DIE HARD III
Herman Tiu Laurel
4/1/2013
One Easter headline ("Early Easter gift for RP") blared in the wake of the recent Fitch Ratings upgrade of the country from BB+ to BBB- "investment grade" status. That means interest rates for future Philippine borrowings will be lower as the likelihood of a debt default, with more supposed investments coming in, becomes lessened even more.
However good that press release sounds, it is just the proverbial banker lending you his umbrella when the sun shines then demanding it back the minute it rains.
I say this because the country does not have to borrow anymore due to the surplus cash in the system as evidenced by the Bangko Sentral ng Pilipinas' lowering of interest rates on the P1.7-trillion SDA or special deposit account to 2.5 percent as well as the continuing fall in the country's long-term debt papers.
Besides, what is there to gloat about when this "investment grade" status has been paid for dearly by the people since 2004 with OFW remittances, high taxes, the starving of public services and infrastructure, and the concentration of wealth to the financial elite through privatization and high utility rates?
Frankly, the international financial oligarchy is now desperate to find borrowers given that the global economy is in a deflationary mode with the decrease in the general prices of goods and services within a given economy. As financial consultant A. Gary Shilling writes in Bloomberg, this decline is due to the highly deflationary "deleveraging" of the world's giant financial institutions and the Western financial system since 2007, or their way of paying off excessive debt taken on in the past decades.
Any sign of deleveraging is a red flag to investors who require growth — growth that is not likely in the decade ahead as the global economy continues to be muddled in a crisis of over-production or excess supply over demand of products, which leads to lower prices and/or unsold goods, thus, increasing unemployment worldwide.
Aside from this, Shilling identifies other deflationary forces — the savings-consumption rate of the biggest market in the world, the US, being down to 2.2 percent (from the 3.7 percent annual increases from 1982 to 2000); falling fertility rates below the replacement level of 2.1 percent in most industrialized countries; and the aging population and reduction of working-age people in most countries.
"Excess supply is the root cause of deflation," Shilling emphasizes. He adds that there is now also "increasing protectionism" as a recent survey of 3,000 business executives in 25 countries made by GE Electric found 71 percent wanting government to protect "domestic innovation," as trade liberalization is being "largely abandoned" in favor of bilateral deals. Further, competitive devaluations (that spell a currency war) are another threat that Shilling identifies.
Despite regular pumping up of world employment expectations, the jobs crisis persists. Lay-offs in 2012 alone included: Hewlett-Packard, 27,000 or 7.7 percent; American Airlines, 14,000 or 17.7 percent; Lockheed Martin, 10,000 or 8.1 percent; IBM Germany, 8,000; Caterpillar Belgium, 1,400 ad nausea.
On March 22, 2013, the US Bureau of Labor Statistics reported 1,422 mass layoffs involving 135,468 workers, of which 20 percent were from the manufacturing sector. Meanwhile, the factory of the world, China, continues to churn out massive quantities of low-priced consumer products while raw materials inventories pile-up, slowly depressing global commodities prices.
One of the most apparent signs of the troubles of deleveraging lately is Cyprus where the combined effect of the global deleveraging collapsed its banking system, causing people's savings to be sequestered by the European Central Bank.
What investments can new money inflows enter into in the Philippines? Manufacturing? Agriculture? Services? Real estate and construction development? Exports? The last sector will not meet export growth targets of 10 or, as in the last year, 11 percent year-on-year for some time as the appreciating peso works against export competitiveness.
The real estate sector is nearing saturation point and the question now is when the bubble will burst. Agriculture is being drowned by imports of rice, garlic, onions, fish and even fish sauce. Manufacturing is being killed by the highest power cost in Asia.
What the ratings upgrade and new debt/investments through the PPP (public-private partnerships) will be ushering in is the exorbitantly profitable power sector targeting Mindanao this decade; the expansion of water and public transport like the MRT/LRT privatization; and more tollways.
As in the past, the Philippine Stock Exchange and the Philippine Dealings and Exchange System (the latter for government debt) will see booms and busts, but unemployment will continue to increase as the economy suffers unabatedly through high extractions from privatized public utility firms.
Government will continue to incur high debt and the BSP and the Department of Finance will again pressure for new taxes for the sake of ratings upgrades. State, financial and investment corporations will begin the cycle of overleveraging until the inevitable burst of the bubble.
The only real and promising financial and economic alternative that is not being considered: Paying off all debt as well as reviving manufacturing and agriculture through import re-substitution to put wages back into people's pockets for them to spend on domestic goods.
Moreover, what the country needs is socio-economic re-engineering to re-distribute population back to the provinces and small islands, forming small farm units powered by bio-digesters, wind, and solar energy, for a nationally food and energy self-sufficient and sustainable economy.
(Tune in to 1098 AM, Tuesday to Friday, 5 p.m. to 6 p.m.; watch GNN's HTL show, GNN Channel 8, Saturdays, 8:15 p.m. to 9 p.m., 11:15 p.m. and Sunday 8 a.m., and over at www.gnntv-asia.com, this week's topic: "Bubble Upgrade;" also visit http://newkatipunero.blogspot.com)
