 46 percent local. Local investments, she said, will also be affected by bankruptcies.
Guzman said third world countries like the Philippines would adopt a race-to-the-bottom approach in agricultural-based and extractive industries (i.e. electricity, gas and water and mining). This means that the Philippine government will further liberalize these industries to entice foreign corporations even at the expense of the Filipino people, said Guzman.
Philippine banks will employ prudent bank lending, said Guzman. Loan portfolio is P2 trillion with 22 percent in real estate and trade and 19 percent in manufacturing. Non-performing loans stand at P91 billion ($1,946,732,270 at an exchange rate of $1=P46.745).
Guzman also said overseas Filipino workers’ remittances will possible decrease. This will translate to lower consumer spending and slower business.
Intensification of fundamental crisis
Guzman also sees the intensification of the fundamental crisis of the Philippine economy which she described as semi-feudal and semi-colonial.
She said the Philippine government has dealt with the country’s fiscal crisis by imposing the value-added tax and relying on more foreign debt
She also noted the foreign presence in the Philippine financial system, citing the dominance of ten foreign banks, their dominance in insurance and non-banks, and dominance in capital markets. “These banks are vulnerable to the U.S. financial crisis.”
Guzman revealed that in June this year, there was a US$694 million outflow of portfolio investments. This she said is a reversal from US$445 million surplus as of the first quarter of this year.
Guzman said there will be no bubble burst in Philippines’ real estate as this is buoyed up by OFW remittances and even in the stock market which is infantile.
She said that if foreign capital will pull out, the Philippine economy will have dire vulnerabilities. “Wala ka namang agrikulturang matibay at wala ring manufacturing production na matibay na kayang magpaikot ng kanyang production capital,” (We don’t have a strong agricultural sector and stable manufacturing production that can make production capital grow.) said Guzman.
Agriculture is only 17.17 percent of the country’s gross domestic product (GDP) and manufacturing, 20 percent.
Guzman said globalization is the latest package being forced upon Third World countries like the Philippines as a cure to the crisis of capitalism. “…You don’t have to force the Arroyo government. It is a willing victim, a willing client of imperialist globalization.”
Guzman said the Philippine government would continue to implement the policies of globalization in the face of the U.S. financial crisis.
Guzman said this would mean continued plunder of the country’s resources. Foreign direct investments (FDI), official development assistance (ODA) and other foreign debts, she said, would take advantage of cheap and docile labor, which would intensify contractualization, flexibilization, rationalization and downsizing.
Foreign corporations would also further exploit cheap raw materials especially in extractive industries, said Guzman. She noted that global FDI infiltrate power, electricity, mining, among other extractive industries.
She said that foreign corporations affected by the mortgage crisis would shift to speculation in commodities and artificially inflate demand. This would translate to unwarranted price increases in food and oil, Guzman said.
Guzman also said that ODA focuses on privatization of social services and public utilities. To press this, she said the Arroyo government would push for charter change to remove provisions protecting national patrimony and economy.
She also said the Arroyo government would pass the burden to the Filipino people by increasing VAT and imposing other regressive taxes. She said that VAT is very crucial for the Arroyo government and more importantly for the financial lending institutions as they ensure the country’s capacity to pay its debts. (Bulatlat)