The exposure of Philippine banks to the global financial crisis will result in the contraction of local businesses and job losses because economic liberalization has made the local banking system vulnerable to external factors.
According to research group IBON Foundation, Philippine banks are merely a conduit of foreign capital, and being in a liberalized and deregulated environment, are vulnerable to the current volatility of global finance.
Even as the Bangko Sentral ng Pilipinas has assured the public that only a few local banks have exposure to cash-strapped US investment banks, the impact on local businesses will be felt since majority of investments in the country are dominated by foreign capital, accounting to around 54% of total flows in the country. Thus though not exposed to the Lehman Brothers, investments in the country are affected by the jitters of foreign capital.
The local banking system, dominated by foreign banks, will likely be prudent in lending to small local businesses and would instead opt to protect large businesses with foreign capital. Unavailable access to lending would result in business slowdown and possibly lead to more establishment closures. As it is, financial losses have led to a significant number of closures among establishments in the past years.
Business slowdown will worsen the country’s unemployment, which is already at its record high, as business owners will be forced to cut down on their labor force or close shop. Job losses will be first felt in all trade and investment enclaves in the country, both manufacturing and business process outsourcing (BPOs), and then by the few Filipino firms exporting to the US and related markets.
The global crisis will further worsen the Philippines’ own economic crisis as neoliberal reforms have further deepened its links to the US and the global economy. However, the economy would have been less vulnerable if the domestic economy were not overly dependent on trade, foreign loans and capital, and if nationalist economic policies were in place