How is the Economy?

It is hard to get a reasonable assessment of how the Philippine economy is performing. The reality is that all the analysis, no matter the source, are slanted and prejudiced.

Data can be used almost any way especially for a political agenda. “Look how great the government is doing” and “Why is the government handling the economy so badly” are two sides of the same coin. Part of the reason is that the economy could always be worse, or it could always be better.

There is no single factor or particular group of factors that gives a completely accurate picture. The person evaluating the economy must choose what information to look at and which to ignore. “He has such beautiful eyes,” says the crush. “True,” says the friend, “but the way those ears stick out, he might fly away in a strong wind.” So, is he handsome?

Comparing the Philippines to another country has benefits but creates distortions. Yet, if we can bring the statistics down to fair comparisons, we might learn something even if it is—“we will all die; just not all at the same time.”

We hear much about the external debt of the Philippines. What the commentators seem to forget to mention is that by a slight margin, the majority of that foreign debt is from the private sector. Businesses will borrow at the best terms and conditions—including currency exchange rates—possible. They want to be profitable and to stay in business.

But Thailand’s economy collapsed in 1997 and Turkey’s in 2018 because the government did everything possible to get its corporations to borrow outside the country to expand and to show a “great” improvement in the economic growth. That was all artificial and a disaster. That has not happened in the Philippines during the 21st century.

Another factor, when looking at debt load, is how much money you have in the bank. Two families have the same net income of P100,000 per month. One is paying P2,000 per month on their credit-card debt; the other is paying P15,000.

The first family’s credit-card debt is from eating at fine restaurants. The other is paying off the charges for kitchen appliances for their newly opened ice-cream store.

The second family has enough in cash reserves to cover the price of the appliances. But they built that reserve for emergencies and as working capital for their business. The same goes for countries.

One contributing factor behind Thailand’s 1997 catastrophe was that they spent 35 percent of their foreign reserves to prop up the currency to pay the foreign debt. Turkey is in the same situation with its currency reserves down 12 percent in 2018.

International financial institution Morgan Stanley looked at the emerging market countries in terms of how long would each last with the money they have in the bank—foreign currency reserves—against all their external funding needs.

If Turkey had to rely on its reserves, they have less than five months of cash. Argentina has only six months and Malaysia and South Africa could last one year. The Philippines is No. 6 after Thailand, Russia and South Korea with 3.8 years of cash in the bank.

The Philippine economy was not able to make 4 percent annual growth the “new normal” until the government’s fiscal condition was put in order during the early-2000s. We have extra money in the bank and our income is increasing. It could be better and it could be worse. But the trend is positive and our current financial condition is secure.

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