In his Monday column in the Business Mirror this past week, stock wizard and all-around affable chap John Mangun provided an elegantly simple explanation for the positive signs we see in the Philippine economy:
“Yesterday the PSE traded at an historic high. Yesterday the peso traded below 42 to the US dollar.
The foreign press just called the Philippines a potential “Tiger” economy. That may sound impressive, but if we are going to talk about animal economies, maybe it would be better to describe PHL as a “Hyena” economy.
Tigers hunt down and kill for food. Hyenas feed off the remains of dead animals and the Western economies are dying. There is nothing wrong with that. Hyenas can be healthy and fat without chasing down their food.”
The reasons the Philippine economy has the opportunity to feed off the carcasses of the Western economies, as John correctly points out, is that the Eurozone and the US are having to increase their money supplies as a last resort to try to solve economic conditions that are not just stagnant, but by all appearances are getting worse. On June 30, the European nations agreed to a number of steps to save the Euro and keep Spain and Italy from going completely bankrupt, steps that all, one way or another, rely on a large amount of new money being printed.
In the less than 10 days since then, things have gotten even worse; a major scandal is now threatening to derail a large part of the global banking system, the UK announced it would pump another £50 billion of new money into its financial system, and on the same day, both the European Central Bank and the Bank of China announced cuts in their lending rates – the second time in a month for the Chinese, a sign that the Big Red Economy’s condition is probably closer to that of the West’s than the rest of Asia’s than Beijing cares to admit.
The basic idea behind policy moves such as “quantitative easing” (which is how Ph.D.’s in Economics pronounce “printing more money”) and cutting central bank interest rates is to encourage economic growth by putting more money in the hands of businesses and consumers. Easing interest rates theoretically encourages lending, so businesses can expand; increasing the money supply is needed so that banks will have something to lend to businesses and consumers will have more cash to spend. And they will have to spend more, because the nasty side effect of adding money to the financial system is that it causes price inflation.
The circumstances benefit a hyena economy in two ways. First, more money in the Western financial systems devalues their currencies; this is why the peso has now dipped below 42 to the dollar. Weaker dollars and euros are good for businesses in the hyena economy, particularly an import-dependent consumption economy like the Philippines, because it decreases the costs of imports. Second, because prices have inflated in the developed economies businesses and investors look for places to invest where their money will go farther and so they turn to the emerging economies; put the two conditions together, and the result is healthy externally-fueled growth, reflected in healthy equity and bond markets and strong business profits.
So far, so good. All the government needs to do is not try to manage the economy – something which the current administration is very good at – because while the weakened and starving bodies of the developed world’s economies keep keeling over, the environment will provide. It would be foolish not to take advantage of it.
But hyenas have a bit of a reputation, as this passage from a study by the International Union for the Conservation of Nature points out:
“Hyenas feature prominently in the folklore and mythology of human cultures with which they are sympatric. Hyenas are mostly viewed with fear and contempt, as well as being associated with witchcraft, as their body parts are used as ingredients in traditional medicine. Among the beliefs held by some cultures, hyenas are thought to influence people’s spirits, rob graves, and steal livestock and children.”
Being a hyena economy has its advantages in the short-term, but none of the leading economies of the world – not just places like Europe, the US, and China which are experiencing problems, but also more contemporary examples like Brazil and South Korea – became a leading economy by remaining a hyena. The Philippines is keeping itself alive with labor exports and hot-money investing like the equities market and the BPO industry in much the same way Brazil kept itself alive with forest products and loose labor and industrial standards to attract off-shoring manufacturers. The difference is Brazil used its time as a hyena to develop its own industrial and agricultural sectors, or in other words, developing an economy that now looks for its own hyenas rather than being one.
That is not happening in the Philippines, but the feel-good splash of headlines like “Philippines joins top BPO destinations” tends to disguise the fact that the reason the country is making serious inroads against competition like India is that the competition isn’t putting all its economic eggs in one basket. The crisis in the developed economies – assuming it doesn’t reach these shores, something which is very much an open question in view of the growing LIBOR-fixing scandal – is impermanent, one way or another. There are only so many corpses to go around; things may eventually become so bad that there is no longer a demand for exported labor and BPO services at all, or (more likely) things will eventually turn around and investors in the developed world will once again find more value in spending their money at home rather than spending it here. That will perhaps take a long time, but the cyclical history of the world economy suggests we might as well count on it.
The last president this country had who really seemed to have a sense of thinking long-term was Fidel Ramos, but he wasn’t flawless, and spent the last days of his term wrestling with the consequences of the Asian Financial Crisis. Joe Estrada was a comic interlude, and for the all the effectiveness of Gloria Arroyo in comparison to her predecessor, she wasn’t much of a long-term thinker, either; if anything, she can be praised for putting the country in a better position to make the most of its being a hyena now, but she sure didn’t lay much, if any, economic groundwork for the inevitable post-hyena future.
The current administration has proven hapless at best, and in some respects even hostile to the sort of widespread heavy development this country needs. The creeping pace of the once-ballyhooed PPP program is old news at this point, but even if it were proceeding according to its potential, it still sidesteps the big issues of a new airport for Manila, actually useful ports, and comprehensive approaches to utility and transport infrastructure. Other initiatives, when they are occasionally presented, do nothing to encourage business confidence. A case in point, the much-anticipated and long-delayed mining EO set for public release on Monday improves on some points of the atrocious first draft of the measure leaked in February, but goes further in muddling regulatory responsibilities, places too much control of mining policy control under the murky auspices of the President’s office, and virtually guarantees that a clear set of guidelines for investors won’t exist until the end of next year at the earliest by making the entire policy subject to legislative action – a political hot potato that Congress will not want to handle until after the May 2013 elections. And that is assuming the whole issue does not end up in the courts, which it almost certainly will; the present mining act was subjected to six years of legal wrangling before it finally came into effect.
Nothing wrong with being a hyena, but it’s a business plan with a limited shelf life; hyenas are not very popular, and they sure as hell are not immortal. Both the government and the nation’s businesses who are currently enjoying their buffet of rotting guts should try to keep that in mind.