By INA ALLECO R. SILVERIO
The Aquino administration is in a serious state of denial over the impact of the debt crisis in the United States on the Philippine economy. According to the Bagong Alyansang Makabayan (Bayan), the US’ debt woes will inevitably affect the domestic economy and the outlook is not good.
Bayan secretary general Renato Reyes Jr. said the downgrade in the credit rating of the US should be a wake-up call for the Philippines and the Aquino government to change its economic program.
Standard and Poor (S&P) recently decided to to cut the triple A rating of the United States. This is the first time this has happened since 1917. S&P is a US-based financial-services company, a division of the McGraw-Hill Companies that publishes financial research. It’s 500 list is an index of 500 stocks chosen for market size, liquidity and industry grouping, among other factors. The S&P 500 is, according to business sites, designed to be a leading indicator of US equities and is meant to reflect the risk/return characteristics of businesses and the whole economy.
Over the weekend, the agency said the Obama government’s recent plan worked out to raise the federal debt ceiling has not sufficiently addressed what is needed to be done to stabilize the US longer-term finances. The S&P also said the Philippines together with Thailand, Taiwan, Korea, Malaysia, Japan, Australia, and New Zealand are likely to experience export-driven slowdowns either through weaker demand or lower export prices, or both.
Last August 2, President Obama signed legislation that was aimed to reduce the country’s fiscal deficit by $2.1 trillion over 10 years. The S&P, however, said this fell very short of the $4 trillion in savings it had called for as a good “down payment” on fixing America’s finances.
According to reports, the S&P 500 stock index fell 10.8 percent in the past 10 trading days on concerns that the US economy may be heading into another recession and because the European debt crisis has worsened.
A state of denial
As news broke out about the slashed credit rating, governments all over the world scrambled to make heads and tails of the possible effect on their own economies. In the Philippines, President Benigno Aquino III declared confidence that worsening economic situation in the US will not negatively impact on the Philippines’ investment sector. He expressed expectations that the peso’s value will recover and the Philippine Stock Exchange to bounce back.
He told the media that the Philippine economy will stand and fall on its own merits.
“The value of investments in this country will not change with what is transpiring in America,” he said.
Aquino said if foreign investors continues to see it profitable to continue doing business in the Philippines, then they will remain in the Philippines.
“Investors who are with us in the long term will still see the advantages of investing in the country. The market correction is a symptom of how the market operates. You will see the numbers rebounding,” he said.
The President admitted however that the BSP will conduct an inventory on its reserves and how much of these will remain dollar-based”as opposed to a broader basket of currencies.” He also supported proposals for the diversification of the reserves to other currencies outside the US dollar.
Bayan’s Reyes shook his head over what he termed as President Aquino’s “state of denial.”
“The reality is that the credit downgrade is just a result of a much worse crisis facing the US economy. Given this, the Aquino administration should rethink and reverse many of the economic policies that make Philippine economic growth dependent on US investments and economic aid,” Reyes said.
Reyes said the Aquino government should take the opportunity being presented by the crisis to embark on a self-reliant economic development program.
“Instead of pinning its entire hopes on an ailing US economy that’s plodding through a protracted depression, the Aquino government should strive to build an independent economy that doesn’t rely on foreign direct investments and exports. We must move beyond being an export-oriented, import dependent, foreign-investment and foreign-debt driven economy,” he said.
Beat a new path
Reyes said the immediate causes of the US debt crisis is the huge spending made by the US government to fund the trillion-dollar bail-outs of banks during the financial turmoil in 2008.
“This and the continuing massive spending for US wars abroad. There are those who refuse to see the crisis and its origins for what they really are, but it cannot be denied that the true cause for the crisis is the crisis of overproduction in the US economy. US markets can no longer absorb the commodities its industries are creating.In the meantime, because of lower wages and unemployment, consumption has slowed down, causing the rate of profits to drop,” he said.
Reyes explained that monopoly capitalists try to keep their profits up by engaging in various forms of finance speculation, which ultimately led to the disastrous financial and economic crisis of 2008.
“There’s no point to discussing or debating over whether the credit downgrade is justified or not. The US economy is already in a protracted depression and the Obama government will do everything to try to keep the economy from completely crashing. For all the attempts of neo-liberal economists to explain the crisis and their efforts to sound upbeat about the chances of recovery, what can’t be denied is how the past decade seen the US economy failing to recover. As for the Philippine government, it’s blindly denying the truth that because our economy is connected to that of the US and dependent on foreign investments it provides, our economy won’t grow either,” he said.
He said it remains to be seen how serious the impact of the US debt crisis will be on the Philippines, “But given how things are currently going, it’s safe to say that nothing’s looking up right now. The Philippine economy has been in crisis for a long time and the downward trend shows no signs of stopping at all. It’s only a matter of time before we’ll hear Malacañang call for more belt-tightening,” he said.
According to Reyes, the Aquino government’s thrust for public-private partnerships is a fool-proof formula for failure because the PPP scheme is reliant on foreign investments for job creation.
“The national government and local industries are incapable of providing employment for majority of the labor force. Instead, we rely on the jobs foreign investors and their corporations rely — jobs that pay low wages and provide no employment security. What we need is to beat a completely new path and direction if we want economic development. Any economic development program that primarily depends on external factors, and not internal growth drivers cannot succeed,” he said.
“But will Aquino adopt a new economic strategy and junk this current one? It’s doubtful.”
Reyes said that the Aquino administration’s “formula for failure” was clear for everyone to see.
“The barest and most necessary foundations are missing — ours is an agricultural, pre-industrial country, but there’s no land reform and no basic industries. Essentially it’s a an issue of perspective and standpoint: Aquino, like his predecessors wears blinders to what will empower the population and strengthen the economy. What he focuses on is how to continue providing what landlords and large business groups want and demand — continued monopoly over land, continuous flow of profits even at the expense of the rest of the country,” he said.
Reyes said it’s not merely a matter of finding a new alternative global reserve currency as the Department of Finance wants the pblic to believe.
“It’s a matter of finding a new economic development plan for the Philippines that focuses on national industrialization, land reform and meeting the people’s needs,” he said.
According to the Bangko Sentral ng Pilipinas, foreign direct investments to the Philippines in 2010 shrunk by 13 percent compared to 2009 figures. The same downward trend has continued during the first quarter of 2011. Meanwhile, the growth in exports for the first quarter of 2011 slowed down.
Bayan meanwhile expressed solidarity with the American people who are struggling against massive unemployment, huge social cutbacks, homelessness and hunger as a result of the current crisis.