Goodbye, Cru-Oil World (Part Two)

A global economic deluge is coming, prompting one Presidential adviser to suggest the need for a Noah's Ark. Its a confluence of soaring oil, food, and commodity prices, and liberal capital flows, causing a probable, global, loss of confidence in the US Dollar. This precedes the Global Meltdown. The world has been deluding itself; finally, a G-8 child has uttered: “the Empire has no clothes.”

FORTIFYING THE ECONOMY

We must fortify our economy against the Storm, and I believe that a balanced budget and growth should yield to consolidation.

Until 2005 the economy was a “house,” considered by many already in Intensive Care. Bearing a 72% Debt to GDP ratio, cynical bystanders, the Left, and two Secretaries, plagued by pessimistic malaise, considered it irreparable. Fortuitous destiny has given us a tireless, servant-leader, who has put the house in order. She has silently answered detractors with results of a ceaseless, steely determination in finding solutions, embodying the idea of working as if everything were up to her, but praying as if everything were up to God.

Public debt prepayment has dropped Debt to GDP from 72% in 2005, to 51.7% in 2008, and improved Government Owned and Controlled Corporations (GOCCs) performance has reversed a Public sector balance deficit of Php103.54B in 2005 to a P56B surplus, in 2007. The Balance of Payments surplus reached USD3.8B in 2006, and increased to USD4.5B in 2007.

Net Foreign Direct Investments in 2006 hit USD1.72B, and net foreign portfolio investments reached USD3.7B in 2007.

Institutional spending on infrastructure has spurred development, and the government has allocated Php200B for 300,000 km of roads and bridges this year.

Creating infrastructure – farm-to-market roads and bridges, "nautical highway” ports, irrigation systems - is pump-priming. Delivering huge present and future growth, building them creates jobs and using them creates opportunity; delivering produce to markets, and exports to countries, sooner.

Economic fortification is spot-on in public investments for public good. This current phenomenon is similarly observed in the developing countries' pump-priming efforts through infrastructure, (e.g. Brazil which will invest approximately USD300B from 2007-2011), and social nets. These leading developing countries are projected to spend USD1.2Trillion in 2008, roughly 6% of their combined GDP.

US Dollar inflows are key, and the Government continues to support Overseas Filipino Worker deployments and remittances, which have risen to 1.073MM and USD14.45B respectively in 2007, from 1.062MM and USD12.8B in 2006.

The Business Process Outsourcing (BPO) industry has grown by leaps and bounds, and partly due to the Administration's proactive support, through education and TESDA programs, it is expected to reap USD11B by 2010.

Local BPOs should step-up their marketing efforts now, to pick the low hanging fruits - the subprime ravaging major US and European banks. Doing so, the Philippine BPO industry could reach USD16Bn. Because these companies, struggling to regain viability, will turn to outsourcing and offshoring. There's more. Even Indian BPOs are already outsourcing to the Philippines.

For instance, a local BPO is signing soon with two Fortune 100 companies, creating another 2,500 local jobs within the next 18 months. Others should maximize opportunity.

The world has noticed, and Moody's recently elevated the country's credit rating, generating increased investor interest.

DEFEND THE MIDDLE CLASS

With the coming economic storm, additional resources should supplement the middle-class families' discretionary income lost to inflation. The recent power rebates, shouldering of government college tuition hikes, and cheaper medicines will soften the economic storm's blow.

In addressing the middle-class' aspiration for their children's college education, Government, working with schools, could provide highly concessional long-term education loans equal to 15%-20% of tuition fees (like the US), the receivables securitized as National Income Accounts assets. Likewise, the Commission of Higher Education and Development (CHED) should focus on the disenfranchised beneficiaries of College Assurance Plan (CAP), Pacific Plans', and other bankrupt educational pre-need companies.

In healthcare, the Cheap Medicines Bill enables the proliferation of Government Botica ng Baranggay, bringing the public access to more affordable medicines. Philhealth can be upgraded for the middle-class niche: increasing access to private hospitals, doctors and medicines. Correspondingly, should pre-need payments need to rise, increased contributions by the middle-class can be shared equally by the National Government.

ECONOMIC OFFENSIVES FOR THE POOR

The storm will affect our population's poorest 30% worst, and the Government's economic policies are geared to soften the blow.

Calls of the opposition and the Left for RVAT and EVAT abolition should be avoided at all costs. This means little to the poor, who need primarily the distributive power by Executive fiat. Also, G.W. Bush's example in 2000 has shown that tax cuts do not sustain increased GDP or productivity, because in a tight situation, businesses and businessmen do not want to expand; the money will be stored, or applied to debt. It gravely affects of our credit worthiness, and the international investing community will perceive a return of a disease where we are spending more than we earn.

Populist demands for wage increases, more than the targeted inflation rate, should also be resisted. The business sector needs to remain competitive and productive, and overpriced labor could lead to even greater inflation, and eventual unemployment (as businesses close).

The crusade for lower power rates should continue until these drop by 20%. Monopoly thrives on imperfect knowledge and no competition. Therefore, the need to lay bare pricing structures; and set profit margin ceilings. This is essential, since power is a component occurring multiple times in a production process, high rates multiply costs, and can potentially create massive inflation. The recent power P500 subsidy brought immediate, much-needed relief to the poorest, about 70 packs of Instant Noodles in equivalent terms. Monopolistic pricing in this age is unconscionable, and should be a public affair.

Ultimately, cash is the most immediate form of relief. Conditional dole outs might be required to 5 million households below the poverty line. This perhaps best illustrates the need for a strong economy.

STRENGTHEN THE PESO AGAINST GLOBAL DELUGE

The imperative remains that all our efforts should focus on economic fortification, strengthening the peso against the global deluge. In fact, if you're thinking of investing money in US properties now, consider this: the subprime financial meltdown still has 20% slack to be felt in North America and Europe until 2010. A credit card crisis shall ensue, fallout of amortizations paid on credit. Some even say, thereafter a Chinese Bubble will burst. Be a patriot. Be a wise businessman. Invest here.