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| ON THE OTHER HAND |
| As I Was Saying
By Antonio C. Abaya Written March 04, 2007 For the Standard Today, March 06 issue As I was saying in my article Seize the Moment (Feb 18, which saw print on Feb 20), the appreciation of a country�s currency is not necessarily a welcome development. Especially in the case of the Philippine peso, which had been strengthening from about P55-$1 to P48.25-$1, a six-year high. I wrote that this surge in the value of the peso was due largely to two factors: the huge amount of remittances from overseas contract workers that reached a record-breaking $12.6 billion in 2006, and the entry of hot money or portfolio funds into the economy, which are used purely for speculation in the currency and stock markets and do not generate any significant employment. I warned that hot money or portfolio funds are intrinsically volatile, meaning that they stampede for the exit at the slightest hint of rumor of trouble in the host economy. This was what happened in July 1997, when hot money stampeded out of the Thai, South Korean, Indonesian and Philippine economies, causing their financial markets to collapse, ravaging their exchange rates, dragging thousands of companies into bankruptcy when they could no longer pay or service their dollar-denominated debts, and throwing millions of people out of work. The crisis spread like a contagion to Russia and Latin America . In the Philippines , our GDP shrank dramatically from 5.8% in 1996 to negative 0.6% in 1998. The peso-dollar exchange rate fell from P26-$1 in 1996 to P38-$1 in 2000, and P40-$1 in 2001.. China and Malaysia experienced the least damage in the 1997 financial crisis, largely because their currencies were not freely convertible. This means that after investors had changed their investment dollars into yuan and ringgit, they were not free to change them back into dollars at a moment�s notice (as during a stampede), but had to wait x-months or pay a penalty. This was a disincentive to currency speculators. But this practice is frowned upon by the IMF and the credit ranging agencies, which want a perfectly �free� environment for capital transfers by speculators, moving then Prime Minister Mahathir Mohamed of Malaysia to accuse Jewish speculators, like George Soros, of trying to ruin what Malaysia had painstakingly built over the years. Mahathir called currency speculation �immoral� and urged that it should be banned. There are an estimated three trillion dollars in the hands of currency speculators like George Soros who play the global markets like high-stakes mega-gamblers in a giant multinational casino that they influence by the sheer size of their �play money�, holding in their hands the power to make or break national economies at the click of their computer mice. By coincidence, just seven days after my killjoy warning saw print last Feb. 20, the global financial markets experienced massive sell-outs, starting in the Shanghai Stock Exchange and reverberating into Wall Street and the bourses in Europe, Japan, Hong Kong, South Korea, India and the Philippines. Several hundred billion dollars worth of paper wealth were wiped out, as speculators, both foreign and domestic, scrambled to sell their holdings to cash in their profits or to cut their losses. As of end of the week, only the European bourses were still in negative territory, while those in Asia as well as Wall Street had apparently recovered. But we don�t know what this week will look like. In the Philippines , the three-day hemorrhage weakened the peso from P48.25 to P48.75 to the dollar. But it has served to prove my point that a record-breaking stock price index and a very strong peso � to the extent that they are the product of hot speculative money - are not necessarily signs of a healthy economy. In my Feb. 20 article I pointed out that eight million low-income Filipino families, who make up about 56% of the total population, recipients of monthly remittances from family members working abroad, have suffered drops in their collective incomes totaling P16.2 billion a month, or P194.4 billion a year, due to the appreciation of the peso to P48.25/$1.. Other losers were/are those in the tourism and exports sectors. Of course, there are gainers. Importers gain because imported goods become cheaper to buy, even if their consumers do not necessarily enjoy cheaper goods. I cited one of my favorite imported food, Spam which, I wrote, costs exactly the same as it did in 2006: P101 a can.. I am ecstatic to report that when I did the family shopping last Feb. 25, the price of Spam had gone down to P99.50. Did the importer or supermarket owner perhaps read my lament? It is also true that cheaper imports theoretically mean entrepreneurs can go into manufacturing ventures since imported machinery and raw materials would be cheaper. But it would be counter-intuitive. When imports are cheap because of a strong currency, the tendency would be to just go into importation. It is when imports are expensive that entrepreneurs think of going into manufacturing or job-generating import-substitution in the domestic market or for export to the global market. Wouldn�t a strong peso mean cheaper oil and oil products and the goods and services that go with them? Theoretically, yes. But I was looking at our family expenses over the past 12 months. In April 2006, we paid P468 for an 11-kilo tank of Shellane; in March 2007, the