Copyright © 2011 by Chester B. Cabalza. All Rights Reserved.
“We won’t be unscathed by the crisis and we will come out of it more resilient than before” – Department of Finance
Today, according to the Philippine government’s own 2003 Family Income and Expenditure Survey, 68 million Filipinos live on only Php96 and less a day (as cited in Ibon Media, 2007b), which amounts to roughly US$2. Wealth is distributed inequitably. Whereas 53% of the combined annual income of all Filipinos is concentrated in the richest 20% of the population, the income of the poorest 20% comprises only 4.63% of the total (Ibon, 2007a). Similarly, the net worth of the richest 10% is equivalent to the combined annual income of the poorest 9.8 million households (Ibon, 2007c). Worse, as of 2007, there are estimated to be 86.794 million Filipinos, a figure that continues to grow at an alarming rate of around 2.35% each year. With unemployment at 7.8% of the eligible labor force and underemployment at 21.5%, about 10.5 million Filipinos are either unemployed or underemployed (National Statistics Office, 2007).
Overseas Filipinos have already reached ten million in number. They include what the Asian Development Bank calls permanent migrants, those who have obtained permanent residency, landed immigrant status, or even foreign citizenship, and whose stay in another country is not dependent on work contracts (2004, p. 3). An NGO based in the Netherlands, the Commission for Filipino Migrant Workers, says that among the Filipinos living abroad, 32% would fall under this category (“Surviving Europe,” 2004).
They also encompass both the temporary migrants commonly referred to as Overseas Filipino Workers or OFWs, whose stay is determined by a formal or informal contract of employment and who comprise 40% of all overseas Filipinos; and the undocumented irregular migrants, who have no passport or documents like work permits or residency papers or who have overstayed (ADB, 2004, p. 4). The latter constitutes the remaining 26.6% (“Surviving Europe,” 2004). For this reason, the larger term Overseas Filipino should not be confused with Overseas Filipino Worker, which is the Philippine government’s preferred designation for the migrant workers who submit themselves to its strictly regulated system of recruitment, training, and deployment and are extolled as the new national heroes for the remittances they send home.
With the 66.6% or the 5.33 million Filipino migrant workers who are not permanently settled. Denied the rights of citizens, they are the ones who experience the most hardship abroad. Countless stories tell of migrants who are not paid and whose travel documents or identity papers are kept from them. Many of these migrants must deal with employers who abuse them physically and sexually. Some are even forced into prostitution by illegal recruiters. In spite of such dangers, thousands upon thousands of Filipinos continue to disperse to other countries all over the world in search of the opportunities their own country cannot offer.
According to ADB, the Philippines is the second only after India in the world, among the largest developing country receivers of remittances. Migrant remittances provide the most direct, immediate, and far-reaching benefit to overseas workers, their families, and their countries of origin. Despite the social and other costs of migration, many families of overseas workers, particularly those in the low-income sectors, rely on remittances as the major – if not the main or primary source of funds for their basic or daily needs.
Remittances also enable them to acquire a house, fund the education of children, pay for medical or health needs, and put away some for savings or investments in small enterprises. However, views diverge on the effects of remittances, or in the broader context of migration. Some studies have suggested strongly that remittances create lasting negative effects on the country of origin, which have been used mostly for excessive consumption, not to increase the productive capacity of the sending country. But other researchers point out that consumptive behavior has multiplier effects that increase the demand for goods and services, as well as indirect investment.
Hence, migration have become a livelihood security issue in the country has also perpetuated a culture of dependence on remittances on the part of the beneficiary families, as well as on the migrant sending country.
Threat Scenarios:
Financial Crises
Economics, according to Uy (2005), engages itself with understanding choices and maximizing the allocation of resources given the scarcity of it using supply and demand factors as tools of analysis. Of recent vintage, economics is involved in understanding the global economy in a shrinking world brought about by efficient modes of transportation and communication bringing people and nations closer in the process of interaction and commerce.
On the other hand, the new phenomenon of international and global finance dictates that money will go where money will earn transacted through trading of financial instruments in the form of securities and through transactions in currency exchanges.
Money, known as speculative or portfolio funds, flows unabatedly across market economies in search for profit. This inflow of capital has recently proven to be both opportunities and disasters to nations. The disaster impact has reared an ugly head that has escalated itself to proportions of national security concern. Nations have been left to rot in ruins and populations are impoverished when these speculative funds enter their markets and quickly depart en masse, resulting to what is now more popularly referred to as national financial crisis.
