Contrary to Pres. Arroyo’s statement that her administration’s economic measures will withstand the current global financial crisis, research group IBON Foundation says it is precisely government’s economic strategies that have made the Philippine economy overly vulnerable to external factors.
The chronic dependence on exports, foreign investment and debt– including official development aid that ends up as foreign debt– is at the heart of the economy’s vulnerability. Economic relief measures are thus urgent as the people will bear the brunt of the effects of the global crisis on the Philippine economy.
The government overplays the so-called “decoupling” effect where the Philippines is supposedly much less dependent on the US market. On the contrary, developments in the US will still have a severe impact on the local economy as the US remains one of the country’s top exports and investments partners. Third-party partners such as South and East Asian markets are also finally linked to the US ambit.
Drops in US consumption and investments will be deeply felt as the largest part of Philippine exports directly or indirectly goes to the US . Around 20% of foreign investment in the country comes from the US . Further, some 20% of exports already directly go to the US but a large part of exports to Japan, China , Hong Kong , South Korea , Taiwan and Malaysia which take up another 50% of exports, are actually components for assembly into products whose final destination is still the US . Slower growth in third party countries that depend on the US and which the Philippines deals with will also have adverse effects on Philippine exports manufacturing.
Even the vaunted local information technology (IT)-enabled industry will be likely hit hard because of its considerable dependence on the US market, further aggravated by the continued peso appreciation. The US is an overwhelming presence in the business process outsourcing (BPO) sector and accounted for nearly 90% of total BPO exports revenue and over two-thirds of foreign equity in 2005. The impact will be most felt in the National Capital Region (NCR) where an estimated 80% of BPO employees are located.
Slow global growth could restrain OFW deployments and slow down remittances which will reduce domestic consumption. The global financial crunch could also result in further cuts in the salary and benefits of OFWs as employers react to the crisis. All this highlights the folly of government economic strategies which unduly rely on external factors instead of creating jobs and producing goods by building domestic agriculture and industry.
Immediate economic relief measures have to be taken to arrest the inflationary impact of the financial crisis starting with the removal of the regressive RVAT on oil. Other urgent measures include implementing a nationwide across-the-board wage hike, increasing the budget for social services, and suspending debt payments because of the people’s urgent need for resources and support.
It is becoming all the more urgent for the government to put a stop to failed policies of globalization. Beyond the immediate economic relief, much more meaningful over the longer term is to focus all efforts to build a genuinely self-reliant domestic economy.