The Great Equalizer
The nightmare seems to be never ending. What started in the USA has now reached Europe and recently emerging markets that include China, Southeast Asia, Latin America, Argentina, Brazil, Russia and the Republics of Kazakhstan and Ukraine, among others.
The forbidden fruit that developed in America, containing multi leverage sub prime, was bitten by the rest of the world. From this, you have an erosion of confidence and a surmounting fear that is grappling every investor out there, exiting over 5t hedge funds. All asset classes have been hit, from stock markets to commodities. Name it.
Greed has pushed property prices and stock prices to levels that have caused the bubble to burst. The excessive greed has now turned into excessive fear. People just want to get out of stocks and bonds as if the world will end tomorrow.
I call this the great equalizer. The problem today affected mostly the wealthy people. Who is to say that the rest will not be affected? But definitely, the rich, who have assets in the forms of stocks, bonds and other affected investment instruments, have become poorer. Close to 12 trillion dollars have already been wiped out. In the Philippines alone, the stocks had the biggest drop in 4 years, down by 12 percent or 239 points, to 1,750 levels. Several billions of pesos lost in one day.
In times like these, you realize that material wealth can be wiped out within seconds. This is what happened. The drop was so sudden and big.
But, life has to go on. I still believe that emerging Asia will be able to weather this than the rest. We have the experience from the Asian financial crisis, which will make us first realize that we have a problem. Denial will only cause more problems.
The government must reduce interest rates. If our currency depreciates, it will be good for exports and even for local manufacturers as imports will be more expensive. What are important in the end are the fundamentals. If the Philippines’ real economy (non-financial sectors such as manufacturing, industry, agriculture, telecoms, business process outsourcing) can continue to find niches of opportunities for growth; if they continue to provide employment and income to Filipinos or create negosyo opportunities; and if the country shows growth, manage its budget deficit, export more, and attract more call centers and BPOs to the Philippines; all these will create a multiplier effect. In a crisis, there are always opportunities.
PGMA, despite her poor ratings, has done a great job in preparing the Philippines for this crisis. When the peso appreciated a lot, the central bank supported by buying dollars to avoid peso appreciating. Now, they are selling at a huge spread. This will help the peso from moving down too fast. Commodity prices like oil and others have come down. We should feel the effect sometime on the second quarter of next year, as most companies have hedged out.
There will be no letting up. American companies will have to continue to relocate their accounting and call centers in our country. I have been talking to a number of real estate brokers who specialize in relocating BPO expats. They say that the number of companies relocating in the Philippines is growing. They find the Filipinos talented and hard working.
Our greatest assets as Filipinos are our service and work attitude. In our country, you can see a carpenter offering you to eat his lunch, inviting using our common line “kain tayo”. This is why we will continue to dominate the OFW market, and eventually the call center and BPO markets as well. You will always get a comment from foreign friends that Filipina nurses are the best, or that a yaya working in Hong Kong or Singapore gives more care, as she sacrifices to take care of other children just to give her own kids back home a better future. Our respect for elders is very strong in the Filipino system. All these values that have been handed from generation to generation give us the competitive edge versus other countries.
At this point the financial crisis affects mostly the rich who have assets. The challenge in the coming year is how we bring down the level of poverty, even with the financial crisis. The challenge now is how do make the poor rich.
The next column will discuss how the new Magna Carta on MSMEs will help, together with stories of the Citi Micro Entrepreneur of the Year nominees.