Editorials: A widening financial dilemma

Wednesday, February 4, 2009

PROBLEM is, much as the President would like the country to achieve financial stability in the coming months, the prevailing domestic condition that dogs the global economic footsteps consistently sows financial devastation along the way. Hence, the sad prognosis on the world’s financial situation in the succeeding months offers no hope of relief, much more generate even a mere ray of optimism that could brighten our collective spirit.

Indeed, the five-day World Economic Forum late last week in Davos, Switzerland, attended by world economic leaders, including our own President, offered no hope at all. Report of the meeting’s being “mired in indecision and uncertainty,” made the situation even more gloomy and depressing. The world’s best and brightest among the participants failed to come up with plans to “stem …the global financial meltdown.”

Observed Singapore’s dean of the Lee Kuan Yew School of Public Policy: “Everybody’s lost in Davos. No one seems to have a clear understanding of how big this crisis is and what we need to do to get out of it. My own view is that you really need to do a fundamental re-examination of the whole global system to see what went wrong, and nobody here is yet ready to ask these kinds of fundamental questions in Davos.”

And so, it should not be any surprise to the average Filipino to learn that despite the efforts of the President and her economic advisers to present an acceptable financial portrait of the republic, the basic reality of our fiscal condition shows an otherwise glum reality. Take the National Economic Development Administration (Neda) report that the Arroyo administration’s “budget deficit may reach P160 billion this year due to the continuing effects of a global financial crisis.”

The Neda head confirms the “probability that the deficit will hit 2 percent of gross domestic product (GDP)” which he contends is quite high. But he softens the impact by continuing that he is “not saying that it should be P160 billion, but it can happen. This would still be OK, as long as the economy grows faster than the (country’s) debt.” But as of now, there’s no hope of balancing the budget at all.

But the Bangko Sentral ng Pilipinas, however, offers a ray of optimism, contending that “most likely, this year won’t be as bad as last year.” The BSP revealed that foreign investment inflow in 2008 was only $1.4 billion, a reversal of 2007’s $3.5 billion inflow, due to risk aversion on the part of investors. The deepened global crisis has caused a slowdown in the growth of our domestic economy to only 4.6 percent.

The possibility, though, that the financial crisis may ease up in our country in 2009 is indicated, according to the BSP, by the fact the universal and commercial banking sectors did not appear gravely hit. The Development Bank of the Philippines posted a 33 percent increase in net income despite the crisis. And bad debts exposure of the banks went down by 11 percent at the end of 2008, positively indicating decrease in non-performing loans.