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Those who are my age may remember John Travolta’s song Greased Lightning. Well, John Travolta’s song and his very successful movie Grease reminds me of the country Greece, and how it has become the center of the world’s attention these days. It’s one of the reasons why the markets have started to regain its fear similar to what happened in 2008. This fear is something still so fresh in the minds of many investors who saw Lehman and other financial institutions folded-up during the last global crisis, one of the few times in our history we saw great financial turmoil taking its toll.
Greece is such a beautiful country rich in history. It played host to the Olympics in the past and is one of the countries most frequently visited by tourists to see its historic sites. But now Greece is being blamed for causing the current financial turmoil. Despite the reforms made by Prime Minister George Papandreou, Greece still missed many of the reform targets. Greece has a huge debt that many people, including myself, believe they will not be able to pay unless countries in Europe will continue to bail them out. And to what extent will the other countries be willing to pay the price for the mistake made by Greece?
The problem with the Euro system is they are tied into one currency, but each country still has its own political system. Quite complicated, because if one country’s fiscal discipline is not in place or with mismanagement, the rest of Europe will suffer and will be forced to bear the burden. As the Lehman memory is still well in place, many fear that Greece could have the same effect as Lehman’s blunder.
So now, not only America is in trouble, but the EU as well. I feel a recession forthcoming. And if this financial problem of Greece is mismanaged, this would inevitably spread to Spain, Italy and so forth as investor confidence breaks down. Subsequently, this will also affect Asia. And with Europe and America facing a recession, China will be hit the hardest.
If this chain of events happens accordingly, then we may have what we call the “perfect storm”. There have been ominous signs that the year 2012 will bring disasters, could it be that this means the next financial crisis? I don’t want to sound like a pessimist, as I’ve been optimistic about our country for the past years, but this time, from having experienced and survived the 2008 financial crisis, we should be careful.
The fiscal discipline of the Philippines with its new economic team is doing fine. And I have to say Finance Secretary Cesar Purisima and BSP Governor Amando M. Tetangco are doing the right things, pushing back the tenure of our borrowing, or lengthening the Philippine debt maturity profile, leaning towards Peso-denominated notes, bias to buy back bonds to reduce liabilities and negative carry and good handling of the budgetary deficit level (2.5 percent of GDP).
On top of all of this, I feel the government still has one more aspect to cover to really get the economy up and running, that is to start spending on infrastructures, and to get the Public-Private Partnership or PPP going. They’ve held back for over a year now to ensure that systems are in place and for better transparency. They can do this within the budgetary deficit target range. I feel that now is the time to spend to prepare us just in case something does happen in the next 12 months.
As with the last financial crisis, the positive side for the Filipino mass segment is that we should see gas prices go down, and subsequently, commodity prices. Right now, we are seeing oil prices at $100 on the high side down to 70. During the ’08 crisis, oil price was at $50. Other food commodities should come down as well. The dollar will strengthen during a crisis and will lead to the peso losing some value, something that may be good for our OFWs. The OFWs’ families in Manila will receive more pesos to spend from the remittances. This is why the peso has jumped back to 44 from a low of 42.50. A crisis could push this to 45 to 46. Also, interest rates will continue to remain very low, and more so in a recession so as not to dampen economic activities. This will be good for many negosyantes and consumers who are buying real estate.
Will our OFWs lose their jobs in a crisis? In 2008, we didn’t see this happen in a big way. Filipinos, as we saw in 2008, are usually the last persons to be laid off, if at all. A recession may cause lay-offs if corporations go bankrupt and decide to discontinue outsourcing. But outsourcing per se will not stop as this is the only way many corporations abroad can keep their costs low, and this is where our fast-growing business process outsourcing industry is, grabbing all possible opportunities out there.
In any case, our government should prepare for these scenarios and the best way to prepare is to be more aggressive in our infrastructure development programs, most likely through our Public-Private Partnership or PPP as this will create more jobs.
I do hope I’m wrong about a forthcoming financial crisis. But it’s good to be cautious as the economies of the world are intertwined. And with real-time broadcasting of global networks such as Bloomberg and CNN, getting information is so fast and this somehow contributes to the fear. But there’s nothing to lose if we already prepare for this probable scenario.
See you at the following Go Negosyo events:
12: 2011 Entrepreneur of the Year Banquet
19: SME Negosyo Caravan @ Magallanes Coliseum, Masbate
20: 50 Inspiring Stories of Young Entrepreneurs Book Launch @ Glorietta 5, 6p.m.
22: Davao NEGOSEM @ NCCC Mall, Davao City
NOVEMBER 8: Women to Women Mentoring Part 2 @ PTTC