Still Keeping Afloat

 
Global Inflation is a symptom of a greater ailment. The US seems headed for a financial meltdown, caused by the confluence of the subprime crisis, yet to peak; quadrupled oil prices, loss of manufacturing prowess to BRIC (Brazil, Russia, India, China) and the emerging world, and her R&D and innovation edge, now outsourced.  The problem is, with the Global economy's close linkages, the rest of the US economy dependent world may, for now, just go down with her. 
 
WATCHING AMERICA WITH BATED BREATH 

Fighting the crisis, the US Fed has adopted an anti-Friedman monetarist approach (in the 1970's, a high Fed Fund rate was used to control inflation); Ben Bernanke's opposing policy is counterintuitive, and more appropriate for what is perceived as a “balance sheet recession.”  

By recognizing the fundamental problem is not the short supply of funds, but rather, a lack of demand for loans, break-even inflation rate (BEIR) below the target inflation rate, coupled with fixing the financials, should lead to a private sector demand for funds. 

This is caused by a lack of confidence, the fallout of irresponsible, unrestricted lending. A finger pointing between legislative and executive has resulted, because hard decisions like offshore drilling, fiscal incentives for renewable and alternative energy, were not made 10 years ago; decisions we have long ago made. The first and second oil shocks banished the dependence on oil generated power.  The third shock should lead to the banishment of transportation oil dependence. 

Because in the US, transportation is a way of life, with their Suburbs, SUVs, and interstates. Remove this dependence and inflation will abate, and confidence will return. Already, the world is reacting, and a University of Chicago study notes that “Oil Pique” is happening:  consumption in five years has dropped by 60%, and supply by 35%.   

The world waits with bated breath to see how the US will survive this crisis; in essence caused by a cataclysmic shift of US$2 trillion, moving from oil importers to oil exporters. It has wiped out financial and housing systems, and strained employment (presently 5.5%, against 4.6% in 2007). The .05% manufacturing growth will do little to reinvent the financial landscape.     

The US has all but lost her title as the reigning superpower.  Is it possible that her economy has hit maturity, and is entering a decline like Britain's, in the 1930s? 
 
PHILIPPINE ECONOMIC SETUP 

The Philippines' position is unique, and certain factors have made her very resilient. 

Fortunately, the Bangko Sentral ng Pilipinas (BSP) policy is not so hawkish, leading to a less than break-even T-Bill rates. Again, it's not the supply of funds. Its the demand for loans.   

By prudent money supply management, the BSP is providing exactly what the economy needs to grow. Borrowing should be made easier. Safeguards are in place anyway – like collateral assignments and credit verifications; things that the US system lacked. 

US Dollar inflows are still key, and three factors directly generate this. This should be prioritized, and if first world development was benchmarked as say, Japan's proverbial 6 million exported cars, the following would set a clear goal. 

Aside from minerals and tourism, our primary factor endowment is People. A world-class education is therefore imperative - with schools connected by roads, bridges, and communications infrastructure. Mainstreaming school children in the remotest village with homogenized, high-quality education through broadband as assisted by well-trained teachers, I believe, is our country's key to success.   

The country has a premium in the Filipino OFW as he is sought after worldwide, because of a major Christian trait: Caring – for business and people. They continue to hold our head above water, formally remitting a total of US$13.1B last year.  That's equivalent to 818,750 Toyota cars (at US$16,000 each) exported.  We're expecting US$16B in 2008; that's 1,000,000 “Toyotas”.  

All of us should, following the altruistic example of an engineering company who constantly trained their employees for the world market, stimulate that sector to double that influx and hit 2 million “cars”. 

Our BPO industry augments US dollar inflows, contributing US$5B in 2007; that's 312,500 Toyotas. The US$11B projected goal (equivalent to 687,500 Toyotas) by 2010 should be prioritized by joint Government and Private sector efforts. We need to capture 18% of an estimated US$173 (2007) billion industry to hit the 2 million “cars.” 

Tourism is the other sector that provides viable inflows. Generating US$4.8 billion (300,000 Toyotas), with a 10% growth expected every year. We need more Ports, Airports, and Boutique Hotels from Private sector to hit the 2 million car goal. 

Two million “cars” per sector - OFW, BPO, and Tourism. Six million cars. That's first world. 
 
RIGHT TRACK 

We are largely on the right track. Government encouragement of lower consumption appliance use – like the “Switch Program” to Compact Fluorescent lamps (CFL) is a very positive step in the right direction.   

Geothermal and Hydroelectric should be incentivised with low cost loans. Meanwhile, coal-fired power plants, with the Department of Science and Technology should be continued, copying the MIT developed Algae tanks, which eat the CO2 emissions, and clean up to 65%. With this system, carbon credits can be a revenue stream until our Jathropa plants have matured. 

Our food security goal is right on. We import rice, but only 10% of our requirement. The rest we produce. The next step – 95% sufficiency – is planned by 2010, with hybrid rice varieties from China. Owners of high-end “farming homes,” developed by some Real Estate companies, can teach nearby villages how to grow food, adding social utility to their recreational purchase.   

We should keep afloat until the first Hydrogen Car hits our streets; we become the #1 BPO destination, the #1 semi-skilled labor exporter and #1 tourist destination in Asia.  By then the storm will have passed, and smooth sailing will ensue for MV Philippines.