What they didn’t teach them at Harvard, Wharton

President Arroyo never fails to take advantage of any opportunity to brag about the half dozen or so members of her Cabinet who studied at Harvard, Wharton and other American Ivy League institutions. She wants all of us lesser mortals to be grateful that our economy is in their hands.

Well, she should stop doing that. Given the state of our economy today, Fernando Poe Jr. will sound absolutely credible if he says he can’t do worse than Ate Glo’s Ivies. It would be terribly ironic if the first President who holds a PhD in Economics and whose economic managers hold degrees from Harvard, Wharton, etc., is thrown out of office due to gross mismanagement of our economy.

Take a look at Graph number 1 that tracks the fiscal position of the national government from 1986 to October this year. The line clearly shows that the only reason we don’t have to worry about falling over the precipice is because we have. Granted that the fall started with the Asian crisis and aggravated by Erap, our PhD President failed to turn it around.

Okay, Lito Camacho and some economists from Ateneo say the startling deficit number should not worry us because the more meaningful figure is the percentage of the deficit to GDP. Looking at Graph number 2, however, gives us little comfort because it is essentially the same. We have also exceeded the budgeted 4.5 percent to GDP.

If you caught former Finance Secretary Bobby de Ocampo on Gene Orejana’s show on ANC, you probably rushed to buy a bottle of Prozac to lift you out of extreme depression. According to Bobby, you won’t even be honest if you described our economy as being in a state of turmoil because that connotes some activity, even if in panic. The more precise adjective, he said, is moribund.

This is why, Bobby explains, there is nothing to be elated about such indicators as low interest and inflation rates. Under normal times, yes. But the only reason interest rates are low today is because there are no borrowers willing or able to take advantage of the situation. Inflation rates are also low because sellers must stimulate a market whose buying propensity has been severely compromised. Exactly what I’ve been saying for months now!

Bobby also criticizes the economists from Ateneo who are saying the government deficit is in the right track – as a stimulant in a moribund economy. They forgot, Bobby points out, that the deficit is as bad as it is because of a failure in the revenue side. If they keep on spending and borrowing the way they are doing now, Bobby warns that money for social services may be compromised to finance a much bigger debt service.

I don’t know if Bobby comes from an Ivy League school (Wharton?) but a caller suggested that the economic health of this country could be best served by encouraging all these Harvard and Wharton graduates to go back to New York where they belong. They seem to be so out of it in our classic Third World environment.

It isn’t just the Ivies in government who have caused so much damage, but even some Ivies in the private sector who drove their conglomerates into financial ruin. The years they spent studying abroad took them away from the decaying culture of the country. When they came back and got into positions of responsibility, they were unable to grasp the street rules.

There are exceptions of course, like Cito Lorenzo who learned the ropes from the ground level by living in Davao in tough times and dirtying his hands in actually managing his firm. There’s Gary Olivar who didn’t lose his Pinoy street smart ways learned as an activist during the First Quarter Storm days.

Also in defense of the Ivies, I want to point out that at least, these Ivies didn’t do any Enron type of financial hocus pocus, well, none that we’ve caught thus far. The disasters they created largely happened because they are, as one street smart Ivy puts it, boy scouts in a snake pit. Because they didn’t have a clue on how the games of business and politics are played here, they were easy pickings for the local toughies.

Street corner deal makers cheated them out of billions of pesos. Getting them to sign up for things like peace bonds or to buy junk assets is like getting candy bars from rich gullible kids. No wonder they couldn’t collect taxes nor stop smuggling. Or earn a decent return on investment. Street smart bureaucrats and even one fugitive "corporate genius" easily run circles around them. All they could do to survive another day was borrow here and abroad to make ends meet for government or their conglomerates.

Now, the day of reckoning is upon us. Alan Greenspan, the American central bank chief warned in Mexico recently that countries like us couldn’t go on borrowing sprees forever. He pointed out that "an economy’s necessary condition for solvency, indeed, a necessary condition for economic growth, is the maintenance of significant unused financing capacity."

Greenspan warned that "as an economy borrows its way to the edge of insolvency with debt denominated in foreign currency, government debt raising capacity appears to vanish virtually overnight… The first whiff of inadequacy in debt raising capacity induces a run to the exits not unlike a bank run."

Bobby de Ocampo is worried that our borrowing frenzy to cover the budget deficit has brought us close to the level of Argentina and Brazil in terms of deficit as a percentage of GDP. While he clarified that we are different from these Latin American countries because we are geographically in the most vibrant region in the world, the danger is still there.

I share Bobby’s worry that the Ivy League economic whiz kids may actually already sincerely believe the PR spin they have devised to reassure the public and minimize the imminence of the danger we are in. It has also occurred to me that these Ivies do have the accounting window dressing skills and maybe the ethics prevalent at Enron, Andersen and other American companies. These are skills that are apparently learned, indirectly, at Harvard and the other Ivies.

This is why when they keep on saying the economy is doing great and we have nothing to worry about, I get the eerie feeling that I heard that before… if not from whiz kids in Houston, maybe from those in Buenos Aires. There is a need for our beloved President to publicly acknowledge the problem so that even our politicians in Congress realize it and moderate their expensive demands for pork.

Our Economics PhD President, who mercifully earned her degree at Diliman instead of Cambridge or Philadelphia, is as street smart on the local situation as the rest of us. She should listen to her native instincts in managing the economy. Giving her so-called dream team of Harvard and Wharton types free run of the economy will only ruin not just her political standing but our lives as well.

Impressive as their credentials might be, they didn’t teach them everything at Harvard and Wharton… certainly not about how to run local business conglomerates or government bureaucracies in the Third World. Stare at those two charts again and think of these as some kind of report cards. Talk to the international credit rating agencies…

Erap and Fernando Poe Jr. will have the last laugh!

Thoughts

Dr. Ernie E. shares with us some thoughts of Will Rogers on politics, budgets and truth. I wonder if this Will Rogers fellow ever lived in this country.

"The budget is a mythical bean bag. Congress votes mythical beans into it, and then tries to reach in and pull real beans out."

"If you ever injected truth into politics you have no politics."

"Everything is changing. People are taking the comedians seriously and the politicians as a joke."

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