Sub-prime crisis in RP not that serious enough

Signs that things will get worse before we see some comfort seems to be the current news. Yet, upon closer study of the global financial crisis, there are indications that things are really not that bad afterall, especially to the Philippines.

First, I realized that Gloria and her factotum, NEDA Chief Ralph Recto could have told us the truth that there will be minimal impact on the economy. But, it's not because they prepared for this or because of VAT. No. It is the very nature of the Philippine economic superstructure that would probably insulate us from further serious damages to our financial institutions.

First, our financial structure is still underdeveloped. Exposure to riskier investments is minimal because our bankers are traditionalists. Most banks invest in long-term instruments, like bonds, and government-backed securities. We don't have enough rogue traders to cause a downfall of our system simply because our bankers are mostly "seguristas". They don't play the games that big players do. Under normal circumstances, that's foolish. Yet, Philippine bankers have foresight that foreign bankers don't. That's why local banks do not have huge exposures in foreign risk investments simply because our bankers are sophisticated enough to know the limits of playing risky. And they know what risk management really is.

Second, most foreign bank branches here are deposits-oriented and off-shore operations. They are mostly retail banks. We have a small number of investment banks, the kind that caters to big players and financial investors. The reason is obvious--most of our rich, wealthy brothers and sisters invest their monies abroad. And those monies are kept in long-term, high-yielding investments, mostly in term deposits. They can't park their monies here for obvious reasons--they don't trust our banks enough. Exposure would probably emanate from those who deposited their monies with banks that have exposures with Lehman and Merrill Lynch but they'll not feel it simply because their monies are insured and guaranteed against risks.

Lastly, the number of maturing mortgages are small compared with those of the United States, or even Singapore and Hongkong. Upon closer scrunity, the BSP can very well absorb these. I don't know about GSIS, SSS or Pag-Ibig and how exposed they are right now (since I have'nt found the time to study their declared financial statements), but the 30 billion peso problem of the National Home Mortgage Finance Corporation (NHMFC) could easily be absorbed.

The question is--how much money will the BSP actually absorb before it says "enough is enough"? That should be determined at this early and government should help banks not only through financial transfusions, but also in managing their books. I mean, government and the private banking groups should sit down, be transparent with each other, lay down their cards and focus on what contingency plans they should do if projections go to the wrong direction. There should be plan a, b,c and even d. Crisis management plans should be set in place in case tremours from the US sub-prime crisis hits us in areas where we least expect it. Yes, we see one potential problem--the effects of an economic slowdown.

Yet, this economic slowdown can be mitigated by (a) focusing our sights in Middle Eastern financial markets and probably seeking assistance there and (b) China. These two places have tons of money. By encouraging Middle Easterners and more Chinese investments in the country could mitigate the impact of the crisis. Likewise, encourage more Filipino professionals to go abroad especially in these areas so that the level of remittances will go even higher than what analysts say would be reduced due to the impact of a global slowdown.