same tank costs P520. In February 2006, our Meralco bill was for P18,409.80 for a consumption of 1,866 kwh; in January 2007, it was for P17,518.30 for 1,728 kwh., which is actually slightly higher than last year�s in per kwh terms. What happened to cheaper oil and oil products? As I was saying, the biggest actual gainers from the appreciation of the peso were the currency speculators and managers of foreign portfolio funds whose placements in the currency and stock markets earned them handsome profits in the hundreds of millions of pesos/dollars, even if each of them gave jobs to less employees than would a moderately aggressive pizza delivery enterprise. And the biggest losers are the eight million low-income families who suffered a drop in their monthly incomes. Prime Minister Mahathir would not have found anything to gloat over or cheer about in this state of affairs. ***** Reactions to [email protected]. Other articles since 2001 in www.tapatt.org. and (2007 only) acabaya.blogspot.com OOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOO Reactions to �As I Was Saying� �Wouldn�t a strong peso mean cheaper oil and oil products and the goods and services that go with them? Theoretically, yes. But I was looking at our family expenses over the past 12 months. In April 2006, we paid P468 for an 11-kilo tank of Shellane; in March 2007, the same tank costs P520. In February 2006, our Meralco bill was P18,409.80 for a consumption of 1,866 kwh; in January 2007, it was P17,518.30 for 1,728 kwh, which is actually slightly higher than last year�s in per kwh terms. What happened to cheaper oil and oil products?� (Unedited) Mr. Abaya, Consider this also, the jeepney fare went down from P7.50 to P7.00 or about P0.50. This is due partly to strong peso. I have a wife and two kids who go to school every day. Simple math show I did save P60 pesos monthly, P.50 x 2 (2-way ride) x 3 (persons) x 20 days. If the peso is still 56 to a dollar by now most probably jeepney fare will increase to at least P8-P9 pesos. That is P1.00 peso difference to the least from the P7.00 right now, this means P120 additional cost to me to send my wife and two kids to school. Recently electric bill was announced to go down by few centavos; this is also partly due to strong peso. Recent news is the 4 years low record for inflation rate for month of February, also due to strong peso. Good day. Ciao, Alex Yalung, (by email), Taiwan , March 07, 2007 wwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwww Hi, Tony. My professor in Developmental Economics, Dr. Rodriguez always reminded us not to answer his questions during the test, like how journalists and columnists do (excuse me!). Now I understand. What's wrong with our country is that everyone from the barber to the Archbishop think they are smarter than the President? Oh well. Cheers! Bobby Tordesillas., (by email), March 08, 2007 MY REPLY. What�s wrong with our country is that even those who think they are educated do not use critical thinking and accept without question the pronouncements from above, a habit acquired from their religious brainwashing. Oh, well. wwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwww Dear Mr.Abaya, Good day! I just would like to share my sentiments about the strengthening and the weakening of our money against other currencies. I just cannot understand, why is it that the reaction of the prices in our basic needs like gasoline is as slow as the leech if it is about the Peso getting stronger. But when the Peso becomes weak, all you have to do is just sneeze...OLAH!!! the price of the basic commodities sky rockets right away. Here in Japan without reading the newspaper, I could easily determine if the economy is in bad shape or not. Just go to a gasoline stand or the supermarket. You will also see the prices of the basic needs going up and down. I am not an economist neither am I a businessman. But something in the back of my mind is telling me somebody is manipulating the situation. Sometimes, it occurs to me, is it just because of the election why the Peso is becoming stronger against other currencies? Please correct me if I am wrong. God bless the Philippines ! Rommel Sanchez, (by email), Japan , March 08, 2007 MY REPLY. The peso was/is strengthening against the US dollar because of the entry of large amounts of US dollars, from overseas contract workers and from speculators/fund managers. Nothing to do with the elections. wwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwww (Unedited) Dear Tony, As you were saying of the ever increasing expenses that every household in the Philippines is facing, all these icing on the cake, it means nothing to the grumbling stomach of the ordinary Juan sleeping in their kariton or the yuppies sipping their gourmet coffee. Yes, every Tomas, Juan and Boyong will seize every moment that a few yellow and blue bills will land in their hands if ever and just pass their wallets. Is not because the country's currency is going strong means the economy of this country is going to be in industrial status for the next five years!....I always tell someone straight in the eye..MAGPAKATOTOO KA!!!!..this is the number one specialty of this country who want to have the power, money and fame..great PRETENDERs. All around us in South East Asia , everyone is emerging, progressing to have the slice of the pie in tourism and exports. The Philippines is abundant with these two coupled with having the most