Last Assessment of Philippines: A Nation Oblivious to Incoming Economic Dangers

As the author reaches the few final hours of being in the Philippines before flying off to Taipei for his new job and life, it would be pertinent to give a last minute advice to the country that he somehow managed to call home for more than a year continuously (for those who don't know, this is the longest continued residence in one place for the author since his undergrad years at Yale).  Not to say the author haven't wrote plenty about the country already, but little of the previous writing touched on the future of the country from an economic perspective, with focus primarily on its social side.

But economics, at least on this side of the Pacific, seem to be the big grim news these days.  Aside from the continuing protests in Thailand that is certain to destabilize one of the largest economies in the region, slumps in commodity prices due to slowdown in China has been hitting many commodity exporting nations hard in the wallet.  While the Philippines is a strangely consumption-centered, rather than export-centered (as is the case for most of its neighbors) economy, the detrimental effects listed above will certainly hit an economy that is also extremely limited in solid fundamentals.

The reason for such grim assessment is simply how dependent, even more so than net exporters, Philippine economy is on conditions of other economies.  Even a rough look at its comparatively large segment of household consumption shows that it is not at all internally generated.  Spending power buoyed by large amount of remittance from Filipinos working abroad, complemented by expansions and greater value-added services in the business process outsourcing and tourism sectors, is creating a temporary boost in real estate construction and prices.

In contrast, incomes generated by domestic industries and services purely for domestic consumption has not at all increased during the enviable economic expansion of the recent years, and government investments seem to remain limited, especially for an overall abysmal infrastructure so apparent during monsoon seasons.  In other words, the money earned through overseas work and outsourcing has not led to increase in overall capital stock of the country that can be used to promote more sustainable and long-term investments based on increase in efficiency and reductions in economic costs.

It should be noted that overseas work and outsourcing are highly volatile and depend on pretty much only one factor - labor costs.  There are still plenty of countries outside Philippines that can speak moderate, passable English (i.e. can be trained for adequacy in customer service toward native speakers) and same goes for people willing to do manual labor in foreign countries without complaining (even at the risk of getting abused).  So if Filipinos become more expensive, which they will if more utilized relatively to supplies of surplus labor, employment will shift to other nationalities.

In essence, the more the Philippine economy depend on these two pillars for economic growth, the faster these industries will move away from the Philippines to other, cheaper destinations, undoing a Filipino boom that has so far been strongly dependent on earned incomes from these sources.  With fewer Filipinos working overseas and fewer outsourcing work at home, the retail and real estate sectors will quickly collapse, followed by the banking sector that will go under from non-repayable loans of a credit-fueled consumption spree.

While corruption is massive and government in general untrustworthy, Filipino officials must look toward something akin to sovereign wealth fund system used in places like Dubai and Singapore to better allocate resources gained from unsustainable industries like sending people overseas for work.  Without putting these resources to credible investments that increase functional infrastructure for future generations, they will be wasted on goods and services purchased from abroad, enriching foreigners without helping Philippines move forward economically.

As the author has mentioned so many times before, the Filipino voters need to wake up and pressure the government into credible actions as such.  Supporting an elected oligarchy of dubiously enriched monopoly of hereditary political families will not move the country forward as they are already satisfied with the status quo that give them power and wealth without active policy-making.  This cautionary tale of the Philippines' grim future should be acknowledged by the middle class, who should step forward to provide the kind of new political leadership this country sorely needs.