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Navigating the Messy Economy

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Sergio Ortiz-Luis has an unusual sense of humor. When asked about Philippine economic growth, the honorary chairman and treasurer of the Philippine Chamber of Commerce and Industry quipped, “We are a lizard in a house of dragons.”

He can be dead serious as well. Last year, Ortiz-Luis said that China had been the country’s succor during the global financial crisis, as the former took on the role—once held by traditional markets such as the US, EU, and Japan—of receiving Philippine exports.

Just this August, Ortiz-Luis along with exporter colleagues opposed the proposed wage hike, saying it would adversely affect employment. In an exclusive interview with China Business, the PHILEXPORT president tackles unemployment, the economy, and the brilliant prospects of Philippine real estate.

China Business: What can you say about the local unemployment that has gone past 7%?
Ortiz-Luis: It’s 7.9, I think. That’s the last figure I read, and it’s not improving. It’s going from bad to worse.

Why is it going from bad to worse?
Well, because we’re claiming that we’re creating lots of jobs. But the number of unemployed is getting bigger. Plus, the workers in the formal sector are continuously decreasing. They go to the informal sector and become underemployed. When there’s a call for a minimum wage hike, do you know how many would be its beneficiaries? Minimum wage [earners] only cover 16% of all workers.

Which sectors should the government focus on more?
We’re 98% small-to-medium enterprises (SMEs). If you want to be a tiger economy, you have to address the SMEs first. Our GDP accounts for, basically, 5% of enterprises. These are the multinationals and the conglomerates. There are lots of SMEs that go bankrupt because they do not get any financial support. We passed a Magna Carta for SMEs to solve this problem. The businessmen who understand it have also asked, “What will you do with the SMEs? What will you do to improve the access to credit?” These are the real road maps that we’d like to work on.

Isn’t it expected that banks will not really like to lend to small companies?
No, no. In Asia, they have solved that. You’ve heard what India did? Their Grameen Bank works [The Nobel Peace Prize-winning microfinance community bank gives “grameencredit” to the poor sans collateral. Grameen comes from gram, which is Bengali for “village”—Ed.].

In the Philippines, there’s a private company that does it, but not on that scale—unlike in Malaysia and Thailand where the support for SMEs is very open.

So who should start it, government or the private banks?
If the private sector can’t do it, or won’t do it, the government should set an example. Rather than giving it to conditional cash transfers, give it to the SMEs first so that they can hire laborers. You’ll never have to give out the money again.

You’ve been very vocal about the inflow of hot money. How would you rate the performance of the real estate sector now, especially in Manila?
Well, superb. But dangerous.

Why?
We’re the only country that doesn’t want to put regulations. We don’t have any restrictions. Everyone has learned the lesson with that hot money. They even have a tax in Malaysia where, if you’re going to withdraw [money], you would still be taxed. Here in the Philippines, there’s none.

What about the local stock market?
Yeah, 6.1% [PSE index as of August 2013]. An expert even said that if it lowers to 5.5%, which is what happened before, someone will already commit suicide.

Really?
Really. A lot of people are hurting. Those who bought cannot sustain it anymore. What’s worse, the stocks that you have don’t go up. That’s why we’re saying the policy is all wrong. BSP (Philippine Central Bank) is buying dollars to, supposedly, protect the exchange rate, to protect the exporters, to protect the OFWs. As if that’s the only thing you can do.

You can ask any economist, and he will tell you: For any economy like the Philippines, if you want to grow, the inflation should at least be 5%. You can afford even 8%. You have to control it. Our currency did not even go down, devalue, during Marcos’ time. But we are already in double-digits. Why?

The price isn’t really affected, even manpower. You have to learn first what’s in the basket of inflation. Do you wonder why, every year, they vote the best central bank governor to be the one from the Philippines and the best secretary too?

Anywhere in the world, if you act [like our central bank], and you lose Php150 billion a year—you’re crazy!

Why do they lose? They have a reactive policy. They want to protect the strength of the peso.

What about offshore businesses?
The offshore businesses, like HSBC, are losing everywhere in the world except in the Philippines!

In 2010, they said the exchange rate would be US$39 to Php1. Unfortunately, someone from the BPO or OFW industry interviewed the President, and he said, “No, no, we don’t believe that. I think it will be in the level of Php41 to Php43.” When the Central Bank learned this, they said they will change it, and the price ended at Php43.50.

In 2010, it ended at Php43.50. The same thing happened in 2011. Then, it went back to Php39.

In two weeks, HSBC said that it won’t suffice. It should be Php37 because we are not going to earn big. So they (government) changed it from Php39 to Php37.50.

Who asked them to forecast when they did? Nobody. What was their basis? Well, the only basis they would say is because the OFW remittances have been so big. It’s not a forecast. It’s an advocacy statement.

Does that explain the current 43 pesos to one dollar?
Among other reasons. When they say that it’s market driven, I say, no, it’s crazy. The people who predict also analyze it. They’re crazy because the only way you can predict is to guess what the regulators will do—because, if a regulator touches a level, it can be +5 or –5. They can do it without having to buy, without having to sell. Just send a signal, it will happen.

When it was announced that we will borrow locally, and will not borrow foreign, the dollar went up. There are 1,001 weapons in the arsenal of the government that can be used to arrest the exchange rate.

We’re already buying almost US$90 billion in reserves. What else do you want us to do? If you think the reserve is the only solution, you don’t deserve your job.

Print ed: 10/13

 

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