helpful, smiling people. All this smiling simple people have nothing now but to seize the hope that there will be life after this so-called administration. SS, (by email), March 08, 2007 wwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwww Dear Mr. Abaya, I so much agree that the improvement of the peso value did not benefit the ordinary citizen. If you have seen and thoroughly analyzed these economic realities, why is it that there is no definite action made by the government's economic experts. Does this mean they did not see what you have seen? Or our leaders just do not have any sincere desire to lift the Filipino people out of poverty? I have just read an article about China 's economic growth written by Andreas Lorenz and Wieland Wagner in Der Spiegel Online Feb. 27 entitled Does Communism Work After All? Let me quote this line - "Does learning from China mean learning to win? In some respects, the country could certainly serve as a role model for developing countries. The Chinese communists rescued about 300 million people from poverty - a number unprecedented in history - with their reforms." (The Chinese communists rescued 300 million from poverty by using capitalism and the profit motive, not Marxist-Leninist communism (which demands egalitarianism � no rich people - state ownership of all factories and farms. The Spiegel writers do not know what they�re talking about. What we see working in China is capitalism, not communism. ACA) The world is amazed at the rate China is growing economically They still have more problems and concerns but the reality is that, their millions of hungry people before have already food to eat now. Can't we have leaders that can transform this country as what other leaders like Hu Jintao, Mahathir Mohamad, Lee Kuan Yew, etc. have done for their people? Or does our socio-cultural, economic and political system prevent us to have one? (The latter. Our �socio-cultural, economic and political system� prevents us from having good leaders. ACA) Driggs Matabaran, (by email), March 08,. 2007 wwwwwwwwwwwwwwwwwwwwwwwwwwwwwwww Nice explanation, all negative impact, anything that you can do for a change, words are not enough but alternative solution should govern, wich way and how. Have a nice day. Amadeo D. Chavez, (by email), March 08, 2007 MY REPLY. If you will redo your punctuation, we might understand better what you are trying to say. wwwwwwwwwwwwwwwwwwwwwwwwwwwwwwww The problem with the international financial system nowadays is that, while the original purpose of money was to serve as a mechanism for the exchange of actual goods and services without having to resort to bartering, through the years, money became the product being sold and bought! That was not supposed to be the purpose of money. This phenomenon came about because of greed to make money any which way one can. Thus hedge funds came into being that engage in the buying and selling of currencies rather than of actual goods or commodities. China and Malaysia are correct in the way they understand the world financial system as it has evolved-i.e. that it has become an evil rewarding money traders, while wreaking havoc on countries and people who actually produce goods and services The solution is what the Europeans have done,-that is, to have one currency so that money traders don�t have any product to trade, at least within the boundaries of Europe....If the world had only one currency, then there will no need for any currency traders, and no more artificial values of currencies brought about by the games that hedge funds play. But of course this will be opposed by the IMF and all those who sit on wads of money and who make tons of profit in the buying and selling of currencies, without having to produce a single product or service. Nonoy Yulo, (by email), March 08, 2007 wwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwww Dear Mr. Abaya; The article is not among the better ones that you write. It has a negative spin on a topic that is seen by the investment community as one of the better things to have happened to the Philippines . A combination of excessive world financial liquidity from Japan , the US , and China and a bold Philippine decision to implement the extended value added tax enabled the Philippine. economy and its finances to be favorably noticed by outsiders. Also it could be the underlying negative perspective of the author that caused inaccuracies in the article. 1) crude oil, oil products, LPG, and electricity got mixed up in an apparent effort to minimize the benefits of lower world oil prices. LPG prices nowadays do not always have a direct relation to crude prices as LPG has a separate world market. Gasoline prices have come down by 20% from a high of P41-42 to the present P31. Electricity rates nowadays are not directly related to oil prices. Oil products are hardly used to generate electricity. (You never heard of power plants fueled by diesel, bunker C, gas? ACA) 2) The cited P194.4 billion reduction in OFW families' receipts is clearly overstated. The correct amount is closer to 50 billion pesos. This is easy to calculate mentally. A billion dollars is about 50 billion pesos. Thus $12.6 billion is about P650 billion. Peso appreciation has been about 7% to 8%. (My article was written when the peso had appreciated to P48.25 to one $. From P55.00 to P48.25 is a drop of P6.75 for every dollar. Assuming an average padala of $300 every month to an average low income