UN report offers ways to weather global downturn
THE GOVERNMENT must push to diversify exports, ease interest rates and coordinate the regulation of trade credit and stimulus plans with the rest of the world, a United Nations report said.
The recommendations come as the country’s economy is expected to keep decelerating due to weakened demand for its exports, the UN World Economic Situation and Prospects 2009 report stated.
The Philippines was forecast to post a 3.3% growth by yearend, down from the 4.4% estimate for 2008 and 7.2% in 2007, data from the report show. The forecast is more conservative than the government’s 3.7-4.7% target.
"Cambodia, the Philippines and Singapore, with their heavy reliance on manufacturing exports to industrialized countries, have been affected the most [in the region] by the global slowdown," the report read.
Local exporters count the US and Japan as their main trading partners, with each market having accounted for roughly 16% each of total shipments in January to November last year, National Statistics Office (NSO) data show. In the same period, total merchandise export sales dipped by 1.59% to $38.7 billion.
"East Asian economies are increasingly feeling the impact of the slowdown of developed economies in terms of a substantial deceleration in the demand for their exports," the report read, adding that volume of exports from the region will grow by only 5.3% in 2009 versus 7.4% last year.
Philippine exports could drop by $1.539 billion as revenues from electronic shipments plummet, local officials have said.
As such, the country should work to increase shipments of other goods as concentrating in one export type causes volatility in the general economy, the UN report stated.
"Fluctuations are especially strong in countries with high export concentration ... as this causes large swings in their external balances, income growth and employment."
Asked to comment, University of Asia and the Pacific economist George M. Manzano said: "To diversify is always good, but to what extent is it possible?"
Garments — the country’s second top export — faces trade barriers abroad as countries are keen to protect this labor-intensive industry, Mr. Manzano said. Growing exports of machinery and transport equipment, the country’s next top export, will also be difficult as foreign automotive firms are still reeling from the global downturn, he added.
"It may be a tall order," Mr. Manzano said.
University of the Philippines economist Benjamin E. Diokno, for his part, said in a text message: "Exports should have been diversified a long time ago. But better late than never."
Exports of services may be hit as well, especially business services such as information and communication technologies.
But Business Processing Association of the Philippines Chief Executive Officer Oscar R. Sañez reckons that revenues of the outsourcing industry will still grow by 20-30% in 2009, albeit slightly lower than the 30-35% growth estimate for 2008.
Activities in the ICT sector such as software development will be hit but the Philippines’ offshoring profile is more concentrated in voice operations and back offices, said to be little affected by the crisis.
"Our cost model [for business processing] is much better than the US’. Outsourcing improves [foreign firms’] cost structures by at least 50-60%. That is the basis for our confidence," Mr. Sañez said.
The report also recommended lowering interest rates not only in developed countries but also in poorer ones to encourage investment spending and thus stimulate growth.
"A large number of developing countries ... have been reluctant to ease monetary policy over concerns of inflationary pressures and currency depreciation. Inflationary pressures should taper off during 2009, however, as world food and energy prices are now retreating and global demand is weakening," the report read.
"This should provide some space for monetary easing, as well as for fiscal stimulus, at least in those countries that still possess ample foreign-exchange reserves."
Bangko Sentral ng Pilipinas Governor Amando M. Tetangco, Jr. agreed, saying the recommendation is being considered.
"This supports our view that inflation would continue on its downtrend and has consequently allowed us room to be more accommodating," he said in a text message.
"The BSP will continue to carefully consider opportunities to ease monetary policy, while being mindful of development in domestic liquidity and in credit markets," he said.
The Monetary Board cut policy rates by 50 basis points in December to 5.5% on the back of slower inflation. It will meet to discuss policy later this month.
On the global front, countries should jointly address the regulation of trade finance and coordinate pump-priming plans, the report stated.
The supply of credit used for export and import transactions in developing countries may tighten as investors pull out capital there due to risk aversion.
As risky financial investments and their subsequent crash are blamed for the current credit crunch, a well-regulated system of global finance should be pursued in coming trade negotiations.
The Association of Southeast Asian Nations should consider such and possibly pool together capital for trade finance, Mr. Manzano said.
Also to be coordinated are fiscal stimulus plans, the report advised.
"By coordinating fiscal stimulus internationally, the positive multiplier effects can be amplified through international economic linkages by 30% or more...."
Donors, meanwhile, are advised to direct aid to poorer countries whose own stimulus plans are constrained by limited funds.
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