The Human Face of the Ongoing Global Economic Crisis*

Prof. Benjamin E. Diokno, Professor of Economics, School of Economics, University of the Philippines

We’re all poorer as a result of the global economic crisis – rich, middle income and the poor. But the impact of the crisis will be different depending of one’s economic circumstance.

But the first important lesson is that the losers are not firms or institutions but real people: bank owners and shareholders, real estate developers, workers (who lost their jobs or may have a hard time getting employed), retirees (who invested in mutual funds or played in the stock market). Losers too are all Filipinos who will pay higher taxes for the measures needed to fix the problem or will be denied essential public services in order to assist failing banks. [Remember: Filipinos are still paying for the failed banks as a result of the Asian financial crisis].

Because of the crisis, the Philippine economy will slow. We’re feeling this now. The government projected a GDP growth of 6.1 to 6.8 percent in 2008, but we’re lucky if the Philippine economy grows at 4.4 percent. That’s a lot of foregone output that translates into fewer profits for capitalists and lower incomes for workers. Consumer spending, which has been the major driver of the economy in recent years, has slowed. The growing consensus is that the Philippine economy slow even further in 2009.

As a result of the crisis, even the wealthiest Filipinos are poorer now through the so-called wealth effect. Bank owners and shareholders are poorer to the extent that they have invested in mortgage-backed assets that are now valued much less. Bankers who have invested in ROPs (Republic of the Philippines bonds or sovereign papers) are losers since ROPs have taken a hit as a result of the global credit crisis.

As a result of the crisis, equity investors, those who invested in the stock markets, are poorer because the value of their equity investment has been cut by half. An investor who has invested P100 million in the Philippine stock exchange is poorer by about P50 million.

As a result of the crisis, Philippine exports are at risk.  About two-thirds of our exports are in electronics and machinery parts, the types needed by the U.S. and other developed countries of Europe and Asia. But with the U.S. and half of the world in recession or near recession, the demand for Philippine exports has slowed.

Instead of growing at 11 percent, Philippine exports will, at best, grow at 5 percent this year, and stagnate in 2009As a result, some factories have closed or operated at less than full capacity. This means workers are losing their jobs. In January 2008, some half a million wage-and-salary jobs were lost. And the loss of relatively ‘good’ jobs continues.

Our other export – overseas Filipino workers – is also at risk. This is important since overseas remittances as percent of the GDP; the size of the economy is the highest in the Philippines. The need for labor in crisis-affected countries is lower. Some affluent foreigners who lost their investment or jobs as a result of the current crisis can no longer afford a Filipina maid or Filipino driver. Jobs in the finance sector and service industries abroad are being lost.

Car manufacturing plants, department stores, restaurants and other food outlets are closing in the U.S. As a result, Filipino-Americans who send remittances to the Philippines are losing their jobs. Remember that half of the overseas remittances come from the United States.

In sum, there will be an economic slowdown that would affect most Filipinos in terms of less jobs and thus lower incomes. And there are two areas where the Philippines are most vulnerable: exports and overseas employment.

*This Paper was presented by Prof. Diokno in the Round-table Discussions of Asia Pacific Basin for Energy Strategies.  Antonio A. Ver is President of Asia Pacific Basin for Energy Strategies. October 20, 2008.