What is the worst thing that could happen to the Philippines?

Last Wednesday, I was invited by a senior class in the Polytechnic University of the Philippines (PUP) to give a lecture on the Global Financial Crisis. As students of Bachelor in Banking and Finance, they wanted to know the effects of the crisis on the Philippine banking system.

I tried to expand the lecture in such a way that the full title of my presentation was "Global Financial Crisis: Effects on the Philippine Economy and the Banking System." 

About 200 junior and senior students came to listen to my lecture (of course, not voluntarily). At the end of the lecture was the main event, the seminar organizers sang and danced in a variety show with shrieking teenagers blushing while male students dance half-naked. It was an awesome experience.

After the variety show was the forum (I read somewhere that there is no such thing as a close forum because a forum by definition is "a public meeting or assembly for open discussion.") Here are some of most interesting questions and my answer:

Q: What should we do to help the country avoid recession, spend more or save more?

This a classic Keynesian dilemma. To push a country out of recession, people must increase their consumption. With tougher times expected, people tend to save more, companies sell less, and the economy contracts further. However,  the situation is different in a case where you are trying to avoid recession.

It is not a matter of spending OR saving. For me, it should be spend wisely AND save wisely. Saving money by putting it under your bed will not help the economy. The money must be placed in a financial institution, it shows your confidence on the system and increases the resources available for investments.

Spending must also be done wisely. American consumers borrowed too much and spent it on unproductive assets, similar to what the government did to the US economy. To help the economy avoid recession, people must spend more on productive assets. Buy a new computer if that will increase your productivity and not because you simply want the latest model available.

A vacation every  now and then is helpful, but getting a second mortgage so that you can go to that Caribbean Cruise is disastrous. You cannot actually do that in the Philippines, but the idea on wise spending must be clear.

Q: What is the worst thing that can happen to the Philippines?
"Jinggoy Estrada elected president," I said jokingly and the students laughed. "Oh sorry. I forgot Jinggoy was your biggest sponsor." He was indeed the biggest sponsor, they thanked him at the start and at the end of the seminar. His name was also on the the top of the list of sponsors flashed on the stage.

Kidding aside, I really think that a President Jinggoy will be one of the worst things that can happen to the Philippines. Other than that was the two scenarios mentioned by Dr. Medalla in the EAEA Convention.
1. GMA trying to cling to power beyond 2010
2. Filipinos pulling their investments away from the Philippines.

A lot of foreign investors have already left when the credit crunch started in late-2007 to early-2008. Now, if Filipino investors would move all their money to other countries then that will be disastrous for the Philippines.

Q: What are the key sectors that will be affected the most by the global financial crisis?
I find this very difficult to answer. My best guesses would be sectors that are more reliant on foreign money or those more connected to the international economy. These sectors include Real Estate and Exports, especially electronics.

The fate of the BPO and call center sector is still unclear. While some call center companies in the Philippines are already downsizing, some are still expanding. The very few call centers left in the US are already trying to move out. BPOs catering to the financial sector will surely be affected. Call centers that handle complaints might be affected, if US consumers buy less products, they will complain less.


There are other questions with particular concerns over the Philippine economy, how bleak the future will be. I think, it will not be far from what we use to experience.

A plane that never took off will not crash.  


update:
A clear sign that the crisis is now affecting the banking and the real estate industries.
Crisis dampens interest in home loans - Inquirer (Dec. 05, 2008)
We warned before that this will happen, but banks and developers tried to shrug it off.