RP: Most vulnerable in next Asian crisis

Our beloved Philippines has finally landed first in a list. It was ranked number one in a list of countries measured in terms of a "vulnerability index" devised by an economist of the Union Bank of Switzerland (UBS) as an indicator to spot a crisis before it happens. The number measures a country’s relative risk of a fiscal crisis.

The UBS economist expressed the belief that the next Asian crisis, if it hits, will be of a very different type than that experienced in 1997. "We think it would likely be sparked by fiscal worries, similar to almost all emerging market crises in recent history." The UBS paper suggests "the Philippines, Indonesia, India and Japan (in that order) are potentially the most vulnerable on the basis of current fundamentals."

The last crisis was unusual, the UBS paper observed, because it was caused by pegged exchange rates, reliance on short-term external borrowings to finance unsustainable current account deficits and weak banking sectors. The next one will be more traditional, sparked by "worries that the government might not be able to pay its bills." Something like what happened in Argentina and Ecuador...the Latin American malady.

UBS cited an IMF study that found "the probability of crisis increases when public debt reaches the 25-50 percent of GDP range." The bad news is, "this range had already been exceeded by seven out of the 11 Asian economies covered by UBS (including Japan) at the end of 2002." And yes, we are number one in that list.

Then, there is this thing about contingent liabilities. The UBS paper observed that "in the Philippines, some estimates of the government’s contingent liabilities run to about 70 percent of GDP, with unfounded liabilities of public pension institutions of some 40 percent of GDP, some 10 percent from the deposit insurance scheme and other explicit contingent liabilities linked to build-operate-transfer contracts, guarantees for various types of loans and tax credit certificates."

In contrast, UBS cites "our own estimates for Thailand’s contingent liabilities run to just 20 percent of GDP, including four to five percent of GDP arising from the various fiscal initiatives implemented under the Thaksin administration with the remaining 15 percent still linked to the 1997/98 banking sector recapitalization."

UBS cautions that vulnerability on its own does not generate a crisis. "A trigger is needed to prompt markets to worry about the government’s ability to repay its debt, thus sending interest rates higher and triggering a vicious debt dynamic spiral."

Now, this is what is important and worrisome. "Such a trigger could take any form: an exogenous rise in interest rates, a balance of payments crisis, the recognition of large contingent liabilities or a change in government." In the opinion of the UBS economist, "we believe the trigger would have to be either political or the unexpected recognition of contingent liabilities. That makes it extremely difficult to predict."

UBS is saying we should worry about our worsening fiscal deficit, our power hungry politicians and anarchists running berserk in our streets. Political risk explains why our investment climate deteriorates... the peso falls every time we have a violent demonstration, a coup attempt or even just coup rumors and the potential presidency of FPJ.

Our political instability dooms our economic situation. Until and unless we are able to make our politicians, the anarchic left and Erap forces behave responsibly, our economy will continue to languish and our people will continue to live miserable lives with NO hope of redemption.

My guess is, these dregs of society could care less. Unfortunately, the rest of us allow them to get away with it.

Tourism Program

Reader Henry Ongchan wrote us a long e-mail giving some useful unsolicited advice to Dick Gordon on how to grow the tourism industry. Here are excerpts from that e-mail.

I read your article about your Bohol experience, and feel as exasperated as you are.... Each year I also travel with my family for a week or two and it really is cost-effective (and safer) to travel abroad. But the Chinoy blood in me also prods me that this situation should not be allowed to go on.. Like yourself, I honestly believe that our natural resources are by far more abundant and beautiful than other countries... It is how we develop and use these resources that we are utterly behind...

We need action people like Mr. Dick Gordon to head the tourism industry. We also need good and dedicated people in the tourism department in order to implement his plans. We also need the commitment of the tourism industry for us to succeed. By tourism industry, it does not only mean the hotel staff, tour operators and flight attendants. It involves the whole nation! Here are some of my suggestions on how we can be globally competitive.

The Tourism Department should encourage tour operators, hotel/resort operators to go to tourist areas abroad so they can see and study how it is done. This will also encourage the hotel operators to upgrade their facilities and offer new things they currently don’t have. The tourism department should also have a special department inspecting resorts, classifying and rating them, and give out pointers on how to improve their facilities.

The tourism department should convince airlines and hotel operators to give big discounts on their rates in order to lure foreign tourists to come here. Empty plane seats and hotel rooms are not productive. Giving 50-percent discounts or more to fill up plane seats or hotel rooms will generate incremental income. The hotels can earn additional income from money tourists spend on foods, drinks and other services they offer. During the SARS scare and during lean months, Hong Kong, Singapore and Thailand gave very cheap tours to encourage people to go to their country.

I think many hotel/resort operators still have the concept that having 30- percent occupancy at unrealistic rates, is more profitable and less tiring than having 80-to 90-percent occupancy at competitive rates. They have not computed the additional benefits of having more guests spending...

The main reason we don’t attract more tourists is the perception that our country is not safe. Peace and Order and its perception cannot change overnight. Word of mouth is the best way of changing perception! If we take good care of the tourists who come here and surely, they will talk about it when they go home. We should treat tourists as very important people!!

The police should be more helpful to tourists. We can even set up small courts wherein cases related to tourists can be resolved in a day or two. It will make the bad people think twice before victimizing tourists.

The tourism department is doing many correct things now, encouraging domestic tourism, asking people to invite friends or guests from abroad to visit us. They should focus now on asking resort owners to upgrade their facilities. They must also educate Filipinos to take better care of tourists. I always believe that we Filipinos, specially in terms of hospitality, can excel and be world class if we put our heart and mind into it.

Lastly, I want to commend you for writing and giving opinions on various issues concerning our country. It is people like you who give light on the many cloudy issues sprouting everyday. You are one of the main reasons why I read The Philippine Star!

Beer Talk

Dr. Ernie E returns.

Two college coeds were having beer. One said to the other, "Mandy was so excited when she found out she was pregnant. She called me late one night after my boyfriend and I had already gone to bed."

"What on earth did she want ?" her friend asked.

"Oh... she just said, ‘I can’t believe I have a person inside me!’"

"So I said, ‘So do I. Could I call you back in an hour or so?’"

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