IT is prudent to consider the advice of someone who may have a better perspective than you do. If your barber says that your haircut style looked great in 1982, it might be time to do it differently.
However, if your well-respected doctor wants to prescribe a particular “maintenance med” it also might be prudent to do some research. If you discover that the drug has limited success and there is a scandal involving European doctors getting a kickback for writing prescriptions, get a second opinion.
Everything is not a conspiracy, but as Joseph Heller wrote in Catch-22, “Just because you’re paranoid doesn’t mean they aren’t after you.”
There are several competent economic consultancy firms that provide independent economic research to their clients and subscribers. We should assume that there is nothing to be paranoid about. However, we also need to look deeper at the analysis. When it comes to the Philippines, too often the local press treats these words of wisdom as if they came directly from the burning bush on Mount Sinai. There may be something behind the curtain that we should know.
The latest example came under the headline, “Philippines would be better off shunning Chinese investment altogether” and “PH may fall into debt trap with China funds, says firm.” There have been countless warnings about the dreaded “Chinese Debt Trap,” and that is beneficial.
Of course, it is unfortunate that there were no such warnings back in the 1970s about borrowing from the International Monetary Fund or in the 1990s about borrowing from international banks. The 1997 Asian Financial Crisis might have been avoided. The 2008 Global Debt Disaster would have never happened if the same warnings were given about buying three houses with “No Money Down-Easy Monthly Payments.”
“With the current account deficit already approaching unsustainable levels, and given the corruption problems associated with Chinese investment projects elsewhere in Asia, the Philippines would be better off shunning Chinese investment,” said the report. That sounds serious. The report cited Sri Lanka and Pakistan’s recent dealings with Chinese loans. Fair enough.
Further, “Given the relatively high level of foreign currency debt in the country, and with inflation well above target, a sharp fall in the peso would pose a major threat to the economy.”
Let’s talk about the current account deficit, which is now at 0.8 percent of the GDP. Granted, there are now two consecutive years with deficits, but those are the first deficits since 2002. In contrast, Pakistan has been running a deficit since 2002, and it now stands at 8.2 percent of GDP. Big difference.
Sri Lanka has a 2.6-percent deficit, and the last time that country ran a surplus was never—since 1981. Maybe we are seeing some mango/rambutan comparisons. Countries with a much worse current account deficit include New Zealand (2.8), Australia (3.1), Peru (1.3) and Turkey (5.5).
Also, this statement—“the relatively high level of foreign currency debt” for the Philippines—seems suspect. The Philippine external debt to GDP is now 42 percent, the same as Australia. Neighbors Malaysia stands at 51 percent and Vietnam at 61 percent. Maybe Brazil should be a greater concern at 74 percent.
Words of caution are always appreciated and needed. But why make the blanket statement—“better off shunning Chinese investment altogether”—without these “experts” offering an alternative? It is joyously wonderful to see the world community so deeply concerned about the Philippines and its business relations with China. But why are they suddenly so helpful?
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E-mail me at mangun@gmail.com. Visit my web site at www.mangunonmarkets.com. Follow me on Twitter @mangunonmarkets. PSE stock-market information and technical analysis tools provided by the COL Financial Group Inc.