family, that is a loss of P2,025 per month per low income family. Multiplied by 12, that would amount to P24,300 per year per family. Since there are approximately eight million families receiving padalas from family members abroad, multiplying P24,300 by eight million would result in P194.4 billion, the drop in income that eight million low income families would suffer, compared to a year ago, if the exchange rate were to average P48.25 to $1 for the next 12 months. ACA) 3) Hot money or portfolio investment is neither good nor bad. It comes and it goes with market trends. Compared to 1997, Philippine. finances can now handle this BOP component more manageably. There had been four, and not two, major factors that strengthened the peso: a)OFW remittances, b) hot money, c) exports outpacing imports growth (19.9% vs. 8.3% for ist half 2006), and d) sharply higher foreign direct investments (FDI) in 2006. The rise in FDI could offset any portfolio investment perturbations. (The operative word is �could.� The reality is there is no significant rise in FDI. We are getting more hot money than FDI. The banner story in the March 9, 2007 issue of the Philippine Star said �World Bank: Investments in RP extraordinarily low,� quoting WB country rep Joachim von Armsberg, in a speech before the Philippine Development Forum in Cebu City ACA) Am of the opinion, however, that the current considerable improvement in Philippine finances and in the economy could have soft legs. (Exactly my point, because we are getting more speculative money than FDI, as in 1997. ACA) The economic activity could be more speculative than solid productive /consumptive based. I have no way of calculating which is the case. What is clearer is that excessive world liquidity sort of found its way into Manila . Asia's activity, however, seems more solid than that of the US . Tony Anciano, (by email), March 09, 2007 wwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwww (Unedited) Country's like us live and thrive under the "Free market economy". anybody cnm make business as long as they don't brak any law. Investing from other countries and even local as semi-permanent in nanture becuase nothing is permanent in this world except change. change could be favorabel or unfavorable. Now what change or possible action could you suggest to arrest your worries, maybe you can tell the people instead of just warning us. Now with regards to local investors and the Philippine government I think they have been inbusiness for a quite a long time, and many of them are not stupid ( I am the one who says that) and they can resucitate or perhaps have the complete mechnism to address such an attack, in the guise of hot investments Now that we are confronted with those opportunities viewed by some as "threat" what can we do as ordinary citizens to help our economist fight back or turn harm into some useful things or rather bad into good? Rodolfo Cada, (by email), March 09, 2007 wwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwww Good article. I think it's good education to think about the economic significance of the rising peso, and not automatically take it as a sure sign of an improving economy. The contribution of foreign investors to the strong peso and bullish stock market, however, are at least clear signs of foreign investor confidence in our stock market and maybe even our economy and political situation. Foreign stock holders equity shares in Filipino companies should (theoretically) help foster growth and expansion, possibly leading to more jobs, right? The reason why the recent sell-off, devastating as it was to many investors, is not expected to have long term economic significance (knock on wood!), unlike the stock market crash during the Asian Financial Crisis, is because for the most part the Asian economies are thought to be more robust this time. Economic indicators are pointing to healthier economies that will not crash even when some investors, foreign or local, are jittery. That's why the Philippine stock market has somewhat recovered from the recent sell-off. Give props where it's due, Tony! Paolo Reyes, (by email), General Electric, March 12, 2007 . wwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwww Dear Tony: Your analysis of the appreciation of the Philippine peso against the US dollar is enlightening--and quite correct. There will always be losers and gainers in the upward or downward movement of a currency like the Philippine peso against the US dollar. There are articles or commodities, however, which appear impervious to such upward or downward movements, primarily because they are monopolies or are effectively controlled by cartels. I have one advice for you: GO SLOW ON SPAM! Mariano Patalinjug, (by email), Yonkers , New York , March 12, 2007 wwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwww 305 Billion Pinoys and Hundreds of Years (Unedited) Dear Sir, Your commentaries for 205 Billion Pinoys and Hundreds of Years: Do you ever think that mankind still exists by that time from now? Or you are only speculating?? You are optimistic enough but I think you will be more optimistic if you concentrate your commentaries more on moral values to wake up mankind in their deep sleep and wantonness of the luxuries of this world that when the hard times will come then you will see the fruits of your work. Sir, no matter how optimistic a person is, he has to realize that the signs of the end times are seen