BSP Governor Philip Medalla has been flip-flopping of late. When the interest rate hikes began in the US, he made a statement to the effect that the BSP doesn’t respond to calls for the defense of the peso as it’s not a peso problem but a dollar problem.
Now that the peso is about to hit a record high of P60.00 against the dollar, Medalla has begun to change his tune. The thing is, what will he defend the peso with?
Defending a currency is an exercise in futility. The Bank of Japan tried it last week but failed. Japan is the largest holder of US debt in the form of Treasury’s. About the only way it can defend the Yen is sell US Treasury’s but this would trigger a run on the dollar and eventually, a global financial crisis.
As it is, we are at the mercy of the US, just like any other country in the world. We are vulnerable because of our dependency on imports, not only for our energy requirements, but also agricultural commodities we can’t produce enough of to feed ourselves.
Leo Alejandrino, a retired investment banker, aligned with the opposition writes.
Our economy has suffered by failing to develop a long term strategic plan that focuses on our core competence of a young population and God given geographical beauty. Instead we relied on non-sustainable activities like real estate which offered easy returns and impressive macro-economic growth at the expense of urban density. With the unholy alliance between politics and business we erected tariff walls to protect inefficient industries. We did not invest in R&D in manufacturing and agriculture making us among the weakest economic player in our region. We never learnt to compete globally.
OFWs and BPOs have kept the country alive but we failed to climb the value chain by improving the education, skills and communications levels of the Filipino. This puts us at risk of being displaced by countries which are sharpening the quality of their workforce. Tourism is a low lying fruit but we never fully supported the sector with the needed infrastructure and environmental protection.
There are tough times ahead whatever our economic managers tell us. And worse could come if blind-sided by a Black Swan such as a world liquidity event.
If the dollar continues its climb, if inflation remains sticky, if interest rates rise unabated, if stock markets dive from recessionary fears, if political tensions tighten, if Europe goes into a winter freeze from an energy crunch, if China re-enters a COVID lockdown, if food and key commodity shortages threaten, if climate change worsens; there could be a crack in the world order and a squeeze on international credit markets similar to the 2008 financial crisis. But more important – and this is where it gets scary – unlike previously this time over extended Central Banks will not be able to offer bail-outs by printing money.
There are fissions starting to appear in the global financial system. The first victims of a credit crunch and a strong dollar will be emerging market (EM) debt where credit spreads have already widened. Sri Lanka has officially defaulted, flood stricken Pakistan is on the borderline as are Egypt, Argentina, Turkey and some drought plagued African nations. Malaysia has been talked about. In a credit squeeze EM countries will be hard pressed to renew much less access new loans.
The Philippines is still not on the endangered list. The resilience of our OFWs and BPOs, the tenure and composition of our debt and our credit rating have kept us in good stead but this could rapidly change if there was a global collapse and all financial assets other than triple A were sold down. Unable to refinance except possibly at atrocious rates we would be forced to drawdown on our dollar reserves putting further pressure on the peso and on inflation, raise taxes and monetize our debt by printing pesos putting us at risk of hyper inflation.
This is why I don’t think the US trip was necessary to begin with, other than to be a platform for Marcos to announce that his family has made it back after suffering through thirty-six years of being treated as a pariah. He even met with Henry Kissinger, the dinosaur of US foreign policy. Kissinger supported Marcos Sr. when he declared martial law. That was the same time Richard Nixon took the US off the gold standard and the dollar effectively became fiat currency so the Middle East countries supplying the US with oil could take use the dollars paid to them for their oil.
The first rule of marketing is you can’t sell a bad product. The Philippines isn’t all bad. It’s not all good either. The truth is we suffer from a lack of foreign direct investment because of American parity rights up to 1974 and the lack of infrastructure development. The US never paid us back in full for what was destroyed during the war. Instead, they took advantage of us even if we were given “independence,” using the bases to their benefit and maintaining control of key industries, together with their Filipino lackeys.
American hegemony continues to this day not only in the Philippines but against the whole community of nations. The US is exporting inflation through the dollar. It’s making other countries pay for the hegemony it continues to exercise. Effectively, the global community is paying for the US’ proxy war against Russia in Ukraine.
It’s also curbing the Chinese economy even if the Yuan isn’t freely tradeable against other currencies. This is how the US is keeping China in check so that it doesn’t make any move against Taiwan.
Marcos claims that his administration has an independent foreign policy but it appears that he’s leaning in favor of the US instead of China. That’s fine if we don’t have a history of being taken advantage of. But this has not been the case and it will not happen that the US will suddenly become repentant for all the injustice it has committed against the Filipino people.
There is also the danger that Marcos is more inclined to favor the oligarchs than the people who gave him his mandate. Reports have it tha the oligarchs who accompanied him on his New York trip were falling over themselves wining and dining him in the best and most expensive restaurants in the Big Apple.
While the private sector plays a large role in economic development, Marcos should also be cognizant of their propensity to take advantage of the money at their disposal to maintain the status quo. In fact, foreign investors are reluctant to come in because they realize there is no such thing as a level playing field. They will have to partner with the oligarchs if they want to secure their investments.
The US was also in the throes of an economic crisis when martial law was declared in 1972. It was only in the 1980s when its economy began to recover with the beginnings of the dotcom boom. It is now on the verge of another economic crisis of epic proportions again.
Marcos shouldn’t forget about the lessons of history.
He has appointed himself Secretary of Agriculture because of our food insecurity and yet no definitive strategy has been presented to achieve food security. The sugar import scandal certainly didn’t do much for his credibility.
Marcos needs to realize that structural reforms should be his priority and it can’t be more of the same with the oligarchs being his cheering squad each time he goes abroad. He needs them to open their deep pockets and invest in the country not only by way of rent-seeking schemes such as what’s happening now in renewable energy.
The oligarchs need to get into export manufacturing to generate genuine jobs and expand the government’s revenue base. They need to build infrastructure to continue pump-priming the economy, together with government.
Marcos also needs to focus on socio-political structural reforms. He needs to take advantage of his control of both houses of Congress and get the Senators to finally accept the better option of a unicameral legislature in a federal parliamentary government.
It’s easy for the sycophants around Marcos to convince him that there is no way the opposition can mount a comeback but the he should be wise enough to be able to read the political tea leaves.
For the first time in post-EDSA political history, there has been no mass defection to the President’s party. PDP-Laban is holding strong under Duterte. The same is true with GMA and Lakas-CMD. Both Duterte and GMA have called for constitutional amendments during their respective terms. Marcos himself committed to this just after he filed his certificate of candidacy.
Marcos cannot afford to live in the past glory of his father’s Presidency. He should be more concerned with his because not only is he burdened with his legacy as President but also his family’s place in history.
Second chances are hard to come by. Marcos should draw lessons from the presidency of Noynoy Aquino who was convinced that his parents were the best thing to happen for the country and its people. Marcos should avoid following in PNoy’s path because he and the Filipino people know, that did not end well.
As Winston Churchill said, success is not final. Failure is not fatal. It is the courage to go on that counts.
Postscript:
As if to celebrate his 100 days in office, the President deemed it fit to fly to Singapore for the weekend to watch the Singapore Grand Prix. He was seen with his cousin, Speaker Martin Romualdez and son Sandro, the Congressman of the first district of Ilocos Norte.
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