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As recession hangs over America today; it brings about memories of the Asian crisis during the late 90s, which was also the last three years of President Ramos’ tenure. If not for the Asian crisis, Ramos would have scored close to a 10 for bringing the Philippines to greater heights. But, the Asian crisis was brought about by greed, pushing property prices and development as if there was no end to good times.
This was not a Philippine problem to start with, but more of our Asian neighbors — Thailand, Malaysia, Korea, etc… Their rapid expansion in property development led a lot of companies to borrow money in US dollars. As the foreign funds pulled out of their country, it led to a massive devaluation, which caused the property bubble to burst.
In the Asian crisis, the property bubble and foreign exchange losses hit the developers and larger corporations. In America, the property bubble which led to the financial crisis is hitting not only the financial institutions but the American consumer who has borrowed with very low equity, even for as low as 10 percent. Before the crisis, at that time, even a zero down gets a consumer to finance a house. People live by credit in America, compared to Asians who would rather pay cash. Now, financial institutions have realized this mistake. They have increased standards in lending, which is now making it difficult for people to finance the homes they want to buy or refinance homes. This reminds me of how lax traveling in America was prior to the 9/11 incident. After the terrorist attack, travel security has been so strict to some extent, maybe even to an extreme point. This is how credit in America is and this is how it will be in the future.
I hope I am wrong, but America is still going through the same denial stage as what I saw in Asia. Now, the questions are how long will this recession last and how will it affect us in Asia.
Stock markets surely don’t reflect a recession. Having dropped to 12,800 from a high of 14,200 is not a major correction. In fact, China, Asia and especially the Philippines have dropped a lot more — close to 30 percent on the average.
Jobs are becoming more difficult. Now people have to face the high prices of gas and other commodities, from meat, milk, rice to wheat and sugar. Name it. All prices of food products are on the rise. This will hit the American consumers’ pocket. This could be the making of the perfect storm. With a looming recession and inflation, not caused by high demand but by basic commodities and gasoline hitting the roof, the American consumer will surely be affected.
How will Asia be affected? We, too, will have our share of problems but more on the high prices of oil and other commodities. I always believe that these situations are exaggerated by the hedge funds who bet on commodity and oil prices. These are the speculators — all part of the financial derivative system we live in today. Luckily, these have been mitigated to some extent with the currencies in Asia appreciating to high levels. Can you imagine what it would have been if the peso were at the rate of 56? How much would rice, bread, milk and gasoline be? Despite all these, I believe that if Asia will be able to show growth even with the recession in America; China and other Asian countries will eventually decouple from America. In a way, however, we also benefit from a recessionary environment in America. Due to cost pressures, several American companies choose to outsource or import cheap labor through call centers and other services in Asia, especially in the Philippines. This presents us with a unique advantage, as Filipinos are one of the best English communicators in the world. We will continue to have a shortage of accountants, legal professionals, architects, etc.; but the best part is that we don’t need to export these people. They stay in the Philippines. The high cost structure in America will force them to import this labor.
What we also need to build is our food security program. I think the current situation shows us that we need to manage a balance between the necessity of a food security program and import liberalization. While importation is a way to ensure the availability of basic food items in normal times, we also see that it may not be that reliable as a source during tight global supply situations. We see some supplying countries naturally ensuring first the ample supply in their country before exporting priced food commodities. We therefore have to secure our capability to produce the basic critical commodities like rice and corn at any time. Like I said, we need balance. We cannot allow industries to be destroyed because it’s cheaper to import.
I believe that our ability to face challenges depend on the strength of our system and the resilience of our people. We have proven the resilience of Filipinos in facing one crisis after another, having lived with a boom-bust cycle over the previous decades. What we need is to further strengthen the very fiber of our economic and political structures to have a more robust growth. It is high-time we let the people and the experts review the important provisions in our charter; such as finding out the most effective form of government for our country, reviewing policies on land ownership by foreigners, development of natural resources, and foreign ownership in public utilities and telecommunications, to name a few.
Our advocacy to encourage Pagbabago in 2010.2016 presents us the opportunity to discuss these issues to have a more conducive Negosyo climate. We seek a stronger political-economic structure that allows greater unity and speed in moving the country and its people forward, a structure that can put us in a better position to face the perfect storms in our times… a structure that will empower the regions and create an entrepreneurial environment.
Time has come for real issues to be tackled. Let it start now…
[For feedback on the 2010.2016 proposal, you can email me at email@example.com or thru SMS at 09175591245. For free business advice, visit www.gonegosyo.net. Watch the Go Negosyo Bigtime Show in its new home, QTV, every Saturday and Sunday from 8 to 8:30 a.m., with replays in NBN every Sunday from 9:15 to 10 p.m.]