and felt for those of wisdom and understanding but mankind aside from the least are drunk and sleepy in the evil material world greedy of power, money, lusts, and luxuries as what is happening in the Philippines today. I am not so religious but I believe in God and the only hope to be saved for mankind is to follow the Teachings in the Bible as a result of my long and endless search for the truth about life. There is an end Sir and it will be catastrophic that will be felt by nations and will hurt all classes of peoples. Kings, Presidents, influential and all noble peoples cannot stand by that time and their Wealth, riches and power will be of no use nor will prevail in any manner by that time. Only the good will be spared and all those who have done wrong will be punished from the greatest to the least. If you need clarity, explanations and/or clarifications, you can ask Bro. Eli Soriano sa �Ang Dating Daan� who is the most sensible Preacher of our time that I ever heard in my search that no one can prevail over him as far as the Bible Teachings are concerned. He can answer all the Biblical implications of your honest to goodness commentaries. You can try and you will know what I mean. You can even attempt to ask all questions and he can answer you direct from the Bible. I am not also pro Bible but that is the only Book I have seen to be true that explains about God and Man especially bringing to light all the weaknesses (evils) of human beings including the corresponding punishments. I don�t know where he (Soriano) is now what I heard, he is in exile being also a victim of injustice in the Philippines involving big and powerful religious sects in the society that influenced even the highest official of the Land. I tell you the Truth that if Soriano is a man of God punishment is inevitable for all those who conspired to trouble him. I also understand why most people don�t read the Bible because their evil deeds are clearly exposed, defined and explained that most people don�t want to know. Understanding the Bible Words and Teachings is a test whether a man is good or not. No foolish and evil men will ever understand the Bible only the wise will. Try and you will see what I mean. Regards, Alfredo Tuvera, (by email), March 07, 2007 wwwwwwwwwwwwwwwwwwwwwwwwwwwwwww What Really is Democracy? What are we in power for! This is the essence of Philippine democracy. When Democracy was restored in February 1986, the Justices of the Supreme Court were wiped out of their benches, the LGU executives were scraped off their positions, the accused Marcos was refused his day in court to answer for the crimes imputed to him. In the more recent time, you can cheat, lie, and steal, violate the Rule of Law and the Constitution and get away with it because you are in power. Power corrupts, indeed. In the Philippines , anyone in power is simply and easily corrupted and enjoys it. I have yet to come across a universally accepted understanding of what is really Democracy. In Greece where it was born, democracy applied only to free people, not to slaves, servants or other domestics. In America , Jefferson �s idea of equality and freedom referred only to the whites and not to the colored. Up to now despite their supposed emancipation, discrimination of the colored in some respects exists notwithstanding such colored personalities as Condoleezza Rice, Colin Powell and others in high government councils, and such other personalities who starred in movies as Morgan Freeman, Wesley Snipes, Eddie Murphy, etc. However, the Lincolnian idea of �government of the people, by the people, and for the people� gave both the whites and the colored equal participation in the exercise of the right of suffrage. Sukarno�s Guided Democracy pioneered the development of Indonesia toward progress and prosperity. (Actually, Sukarno�s Guided Democracy merely emboldened the Parti Komunis Indonesia to attempt to seize power in 1965 by murdering the top generals of the Indonesian armed forces, which led to a counter-coup by the military. Indonesia achieved some progress and prosperity under General Suharto, who was president from 1967 to 1998. ACA) Singapore under Lee Kuan Yew�s authoritative democracy has achieved the stature of a newly industrialized country. And so with the disciplined democracies of South Korea and the Republic of China ( Taiwan ). Deng Xiao Ping�s socialist democracy is now propelling the Peoples Republic of China to a place in the First World . The Democratic Republic of Vietnam is recovering fast from the ravages of war and has now overtaken the Philippines economically and development-wise. (Not quite true. ACA) Among the pioneer countries of ASEAN, we are lagging behind. Our leaders have been corrupted by the idea of �what are we in power for�. They abused and misused power to the detriment of the nation�s interest engendering unmitigated graft and corruption of our political, economic and social systems and ruining our chance to attain nichood. What therefore is my understanding of true democracy? It is good governance the goal of which is the improvement of the quality of life of the people, the security of their safety and happiness, the equal application of the rule of law and the constitution on both the governing and the governed, and the protection of nation's sovereignty and territorial integrity. Fortunato U. Abat , (by email), March 08, 2007 . OOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOO |