Brace for the Economic Storm in 2009

Published on January 10, 2009

The Philippines is going to be severely affected by the worsening global economic situation which is expected to continue deteriorating until 2010 and even beyond. The country is more vulnerable than it should be because of accumulating neglect from past decades of poor development policies. Yet it is still possible to mitigate the effects on the country’s growth and development. More importantly, it is possible to emerge from this period of crisis with an economy that is on the way to genuinely strengthening and moving forward.

BY SONNY AFRICA
IBON Foundation
Posted by (Bulatlat.com)

Weakened by “globalization”

The country is going to be seriously affected particularly because the last decades of “globalization” policies have made it extremely vulnerable. These policies have made the Philippine economy more fragile than ever: more exposed to external shocks and also internally much weaker.

It is more dependent than it has ever been on exports, foreign capital (investments, debt and aid) and remittances. Trade, or combined exports and imports, measured as a percentage of gross domestic product (GDP) has doubled since the early 1980s to average nearly 100 percent in the last few years. This reflects how a much greater part of domestic production and employment is now tied up to exports. Some 84 percent of the country’s exports go to just ten countries which are all slowing drastically in 2009: US, Japan, China, Singapore, Hong Kong, Taiwan, Korea, Malaysia, Netherlands and Thailand.

Over that same period inward foreign direct investment (FDI) flows increased from being equivalent to less than one percent of gross fixed capital formation to between 15-18 percent, with the inward FDI stock totaling US$19.0 billion by 2007. FDI accounted for 55.8 percent of total approved investments last year or P215.2 billion ($4,874,844,263 at the 2008 average exchange rate of $1=P44.145) in FDI out of total approved investments worth P385.8 billion ($8,739,381,583). Some two-thirds or 65.4 percent of FDI with identifiable countries of origin comes from just the United States (US), Japan and the European Union (EU) – all of which are in recession.

Meanwhile the US$14.5 billion remitted last year by some 9.2 million Filipinos in over 190 countries was equivalent to around 10 percent of GDP. Ten countries which are all in economic difficulties account for 86.8 percent of all remittances: US, Saudi Arabia, United Kingdom (UK), Italy, Canada, United Arab Emirates (UAE), Japan, Singapore, Hong Kong and Germany. All these mean that economic problems in the country’s main trade and investment partners and in the destinations of overseas Filipinos will be quickly and acutely felt.

But “free market” policies have also drastically eroded domestic manufacturing and agriculture. The economy’s foundations and its internal ability to grow, create jobs, provide incomes and cope with crisis have been weakened. The share of manufacturing in GDP has been falling since the 1980s and, at 23 percent in 2007, is now as low as it was in the 1950s. It is also more foreign-dominated that it has ever been. The 18 percent share of agriculture last year is the smallest in the country’s history. Food production per capita is lower than in 1980, agricultural trade has been in chronic deficit since 1994, and the country has become the world’s biggest rice importer.

The eroding domestic economy has underpinned worsening joblessness and increasing poverty. By 2006 some 70 million Filipinos were already struggling to survive on some P110 ($2.14 at the 2006 average exchange rate of $1=P51.31) or much less a day – with the poorest 28 million making do with a scant P18-44 per day ($0.35 to $0.85). Incomes have recently been drastically eroded by high inflation which while slowly easing remains the highest since the mid-1990s. Soaring food prices are particularly burdensome for the poor who spend about two-thirds of their budget on food. In IBON’s latest survey in October 2008 78 percent of respondents rated themselves as poor.

Economic distress

Even without precise estimates the general direction in the coming period is clear: the deterioration of an already bad situation. Growth figures in the country are a poor indicator of economic development with joblessness, incomes and poverty rising despite sustained growth – growth is disconnected from the majority of people’s lives and welfare. This also points to how even a small drop in growth rates taken with record unemployment, falling incomes and widespread poverty can be understood as driving the Philippines into recession.

Growth in gross domestic product (GDP) was reported at 7.2 percent in 2007 but the National Economic and Development Authority (NEDA) expects this to slow to between 4.1-4.8 percent in 2008 and 3.7-4.7 percent in 2009. Growth this year and next year could easily turn out the slowest in a decade.

Joblessness cannot but increase and add to the 4.1 million unemployed – estimated to include the jobless statistically removed from the labor force to lower officially reported figures – and 6.8 million underemployed as of 2007. The number of jobless and underemployed will quite likely rise to well over 11 million Filipinos in 2009.

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