Headwinds threaten Philippine economy

The much-awaited Federal Reserve rate hike that happened last week, the drop in crude oil prices and the decline in the Philippines peso vis-à-vis the US dollar are three flashpoints that could wreak havoc on the Philippines economy at a time when the country is basking in the afterglow of its consecutive quarterly growths. 

These three are headwinds that in the area of “convergence” could cripple the country’s economy and lead to its nosedive.

Of the three, the government should pay particular attention to the decline in crude oil prices, which while seen to result in beneficial effects to the economy by way of lower gasoline prices, would actually have far-reaching consequences due to the enormity of its impact on the economy. This is, by far, the most vicious that could hit the economy unless the government prepares well in advance to cushion its impact.

The two others—the Fed rate hike of between 0.25 and 0.50 percent and the decline of the Philippines peso against the US dollar—have already been well anticipated and the economy is already used to such economic events. Still, they remain headwinds that could affect the Philippines’s economic growth trajectory.

In the case of the Fed rate hike, the stock market has already been roiling under the impact of such rate increase, as for the past four months, the net foreign selling in the local equities market or the amount of foreign selling as against foreign buying has been logged at at least more than P200 million daily, with certain days approaching P1 billion. That is one of the reasons for the decline in the peso against the dollar.

As for the peso’s decline, its impact would far more be felt among corporations, many of which have debts denominated in US dollars.

We just hope the peso would not suffer the huge drop in its value that characterized the Ramos administration when the peso nosedived, hurting Philippines companies. One big victim of that peso decline was the loss of Manila Electric Co. for the Lopez family.

But the government should map out its plan for the economic consequences of an oil-price drop because its impact is far more telling.

We do not wish to sound panicky but already there are telltale signs of the portent of things to come, with the decline in crude-oil price to below $40 per barrel and to a forecast of even $20 a barrel.

The Philippines should brace itself for the loss of jobs of most of our skilled workers in the Middle East. That is about 1.5 million, which is 15 percent of the 10 million overseas Filipino workers who remit about $2 billion to the Philippines. These remittances, as we all know, have principally resulted in the surge in the Philippines economy, something that economists say are unsustainable over the long-term since it is a consumer-driven economy, not an investment-led one.

We have heard whispers from among the construction industry giants with links to Saudi Arabia about the impending loss of jobs in the oil-led economy in the Middle East. We understand that some US contractors have stopped work on some of their projects.

This is not far-fetched since Saudi Arabia is heavily indebted, especially after the Kuwait war when it had to purchase the US-made smart bombs that burn millions of US dollars per launch.

The whispers from among the construction giants in the Middle East are that payments are being halted due to the mounting debt pressure. Add to that the impact of the Fed rate hike on the interest payments and we have a deadly cocktail of economic problems that would hurt the Middle East economy.

This holiday season, we heard, may be the last for some of the OFWs, as they may have to say goodbye to their employment contracts. That means a huge economic sinkhole that would engulf much of the Philippine economy. And this is what the government should prepare for.

For starters, the government may have to rethink its conditional-cash transfer or CCT program to benefit the returning OFWs so they could learn new employable skills.

And while at it, government agencies should have a database of returning OFWs, most especially those from the Middle East, so it could better address the problem at hand. And the sooner the government puts its act together, the better, lest it finds itself staring again at a familiar problem that has bedeviled MRT and LRT drivers and the Edsa ‘carmageddon.’