Philippines encountering economic crisis

Last week, Mrs. Gloria Macapagal-Arroyo just admitted that we are now in the midst of the worst economic crisis. Despite the alleged increase in the amount of remittances abroad, more and more OFWs are returning home due to job cuts in such countries as the United States, Europe and the Middle East. One of my contacts, a Yemeni, says that Dubai has cut down drastically on construction projects while most of the Middle Eastern countries are now on a standstill.

Singapore still suffers from a recession, same as China and Japan. Bloomberg reports that analysts expect the recession to ease on the third quarter of this year, as America hopes to rev up its economy. Yet, the biggest economy in the world is not showing signs of recovery. The stimulus package has done little to improve the current financial lot of most Americans.

George Soros in his book, " Underwriting Democracy, Encouraging Free Enterprise and Democractic Reform Among The Soviets and in Eastern Europe" published in 1991, predicted the flaws and eventual fall of US economic hegemony. Soros described the US is at a "crossroads". He says that the trouble is " we (US) spend more than we earn, both as a country and as a government." (page 87). Soros earlier on predicted that the problem is abundant spending in the military and government. With the fall of its traditional ideological enemies, the US is left spending more on counter-insurgent and terrorist activities, placing emphasis on maintaining its "self-image" as the only superpower of the world, to the detriment of its economy, slowly grappling on a fast globalizing world.

US President Barack Obama realizes this and downsizes government spending. Yet, it would take time before the US fully sees the impact of "deficient spending". Deficit spending is not the solution, says Soros in another book, its " downsizing military commitments. The budget deficit could be not only reduced but eliminated, and we could recover our economic and financial strength."

As the USA and its trade partners suffer colds, expect the Philippines to do badly as well. Since 2000 when we relied heavily on OFW remittances, the Philippines has seen the better of its boom-bust days. De-prioritizing big and heavy foreign investment capital portfolios and shifting to improving small and medium scale industries is actually doing wonders for the Philippine economy. We have'nt seen the "crash" that other Asian markets suffered because most funds here are invested in long-term, low risk instruments.

However, low consumer confidence could prove disastrous for these SME's, especially since most are into services, food and apparel. Cut downs on spending could worsen our situation and it is most appropriate to encourage consumers to buy, buy, buy products instead of saving up. This is the challenge of government---how to improve the retail and services environment so that people spend their money instead of just parking their monies in banks.