A. Impacts of Asian Financial Crisis to the Philippines
According to Dr. Walden Bello, unlike its neighbors, the Philippines was skirted by Japanese capital in the late 1980's owing to the instability of the post Marcos transition. Thus it did not have the leverage to blunt the structural adjustment program pushed on it by the IMF and the World Bank, as Thailand, Malaysia, and Indonesia were able to, despite the fact that all three were under formal structural adjustment programs. The Philippines desperately needed the IMF World Bank seal of approval, and so, between 1980 and the early 1990's, successive governments proceeded to move towards comprehensive liberalization, deregulation, and privatization.
The Philippine foreign exchange volatility rose from an average of Php1.12 between the periods 1990 and 1994 to Php1.33 between 1995 and 1999 as a result of heightened pressure on the peso following domestic and external shocks, such as the 1995 Tequila in Mexico, the 1997 Asian and 1998 Russian financial crises. The spread of investor pessimism on emerging markets following the financial crisis in mid-1997 led to the slowdown in capital inflows into the Philippines and severe depreciation pressure on the pressure. Volatility again rose to an average of P1.74 in 2000-2003 with the sharp depreciation of the peso as a result of persistent negative market sentiment. Domestic political concerns led to a slowdown in foreign exchange inflows and fluctuations in the peso-dollar rate (Uy, 2006).
Nothing could be more strange, unpredictable and dangerous to the existence of any state than to see it and its people impoverished ‘right before one’s eyes’ totally helpless while remaining in a complete state of ignorance when the clock of poverty will stop ticking.
When the phenomena of the 1997 Asian Financial Crisis affected the Philippines’ financial sector that included both banking and non-banking institutions, the Philippines was left to beg from international financial institutions for actual and stand-by loans to cushion the painful impact of the financial crisis.
It brought the Philippine currency to drastically depreciate seriously impairing both private enterprise transactions and national collections that relied on economic growth. This added to the current national budget deficits. Urgent policies towards tight fiscal and monetary policies were imposed while policies in the private financial sectors were immediately enacted for the protection and development of the debt and equity capital markets in response financial crisis, some taking the form of laws.
Furthermore, according to Uy, from the Philippine perspective, in response to the Asian Financial Crisis, the framework for the development of the Philippine financial system lies in the MTPDP development agenda for the Philippine finance sector that requires the following courses of action:
- Accelerate reduction of non-performing assets in the banking sector;
- Prevent and minimize systemic risks by strengthening regulations in accordance with international standards for greater transparency and accountability;
- Improve market liquidity;
- Protect investor and creditor rights;
- Tap savings through new financial products;
- Remove tax distortion and harmonize tax treatment of financial instruments.
The Securities Regulation Code helps portfolio funds managers to consider investing in the Philippines, which may be due to the full disclosure requirements, while being adequate, efficient, effective, appropriate and equitable to attain its objectives of regulating registrations, exchanges and professional brokers of securities. The Philippines should consider redefining national security to accommodate this new financial threat to the nation’s state existence but upon different reasons altogether.
In conclusion, the evolution of national security must magnify its influence on the policies to respond to regional financial crisis. The lack of international influence or power on the part of the Philippines to influence the trend of international finance and global events explains why the Philippine legal response seems to pale against the damaging impact that global funds has on the country’s economy. So without the ability to impact upon international institutions and global events, the national security perspective of the Philippines to global finance and portfolio funds remain inward-looking, if not totally defensive. And to the extent that the defense has been too inward-oriented, one could understand why, that legal responses to Financial Crises are not highlighted concern of either the National Economic Development Authority (NEDA) or the Department of Finance (DOF).
Uy (2006) deems that after the Philippines had undergone the rigors of both the Asian Financial Crisis and the BW Scandal, the country went on to add more legislation that affected the regulation of securities transactions.
B. Impacts of Global Financial Crisis to the Philippines
It all started when speculations on US Wall Street’s top investment banks like Bear Stearns, Lehman Brothers and Merill Lynch have collapsed prompting for the Bush’s administration to resort for ‘bailout’ program from its Congress. The contagion has spread worldwide causing Iceland’s financial meltdown. To date, officials of the Group of Seven (G-7), the world’s wealthiest industrial countries, may regard this worldwide financial crisis leading to another episode of Great Depression in the1930s because of unprecedented economic and financial impacts worldwide. Recently, UK’s largest banks are also on the brink of embracing their own bailout plan, if and when economic relief measures are not contained.
