Something’s about to give

Is it just the pessimist in me or is the ride really starting to get bumpy again? This, even as we get bombarded each day by glowing reviews of the Arroyo administration’s performance, i.e., how it has kept inflation and interest rates low, how the peso is strongest in seven years, how economic growth is galloping at its fastest in 17 years, and how the stock market index is trading near its highest ever.

Granted that most of the so-called “fundamentals” are intact to sustain the Philippine growth story, still noticeable are age-old cracks that have been temporarily masked in recent months, and lately new ones, courtesy of an erupting global credit market problem.

First is the chronic revenue problem that’s threatening to blow up the budget deficit again.  After a year of fiscal recovery, which buttressed the allure of the Philippines to investors and boosted the confidence even of the normally conservative credit-rating agencies, a relapse is becoming more evident.

Deficit concerns

Tax collection, even after the supposed P80-billion impact of the expanded value-added tax, is far from improving. In fact, collections of the incremental VAT are lower than target in the first half, which makes you wonder why we ever went through the whole exercise of passing the law anyway.

In the next two years, two-fifths of the additional VAT collection will start going to local government units, which only means that another tax measure will have to be passed to make up for the slack in the National Government’s share in tax revenues.

While recent reports say that the BIR and Customs both met, maybe even exceeded collection targets in July, one month doesn’t reverse the P50-billion shortfall that the two agencies incurred in the first six months.

But the fiscal problem is just half the story in this thesis that something’s about to give soon. The potential bigger problem is the global situation that’s becoming more worrisome each passing day.

Global threat

The subprime mortgage problem in the US, – a situation arising from unwise lending to people who can’t really afford to take out such loans or have a bad credit history – is indeed blowing out of proportion as big names like Bear Stearns are crumbling under the weight of its huge exposure to the sector.

The subprime issue is dragging other assets with it, leading to a rout in global stocks including the Philippine Stock Exchange Index that’s been losing in the past days as overseas funds continue pulling out their money from emerging market assets, which they think can potentially explode from the fallout.

Part of the order that led to the subprime mess is the huge surplus funds circulating all around the world. The phrase “there is too much liquidity” is partly to blame for the way some investors have agreed to lend to borrowers who are deemed unfit to take out loans.  Funds were attracted to subprime, the same way they were lured to emerging markets, all because of the promise of a higher return for the greater risk they’re taking.

The profit for these investors come from borrowing in countries with the lowest interest rates like Japan or Taiwan, and then investing them in places and assets that pay more.

These are what have become known as carry trades, now being blamed for the huge excess cash found all over the world, creating bubbles in stock markets and real estate, and making currencies like the peso, Thai baht, South Korean won and the others stronger than they should be.

Strong currency bane

These strong currencies, especially in export-reliant countries like the Philippines and Thailand, are becoming more of a bane. This has forced the Thais, for example, to consider capital controls to address the problem late last year, but has not been effective.

The Philippines, or at least the central bank, is using a lot of its pesos to buy dollars in an effort to apply the brakes on the appreciation. The so-called “intervention” is costing the BSP a lot, and many suspect that huge losses are being incurred because of this. Officially, no one in the central bank wants to talk about it.

What could be everybody’s concern at the moment is that if the one-way bets on the carry trades suddenly reverse. Then we would see funds pulling out heavily from stocks, bonds, currencies. And there goes the strong peso, the low inflation and interest rates, and the robust Philippine growth story.

This global backlash coupled with the revenue and deficit problems are real threats to the Philippine economy that cause worries to bankers and investors. But then, perhaps those oodles of dollars in remittances that come each month will once again save the day. As has been in the past, money sent home by our heroes toiling abroad and away from their families would most likely continue keeping the economy afloat.

Poker skills tournaments rising popularity Sports enthusiasts, particularly those who thrive on competitive games, have a wider choice nowadays. Golf, tennis, badminton, bowling, billiards, and chess tournaments are common fares. Add to this list the increasingly popular Hold’Em poker game. Philippine Poker Tour (PPT), the leading proponent of non-wager poker skills tournament, paved the way for the growth of poker tournaments with the full support of PAGCOR.

Together with the Poker Club of the Philippines, headed by motoring sports icon, Butch Gamboa, PPT launched the first Poker King Challenge more than two years ago. From then on, several tournaments were organized nationwide giving local players the much needed exposure in tournament play.

Recently, PPT opened its clubhouse, THE PLAYER’S DEN (1786 A. Mabini, Malate Manila), and is the venue for daily tournament games. Those who are new in the game have the opportunity to hone their newly acquired skills by joining these non-wager tournaments.

For details visit www.PhilippinePokerTour.com or call the PPT Secretariat at 812-0153, 0926-645-2956, or 0920-921-8891.

“Pag-usapan Natin” at IBC-TV 13

For my commentaries on burning issues of the day, please watch “Pag-usapan Natin,” a special segment of IBC-TV 13 News Tonite aired Mondays to Fridays, 10:30 p.m. to 11 p.m. 

Should you wish to share any insights, write me at Link Edge, 25th Floor, 139 Corporate Center, Valero Street, Salcedo Village, 1227 Makati City. Or e-mail me at [email protected].