During the last few years, much has been said about how the Philippine Economy is ready for a boom. There is evidence to point toward that boom too. Look at the Peso, as we close in on the end of 2007 the Peso is standing at just barely more than 40 Pesos to the U.S. Dollar. It was just a couple of years ago that we got more than 56 Pesos for every Dollar that we traded! That would appear to be a huge boon for the Philippine economy.
But, it it really?
Well, when you look at it and do a bit of analyzing, the strong Peso is not necessarily a good thing for the Philippine people. You see, the biggest part of the Philippine economy is money remitted by Overseas Filipino Workers (OFW’s). These Filipino workers go abroad and work. They send a large percentage of their earnings home to support their family in the Philippines. Most of the contracts of OFW’s are written in US Dollars. Three or Four years ago, when an OFW sent home $100 to his family, they got around P5,600 worth of spending power! Now, though, when the OFW sends that same $100 home to his wife and kids, they get only P4,000 for it! Thus, the same $100 that he sent home a short while ago, is worth 30% less to his family now! This is hurting a lot of Filipino families!
But, the strong Peso is great for Filipino businesses, right? Well, not really. A lot of export businesses are actually going out of business because of the strong Peso! I just read an article in the paper this morning that a lot of clothing factories in Bulacan are already going out of business. They produce clothes that are exported to the USA. Now, the clothes are more expensive for the US consumer! Basically, the Philippine company has two choices, they can charge a lower price in Pesos (this keeping the price the same in Dollars), or they can raise the price. What are the consequences of each action? If they keep the price at a constant dollar level, they are only getting 70% of the Pesos that they got a few years ago. This much of a price reduction can put them out of business. However, if they raise the price, the US companies go to Vietnam to have the clothes made. It’s a catch 22 situation. And, all the while, prices continue to rise in the Philippines.
Less money coming in….. higher prices at the store. It’s a death warrant for poor Filipino families.
Feyma and I are really seeing this in action at the malls this year. Usually during December the malls are packed with Christmas shoppers! The mall owners extend their hours and are generally open until Midnight at least 3 nights per week during the Christmas season. The parking lots are full, and it’s hard to park your car. Getting a taxi during Christmas season is next to impossible, they are all in use! But, this year, when you go to SM City Davao, the parking lot is half empty, or more. The mall looks like a ghost town. Taxis are aplenty. Just based on my observation of Christmas Season shopping, I believe that the Philippine economy is not robust.
You can’t believe everything that the Government says.
Hi Bob. A lot of people will get fired up with this issue including me.
I will focus on the OFW policy by the government. The negative economic effects of the depreciation of the dollar is one and a major ugly consequence of this policy.
Productive Filipinos are being encouraged to build the infrastructures of other countries instead of a more patriotic Philippine-nation building. The policy of sending a country's population to distant and hostile shores is patently wrong. A government that is not able to govern and promote job creation in it's own land is not worth a hill of beans. This situation has to be changed.
Something is inherently wrong when a Filipino expatriate worker becomes very proud of being able to get out of the Philippines!
Responsible citizenry should not accept the status quo as right. This government is not doing enough and manufacturing positive statistical numbers to fool the people over and over again is a useless exercise.
The Catholic Church which is a very powerful and influential entity in the country is mum on this rotten issue as it benefits much on the money sent back home. The church ignores the breakup of families, child neglect and abuse, lack of care for and even abuse of family elders(lolos and lolas), infidelity, prostitution, etc.
The saddest part of this is those OFW who are saving every hard money they get hopeful that with the "spread" (between the dollar and the peso) they will eventually live a better life in the Phil;ippines. That dream will remain a dream for a longer time.
(BTW, the country's economy is at bottom when some Super Malls in the major cities will have burn to the ground. Be careful not be caught in those fires. "White Gold" in Cebu used to do this in the 60's and the 70's to collect the insurance money.)
Hi Bob, the first time I visited the philippines the exchage rate was P65 to £1 sterling (in 2000) and Last year it went up to P100 to £1. It is now around P80 and decreasing.
