Coping with the global financial crisis

ONE AFTER another, the developed countries are falling into recession.

Germany, Spain, Italy and other European economies are sure to be hit by declines in economic growth for two consecutive quarters.

Also facing the same predicament are the highly industrialized east Asian economies like Singapore, Hong Kong and Taiwan. Japan is back on its stagnation mode.

The Philippines will be surely negatively affected by this global slowdown.

Things will get worse in the United States before they become better. At least two years of no or slow growth is almost a certainty in the world’s largest economy.

Hit hard
The Philippine export sector will be hit hard by the decline in consumer spending in the United States.

Compared to the 7.2 percent GDP growth rate in 2007, the Philippines will experience a significant deceleration to between 3.5 and 4.5 percent during the next two years, if nothing dramatic is done by both the private and public sectors.

Much can be done to mitigate the harmful effects of the global financial tsunami.

If these significant changes are made, we may still see growth rates of 5 percent or more in 2009 and 2010. The crisis can indeed be transformed into an opportunity if our leaders act promptly and decisively.

What then can be done?

The most obvious immediate response is the acceleration of rural infrastructure projects that directly address the needs of the rural poor.

The four regions with the highest poverty incidence are Autonomous Region of Muslim Mindanao (ARMM), Western Mindanao, Bicol and Eastern Visayas.

The pump priming in infrastructure should be concentrated in these regions, especially in farm-to-market roads, irrigation systems and post-harvest facilities.

Although these capital expenditures may take a longer time to pay off than the ones that can be constructed in Metro Manila and the richer provinces, in times of financial crisis there should be a preference for the less developed regions because the people living in these most depressed areas may be actually pushed down to starvation levels if they do not receive immediate attention.

There must also be quick action to increase the allocation for elementary and secondary schools in these most depressed areas.

It is precisely in times of economic crisis when deficit spending by the government can be justified if the money is spent on human capital formation.

This is also the right time to improve the salaries of teachers, who can be counted on to direct a lot of increased incomes to consumer goods and services and thus boost the domestic market, considering the large number of school teachers in our public and private educational systems.

Private corporations that have already set up funds for corporate social responsibility projects should front load the expenditures on such projects as housing for the poor (like Gawad Kalinga); the vocational or technical education of the unemployed youth; feeding of the undernourished children of poor families; granting of scholarships to the children of the poor in high-quality colleges and universities; health benefits to poor families; and maternity clinics for poor mothers.

The government should also identify the NGOs that have a proven track record in these poverty-alleviation and eradication programs and should devote part of the pump priming as counterpart funding, which can expand the activities of the NGOs with excess capacity.

For example, in the area of technical education for the unemployed youth, funding from the government should be made available to some of the most successful of technical training institutes for the poor, such as Meralco Foundation, Dualtech Foundation, Center for Industrial Technology and Enterprise (CITE) in Cebu, Family Farm Schools, and others the Tesda director general may recommend.

Right partners
In like manner, in the area of social housing, public funding should be made available to Gawad Kalinga so that this most effective approach to social housing can be more aggressively expanded during the crisis period.

As long as the right partners are identified, the government will never regret lavishing a lot of funds to technical education during times of crisis. Like rural infrastructure, technical education is an investment in the future, an investment in human capital.

Although I do not expect a massive return of OFWs since Filipino workers abroad are generally in occupations that are least affected by recessionary forces (such as domestic services, caregiving, seafaring, health care and education), the government should target those OFWs who will be so affected. Philippine society owes it to these OFWs to give them special help during critical periods because of the great service they have rendered to the country in providing foreign exchange resources and purchasing power to their relatives during the good times.

A special fund should be put up whose financing should be channeled to the leading microcredit institutions that have a track record in helping especially women in putting up small businesses.

For example, the top 10-20 microcredit institutions should be helped by Development Bank of the Philippines or Land Bank to expand their operations by specially targeting returning OFWs who have been affected by the recession in such countries as the United States, Germany, Spain, Italy, Singapore and Hong Kong.

These OFWs are most likely to have the spirit of enterprise, hard work, and risk-taking that will help them succeed in some small business or another.

The next two years of a global slowdown should be used by our government, business and civil society to address the infrastructure, housing, manpower training, and microcredit needs of the poor.

Emergency programs
These emergency programs will have the double effect of improving the long-term competitiveness of the poorer segments of society and at the same time provide the masses with immediate purchasing power, which will benefit the local businesses catering to the local market.

Once more, we are proving that because we have a large population, even if a good number of them are poor, we are more resilient in times when exports are slowing down.

We can always turn to the domestic market to attain reasonable growth. Territories with small populations like Singapore, Hong Kong and Taiwan do not have such an option and are sure to suffer from a recession.

The author is chief economist of University of Asia and the Pacific. For comments, e-mail bvillegas@uap.edu.ph.

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