Impact of the US sub-prime crisis in RP

The Bangko Sentral ng Pilipinas (BSP) says that we have enough dollar reserves to insulate us from the impact of the US sub-prime crisis. The crisis has reached alarming levels, when even the investment firms Lehman Brothers and Merryl Lynch succumbed to the financial pressures. Many feared that Asian countries, especially Singapore, Hongkong and Japan would be affected. The Bank of Japan already injected $23 billion to at least protect their markets from the crisis. While Temasek Holdings of Singapore which has extensive exposure to Merryl Lynch and Lehman Bros investments has refused to admit that it's investments are now endangered.

Many banks and insurance firms here in the Philippines have investments abroad. Reports say SunLife, Philam and AIG banks could probably succumb to financial stresses since their foreign principals are now being attacked. AIG stocks fell 4% yesterday and reports say that it could be the next one to fall. 

How would all these impact on the Philippine economy? The Asian Development Bank (ADB) says this could slow the economy down considerably since banks will find it hard to free their books and extend their loan portfolios. When this happens, many firms will have difficulty looking for capital. Less capital means less production capability. And less production means higher prices of commodities since there will be less supply to meet increasing demands. 

Higher prices means higher inflation. Higher inflation impacts on the banking sector since investments depend on the macroeconomic performance of the country where they operate. Short-term solution is for the Central Bank to support the local banking sector with its dollar reserves. Yet, when this happens, it threatens the entire economic superstructure. 

This early, many fear that a localized sub-prime mortgage crisis would also happen here since many people would find it hard to meet their housing amortizations. At this time, government controlled mortgage company National Housing Mortgage Finance Corporation reported a 30 billion peso worth of bad or delinquent mortgage accounts. This will balloon in the coming years since high inflation is expected to last until 2013.