This means its getting harder for us to send money so I am worse off as a result!
On a more serious point though I noticed that Manila looks worse every time I go there, which is usually once a year. The stores in the shopping malls were either vacant or had turned into something that makes it look like a market and one particular area around manila bay was a real dump. I think John Grant mentioned this in one of his blogs.
I did manage to finish my music room though which will be rented by local bands. I know it will not make a lot of money but if I have to keep sending money, given the rate of inflation and decreasing exchange rate to subsidise it then i will have to close it and unfortunatley someone else will be out of work over there.
Regards
Phil
I was out in Manila yesterday, Bob, and indeed I was surprised at the lack of Christmas traffic on the roads and in the stores. In our local SM, same as you mentioned … I had to go there the other day at an hour and time I just "knew" it would be packed … parked in the front row next to the building and only walked through normal foot traffic inside … nothing at all like these weeks in previous years… does not bode well for 2008 methinks.
Hi Bob, we observe the same (lack of Christmas traffic and empty malls) and we heart it also from other friends. People don't spend as much as during the passed years. Christmas decorations are discounted up to 75%, but only a few people will buy. – PHIL, you are right regarding Manila, but Cebu is not much better., – DR. SPONK LONG, unfortunately you are very right with your comments. But if you watch to the U.S. or my homecountry now, you get the same news (inflation rate up, economy outlook for 2008 down etc.).
So to all of you and us: Let's try our best… Merry Christmas! 😆
Hi Bob,
I agree – what the Philippine government says needs to be taken with a grain (more likey a whole package!) of salt.
Besides what you mentioned, rising gasoline and food prices are also taking their toll – and both are likely to get worse next year. I can't get into a taxi these days without a driver telling me they are working longer than ever and just managing to break even, despite working 14 hours or longer a day.
Call centers, another new staple of the Philippines economy and employer of thousands of middle-class younger Filipinos, are also in trouble. They usually earn their revenues in dollars, so after covering their peso wage bills, their margins are becoming thinner. If they start closing down and moving to other countries, there would be social problems, who knows, maybe their ex-employees would start taking to the streets and supporting people like Trillanes and Lim…bad news for GMA.
There's talk by government sources about supporting the OFW's with a more beneficial exchange rate…someone tell me where the money for that will come from!
About the only good thing for the government is that the foreign (i.e., USD) debt is getting cheaper to repay.
I am a newcomer to the Philippines and seems to me the malls in Manila are still packed, but that may just be the holiday season, it will be interesting to see how many people are there after the holidays pass…
One really sad thing is that the Philippine government and people have little or no control over these things. Dollar depreciation is caused by forces in the currency markets and perceived structural problems in the US economy, the oil price is driven by concerns over the middle east. Nothing the Philippine government can do will address these issues! It can only react and make rosy statements like the ones we've been reading in the newspapers.
Hi Dr. Long – The whole situation seems to be a no win situation for OFW's in particular. Think about this… because the of the low value of the dollar, the OFW will be forced to send more money home to his family for them to survive. However, the more money that is sent by OFW's, the lower the dollar value will go! That outflow of dollars to the Philippines has two effects – it lowers the value of the dollar (marginally, of course), and it raises the value of the peso when the dollars are converted to pesos. You can't win!
Hi Phil – Good luck with your music room, i hope it's a big success for you!
Hi Dave Starr – Interesting that the malls are also empty in Manila, compared to Christmas past. I wrote this article a few days ago, and I have not seen any improvement in Christmas traffic among shoppers since then. I think it's going to be a tough year for merchants.
Hi Klaus – Glad to see that I am not the only one who sees this trend. It surprises me to see how slow sales seem to be this year.
Hi chris – Yes, the government keeps churning out those articles that tell about how rosy th economy is, but I think that it's like putting lipstick on a pig. The truth always tends to shine through over the long run.
>> Call centers, another new staple of the Philippines economy and employer of thousands of middle-class younger Filipinos, are also in trouble
so please explain to us why the number of call-center seats in davao city continues to increase?
