A credit crunch will crunch the economy

The key problem of President GMA and her economic policy makers is how to jumpstart the economy. Never mind that old line about our economy being resilient. This year, that resiliency is going to have to pass some extreme tests. I don't see the electronics segment of our export sector bouncing back on the back of increased American demand. With the rest of the world economy headed down, or just starting to recover, we will have to largely depend on domestic demand.

The latest figures from the National Statistics Office show that Philippine exports accelerated their decline in November as customers in the US and Japan slashed orders for computer chips, disk drives and other goods. Exports fell 20.7 percent from a year earlier to $2.6 billion after declining 13.5 percent in October, the National Statistics Office (NSO) said. That was a bigger drop than the 14.7 percent economists expected.

Shrinking world demand and a recession in the US, the country’s biggest market, have cut exports for 10 straight months. The slump in overseas sales, which make up about 40 percent of gross domestic product, probably slowed Philippine economic growth to 2.9 percent last year, from 3.9 percent in 2000, the International Monetary Fund forecast last month.

Overseas sales of electronic goods, which make up about two-thirds of total exports, fell 26.2 percent from a year earlier to $1.4 billion in November, today’s report showed. That followed a 26-percent drop the previous month. Shipments to the US fell 20.8 percent to about $702 million. Sales to Japan, the Philippines’ second-biggest overseas market, dropped 39.1 percent to $351 million.

While I was in Los Angeles, it seemed to me that all that heavy discounting by department stores on garments produced from among other countries, the Philippines, will come back to haunt our garments industry. Already, I read an article in the New York Times website saying as much. According to the Times, the buyers of the department stores are now trying to pass on to their suppliers the discounts they gave consumers during the holiday season.

That means local entrepreneurs will have to be very entrepreneurial if we want to preserve as much jobs as we can under these adverse world economic conditions. That means, the local business sector must be given resources to be entrepreneurial with. The plan of government to start paying some of its past obligations is a good way of introducing some liquidity.

But priority must be given to the small to medium scale local contractors if we want to maximize the impact of every peso of government money flowing into the system. Payments made to foreign contractors and banks will just go out of the economy. We need to pump money into the countryside where most of our people reside.

There is also the matter of credit. Some amount of credit is provided for by government financial institutions. The larger part is provided for by the private banking sector. But, as I have written in this space last week, there is danger that the risk-averse local banks will choke the local business community so much that more jobs will be lost and the economy sliding down even more precipitously.

If the banks could have their way, they will do nothing more than buy government Treasury bills until it is crystal clear that the economy is out of the woods. While we can understand why the banks must now exercise greater prudence in granting credit, they should not be allowed to precipitate a devastating credit crunch.

We must now shift the focus from the interest setting function of the Bangko Sentral to the actual opening up of credit windows by the banks. It is no use having a theoretically low interest rate if the banks are not willing to lend anyway. A credit crunch is what's going to crunch our economy this year.

The monetary and economic policy officials should devise a way to penalize banks that channel a great proportion of their loanable funds to government Treasury bills. The banks will have to be made to feel that it is better for them to start lending again, rather than just buy Treasury bills.

The cheap credit regime being promoted by the BSP and the Macapagal administration must not be rendered academic by the prevailing risk aversion of local banks.

Pagkain sa basura

The MMDA under Chairman Ben Abalos should be commended for that innovative approach they have taken to address not just the garbage problem but also social welfare in the metro area. That program where people can exchange trash (recyclable plastics, paper, aluminum cans and bottles) for rice, canned goods, soaps and other essential commodities from the Gloria Labandera trucks is one solution that is definitely win, win, win.

Chairman Ben explained to me that they noticed that people in the depressed areas normally buy from the trucks only during paydays. The rest of the month, they would rather buy from sari sari stores where prices are higher but they can get credit. So they thought, what if they could use recyclable trash as currency to get their basic needs from the trucks?

And the idea seems to be working. They are encouraging people to gather the plastic and other trash that normally clog up esteros and other drainage infrastructure. The volume of garbage collected by the garbage trucks has also been reduced. The sales volume of the Ate Gloria trucks (some 50 of them) has increased. And the whole program is being undertaken at no extra cost to the government because MMDA sells everything to recyclers with enough margin to cover overhead. In other words, it pays for itself.

This is the kind of creative thinking we need from our officials. Our problems are tough, but we are capable of creative thinking like the win-win-win solution Chairman Ben introduced. Congratulations and let's have more such projects.

Trouble with being 50

Fellow baby boomer Marilyn Manaay Robles shares some thoughts of being 50.

What’s the best form of birth control after 50?

Nudity.

Why is it so hard for women to find men that are sensitive, caring, and good looking?

Because those men already have boyfriends.

(Boo Chanco's e-mail address is [email protected])