Effects of the US Economic Condition on the Philippine Economy

              The credit downgrade of the world’s largest economy heightened global fears. Being the biggest economy, the US economic crises will surely have repercussions in the world economy. The US credit rating downgrade has sent a global tremble in Asia and also in our own country, the Philippines, where the stocks tumbled.  In September 2010, Philippine Stock Exchange (PSE) breached the 4,000 mark and was at its all time high since then. What will be the effect of the US economic crises on the stocks traded at PSE? During the Global Financial Crisis of 2008, the Philippine economy was kept afloat by the dollar remittances from the Overseas Filipino Workers (OFWs). Would the remittances now continue in keeping us afloat? The products sold in the country are possibly not that affected, but exports surely are. Bangko Sentral ng Pilipinas (BSP) has investments in US securities. Will these investments be affected by the crises?

                 Senator Francis Escudero said, “The Philippine government should strengthen its economic ties with world economic giants like China in order to absorb the shock.” He urged the government’s economic managers to take concrete steps to cushion the negative effect of the US downgrade.

            The stocks tumbled. Before the September 2010 benchmark, the highest historic figure for the Philippine Stock Exchange Index (PSEi) was recorded on October 19, 2007 which closed at 3819.75. As of posting time, the PSEi closed at 4,305.56 (August 26, 2011). But during the first few weeks of August, PSEi fell 2.4% or 106.31 points. According to Hans B. Sicat, PSE President, it was the biggest drop in over a year.

            The global debt crisis will further blunt OFW remittances. Global alliance of OFWs and Migrante International sees the recent US debt crisis as an “irreparable damage that will further blunt OFW remittances and consequently place the Philippine economy in a deeper quagmire.” Our remittance-dependent economy is in a very vulnerable and dangerous place. There are two major effects on OFWs: the massive displacement in the crisis-laden host countries and the direct effects of the peso appreciation on remittances. Fewer and fewer workers are deployed in other countries because of protectionist measures and nationalization policies as a result of the global financial crisis. The appreciation of the peso will have negative effects on the families of OFWs since the exchange rate is getting lower and lower. Ironically, the strong peso will have negative effects to OFWs and their families. Nonetheless, the OFW remittances are still expected to surge this semester mainly due to the upcoming enrollment and holiday seasons.

            Amado Tetangco, BSP governor, downplayed the effects of the credit rating downgrade on the Philippine financial market. The investment of the BSP in US securities totaling to $23.6 billion may be affected by the crisis but the BSP governor assured that the Philippines is resilient enough to survive the effects of the downgrade. He also added that the US market is not likely to experience a huge sell-off because it remains as the most liquid and the deepest market in the world.A lot of people still see that the US treasury market is a safe haven.

            Philippine exporters are sticking to their target growth of 10 percent for the year despite the US credit downgrade. According to Philexport president Sergio Ortiz-Luis Jr., our exports will likely be less affected. This is due to the fact that the US market’s share in the country’s total exports is diminishing. He said that the US used to account for 34 percent of the country’s exports. It has gone down to 12 percent. According to the June export data of the National Statistics Office (NSO), the US accounted for 14 percent of the country’s total exports with earnings of $572.28 million, a decrease of 21 percent from the $744.59 million reported a year ago. Exporters are now diversifying their products in markets other than US. And soon, the US market will be replaced by China as the biggest market for Philippine exports and other countries in Asia.
        According to Benjamin Diokno, a noted economist, the public private partnership (PPP) program, the centerpiece of the economic policy of the administration of P-Noy, would suffer from the US downgrade fallout. The United States is the country’s biggest trading partner and leading source of foreign investments. This would surely have a negative impact on investments from foreign countries.

        Low Dollar to Peso Exchange Rate. The value of our country’s currency is strong because the dollar is weak. The main reason for the dollar to have a lower value is because Federal Reserve Bank (Fed) is creating money in the hope of stimulating the US economy. This situation have different stand regarding the state and its people. Strong currency value for a state means it has a good economy and that it is sufficient and growing. As for the common people of the Republic of the Philippines, this condition is not so beneficial. Strong peso value can also lead to Americans having to import lesser Filipino products and may also reduced their vacation in our country which results to low tourism revenues.

          Finally, we are a resilient people. As a poet once said: “A Filipino is pliant like a bamboo. Neither typhoons nor monsoons could break the Filipino spirit; like the bamboo, it sways and bends with nature’s relentless onslaughts, but it refuses to yield or die.” During the global financial crisis of 2008, Malacanang boasted that the Philippines had escaped the effects of the global recession - thanks to a resilient economy and a resilient people. Everyone is hoping for the same to happen in this period of global crisis - that we remain resilient despite the adversities that come.