The IBON Foundation, Inc. opined that the Philippine economy is seen as vulnerable to the global financial crisis due to its chronic dependence on exports, foreign investment and debt. Given that the US remains to be the country’s top exports and investment partner. It is said in the report that even the vaunted information technology (IT)-enabled industry will be likely hit hard. It is also foreseen that fear on the slowdown in OFW deployments and remittances will reduce domestic consumption.
Contrary to President Arroyo’s statement that her administration’s economic measures will withstand the current global financial crisis, research group IBON Foundation says it is precisely government’s economic strategies that have made the Philippine economy overly vulnerable to external factors.
The chronic dependence on exports, foreign investment and debt–including official development aid that ends up as foreign debt– is at the heart of the economy’s vulnerability. Economic relief measures are thus urgent as the people will bear the brunt of the effects of the global crisis on the Philippine economy.
The government overplays the so-called “decoupling” effect where the Philippines is supposedly much less dependent on the US market. On the contrary, developments in the US will still have a severe impact on the local economy as the US remains one of the country’s top exports and investments partners. Third-party partners such as South and East Asian markets are also finally linked to the US ambit.
Drops in US consumption and investments will be deeply felt as the largest part of Philippine exports directly or indirectly goes to the US. Around 20 percent of foreign investment in the country comes from the US. Further, some 20 percent of exports already directly go to the US but a large part of exports to Japan, China, Hong Kong, South Korea, Taiwan and Malaysia which take up another 50 percent of exports, are actually components for assembly into products whose final destination is still the US. Slower growth in third party countries that depend on the US and which the Philippines deals with will also have adverse effects on Philippine exports manufacturing.
Even the vaunted local information technology (IT)-enabled industry will be likely hit hard because of its considerable dependence on the US market, further aggravated by the continued peso appreciation. The US is an overwhelming presence in the business process outsourcing (BPO) sector and accounted for nearly 90% of total BPO exports revenue and over two-thirds of foreign equity in 2005. The impact will be most felt in the National Capital Region (NCR) where an estimated 80 percent of BPO employees are located.
Slow global growth could restrain OFW deployments and slow down remittances which will reduce domestic consumption. The global financial crunch could also result in further cuts in the salary and benefits of OFWs as employers react to the crisis. All this highlights the folly of government economic strategies which unduly rely on external factors instead of creating jobs and producing goods by building domestic agriculture and industry.
Immediate economic relief measures have to be taken to arrest the inflationary impact of the financial crisis starting with the removal of the regressive RVAT on oil. Other urgent measures include implementing a nationwide across-the-board wage hike, increasing the budget for social services, and suspending debt payments because of the people’s urgent need for resources and support.
It is becoming all the more urgent for the government to put a stop to failed policies of globalization. Beyond the immediate economic relief, much more meaningful over the longer term is to focus all efforts to build a genuinely self-reliant domestic economy.
The meeting between the global portfolio funds and various local laws regulating the Philippine capital market occurs within the Philippine economic environment and within the global economic context. This meeting between global fiancé through the free flow of portfolio funds and financial mess of other countries can affect the Philippine economy though is fraught with diverging and conflicting interests between the desire of global funds to earn in the volatility of asset prices (and exchange rate) and the desire of the nation for economic growth but with stability.
What the Philippines can do to its finance sector in pursuit of national security to respond to globalization of finance and the entry of portfolio funds and economic wreck of other countries to the aspect of legal and regulatory responses to the free flow of foreign funds. The NEDA has distinctively recognized the development of the Philippine financial capital market within the national development agenda.
References
Beltran, Gil S. (2008). Effects of the Global Financial Crisis on the Philippine Economy, Department of Finance PowerPoint Presentation, National Defense College of the Philippines.
Bello, Walden. (1997). Addicted to Capital: The Ten-Year High and Present-Day Withdrawal Trauma of Southeast Asia’s Economies, Article.
Ibon Media. (2007a, April 12). Income Gap Widens: RP’s Wealthiest Grew Richer Under Arroyo Term. Retrieved June 13, 2007, from http://ibon.org/emedia/index.php?option=com_content&task=view&id=127.
Ibon Media. (2007b, April 17). 68 Million Filipinos Struggle With P96 or Less A Day. Retrieved June 13, 2007, from http://ibon.org/emedia/index.php?option=com_content&task=view&id=129.
Ibon Media. (2007c, May 10). The Philippine Poverty Situation: Beyond Poverty Measures, Inequality Grows. Retrieved June 13, 2007, from
http://ibon.org/emedia/index.php?option=com_content&task
Uy, Hector Danny D. (2005). Towards a Philippine Legal Response to Global Finance: A National Security Perspective, (Thesis), National Defense College of the Philippines.
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