Wednesday, September 01, 2004
Economic Cancer Not Crisis
It was to be expected. All you have to do is ask almost any company owner from the sari-sari store to the top ten corporations and the answer is universal – business is good. The latest economic numbers show the economy growing at an acceptable pace that might even be characterized as vigorous.
Talking of a “fiscal crisis” gives the wrong impression unless of course you have another agenda. That is if you represent an administration that has conducted its financial affairs in a manner of fiscal irresponsibility, then you are correct in labeling that behavior a “crisis”. However, that might also be an easy a way to divert attention from incompetence to simply being the victim of circumstances. But we all know there is only one victim here – the Philippines.
There is also the contradiction of announcing good economic growth while touting an economic crisis. No one from the government was silly enough to proclaim an end to the crisis based on the good data. Also even with the positive numbers, there was muted enthusiasm unlike on the past when good news was blasted out as proof of competent governing. The President’s economic advisors all know the truth. The worst is yet to come.
Past of the dampened excitement from NEDA and others was the nature of the GDP figures. Much of the economic growth came from increased consumer spending, particularly spending for transportation. Now remember this about the GDP. It measures the amount of goods produced and the amount of money spent. With the tremendous increase in oil prices, of course there was more spending by the consumer.
Having said that the numbers are a bit bogus because we had to pay more for oil, which inflated the numbers somewhat, this economy is amazingly robust despite of government waste and other fiscal foolishness. It shows us how successful and wealth-building the Philippines could be if we had a less failure prone and poverty promoting government. That is another story.
Agriculture is strong and I will give some credit to the Arroyo government. Manufacturing picked up some but this was probably more to restocking inventory rather than a new and sustainable spurt of activity. OCW remittances grew little as expected, depressing net foreign income and the Gross National Product. Exports move up a decent amount of 15% a result again of overseas inventory building and continuing growth particularly in the U.S.
I am still very worried about the future and fear that our economic problems are more of a “cancer’ than a “crisis”.
The term crisis donates of something like a typhoon that rages, howls, and eventually passes if you have the capacity to weather the storm. A cancer is slow, mostly hidden with slight warning signals, and can softly and surely kill. That is what I fear and this is what I see happening over the next months and years.
Three conditions will play havoc on the economy, the effects of which will break out in the next nine to eighteen months. These are high oil prices, rising world interest rates, and first world economic growth that may not be sustainable and may even be quite fragile.
I will not bore you with a brilliant analysis of why this economy may have cancer based on why the three ideas mentioned above are indisputable. The proof of my concerns will be evident or not if the results show up in the next year or so. If my assessment is correct, then this is what we all and especially you that are in business, will face.
Your customers are buying right now and will continue to buy. No one is foolish enough to extend credit after being caught in the ‘non-performing’ accounts receivable problem of a few years ago so cash flow should remain consistent if you are prudent.
The first direct warning sign will be that customers will increase their demands for a discounted price. The discounts asked for will not be great and may even be quite small. However, they will be quite insistent that more discounts are vital to continuing to do business. You will give in to their demands but profit margins will erode significantly over time and that is bad.
No business in the Philippines exists and flourishes without a component of the profits based on the Peso-dollar exchange rate. Here too we will see a slow trend towards further erosion of value. 60 to the dollar will be the standard by next year at this time. We can all survive at the price but business profits and the consumer’s disposable income will suffer. Not a crisis but a cancer.
A whole column and no moaning and complaining about the high government debt?!? The fact that the government owes its lenders a gazillion pesos does not create a direct problem for the economy. The high government debt is a problem only because it diminishes the country's ability to cope with the cancer. Instead of being a fall back with the ability to help the economy, the government has enough financial problems of its own and can do little to help the economy while the country suffers. It should be there to supply cheap loans, play with tariffs, and provide a safety net if needed. It will not be able to and that is the crisis. This economy has cancer and the “Doctor is Out”.
Talking of a “fiscal crisis” gives the wrong impression unless of course you have another agenda. That is if you represent an administration that has conducted its financial affairs in a manner of fiscal irresponsibility, then you are correct in labeling that behavior a “crisis”. However, that might also be an easy a way to divert attention from incompetence to simply being the victim of circumstances. But we all know there is only one victim here – the Philippines.
There is also the contradiction of announcing good economic growth while touting an economic crisis. No one from the government was silly enough to proclaim an end to the crisis based on the good data. Also even with the positive numbers, there was muted enthusiasm unlike on the past when good news was blasted out as proof of competent governing. The President’s economic advisors all know the truth. The worst is yet to come.
Past of the dampened excitement from NEDA and others was the nature of the GDP figures. Much of the economic growth came from increased consumer spending, particularly spending for transportation. Now remember this about the GDP. It measures the amount of goods produced and the amount of money spent. With the tremendous increase in oil prices, of course there was more spending by the consumer.
Having said that the numbers are a bit bogus because we had to pay more for oil, which inflated the numbers somewhat, this economy is amazingly robust despite of government waste and other fiscal foolishness. It shows us how successful and wealth-building the Philippines could be if we had a less failure prone and poverty promoting government. That is another story.
Agriculture is strong and I will give some credit to the Arroyo government. Manufacturing picked up some but this was probably more to restocking inventory rather than a new and sustainable spurt of activity. OCW remittances grew little as expected, depressing net foreign income and the Gross National Product. Exports move up a decent amount of 15% a result again of overseas inventory building and continuing growth particularly in the U.S.
I am still very worried about the future and fear that our economic problems are more of a “cancer’ than a “crisis”.
The term crisis donates of something like a typhoon that rages, howls, and eventually passes if you have the capacity to weather the storm. A cancer is slow, mostly hidden with slight warning signals, and can softly and surely kill. That is what I fear and this is what I see happening over the next months and years.
Three conditions will play havoc on the economy, the effects of which will break out in the next nine to eighteen months. These are high oil prices, rising world interest rates, and first world economic growth that may not be sustainable and may even be quite fragile.
I will not bore you with a brilliant analysis of why this economy may have cancer based on why the three ideas mentioned above are indisputable. The proof of my concerns will be evident or not if the results show up in the next year or so. If my assessment is correct, then this is what we all and especially you that are in business, will face.
Your customers are buying right now and will continue to buy. No one is foolish enough to extend credit after being caught in the ‘non-performing’ accounts receivable problem of a few years ago so cash flow should remain consistent if you are prudent.
The first direct warning sign will be that customers will increase their demands for a discounted price. The discounts asked for will not be great and may even be quite small. However, they will be quite insistent that more discounts are vital to continuing to do business. You will give in to their demands but profit margins will erode significantly over time and that is bad.
No business in the Philippines exists and flourishes without a component of the profits based on the Peso-dollar exchange rate. Here too we will see a slow trend towards further erosion of value. 60 to the dollar will be the standard by next year at this time. We can all survive at the price but business profits and the consumer’s disposable income will suffer. Not a crisis but a cancer.
A whole column and no moaning and complaining about the high government debt?!? The fact that the government owes its lenders a gazillion pesos does not create a direct problem for the economy. The high government debt is a problem only because it diminishes the country's ability to cope with the cancer. Instead of being a fall back with the ability to help the economy, the government has enough financial problems of its own and can do little to help the economy while the country suffers. It should be there to supply cheap loans, play with tariffs, and provide a safety net if needed. It will not be able to and that is the crisis. This economy has cancer and the “Doctor is Out”.
// posted by john mangun @ Wednesday, September 01, 2004 