Nice piece here…and the big truth is this..You can not belive any Goverment report..no mater what country it is in or comes from..what you can belive is this…how much this item or that item you bought, not to long ago went up in price and how much less you can buy with the money you have now in your pocket compared to the same amount of money that you had in your pocket per say last year at this time…..as far as what I see in the USA..just because the dollar is worth less…does not mean the price of things here are less…in fact on a lot of items the price is going up…not down..and so the beat goes on…..The few get richer and the multitudes get poorer….and yes its very sad indeed that many people are getting the shaft again…
Alan Mark – I don't think that we are there yet, but the call center industry could be jeopardized by the fall of the dollar, and the strengthening of the Peso. The Peso is stronger, relatively, than a lot of the other Asian currencies, making call centers in places like Vietnam, Thailand, etc. more attractive. The Philippines has a huge language advantage, though, which will be hard to overcome by these other countries.
Hi Dan – I agree with what you say… remember the old saying? "Figures lie, and liars figure" – seems to fit here, in the case of government stats.
Bob
Another case here of the Philippines being subject to international events because we are in the global economy, i heard of an American economist wishing for the dollar to weaken much further because it will make American home produced products more competitive, by putting up the price of imports. This may be true short term but is a simple point and ignores side consequences, some discussed here.
With the American economy being such a large part of the global economy, some of the casualties of an American slide are felt directly in the Philippines.
There are some aspects of the OFW policy which are open to question and some are raised here, but this is a valuable and vital tool to Philippinos as well as to the Philippine economy, it promotes freedom of choice for the individual who wants to work hard and achieve something and from an outsiders point of view i think the benefits for the individual and the economy outweigh the negative aspects
By the way i remember being in davao at christmas some years ago and malls were packed taxis non existant, ooops, downturn in the economy, like Klaus says though, we are also full of those stories here in uk
Hi Bob- If its any consolatation its tough here in the UK ecomomically.
The £ is 2.003 to the $ the Euro is 1.39 and the Peso is 84 to the £.
This is not just a Philippine situation its a world wide problem. Oil is behind the current situation particularlly since the war in Iraq, we have seen oil prices esculate. In the past OPEC could be influenced to regulate their price per barrel not anymore they are now much more powerful and less dependant on the west as they can shop anywhere they wish for technology.
I agree with the Dr the Philippines has to encourage industrial growth on its own doorstep rather than send its people overseas to subsidise everyone elses business. I'm sure the Philippines has sufficient natural resources if exploited in a sympathetic way which could sustain industrial growth for the benifit of the vast majority of the population.
But I wonder how much influence the IMF and the World Bank have on the fiscal planning of the Philippine government bearing in mind its President is an astute economist.
I think its a wait and see situation for the time being and not for people to panic.
My in laws are concerned as they make money by selling their bananas but are paid in US Dollars. So their income is coming down.
They say that all their costs particularly petrol for the cars are rising.
This is just one individual family but I guess they are not thinking in terms of a boom time for the economy. I assume they are not alone and that this scenario is being played out all over the Philippines.
Scott
Jim said
I’m sure the Philippines has sufficient natural resources if exploited in a sympathetic way which could sustain industrial growth for the benifit of the vast majority of the population
—————————-
The mining industry has been growing this last few years and GMA has opened it up, but i doubt that is helping the avg filipino. May be one reason why the peso is so strong.
Where do people think the rate will bottom out? I know leading up to xmas the peso is usually stronger becuase or remitance.
Bob,Good article.The facts seem to be these,americans sending fixed sums of money to the philipines know their familys are doing with less,putting pressure on the familys on both sides of the globe.Wages are not going up in the states as a rule and as far as the weak dollar being good for american buisness it does not comput,we export less every year.We in america are looking at national debt we have never seen before,war and gas prices that consume our pay checks.So a weak dollar is a sad situation for the Phil American.
hi bob,
was wondering where i could possible invest money legally and receive a return of 15% after taxes. does this situation exist in the philippines?
i thank you for any time and patience you can show me.
james
I have been shopping here in the U.S. (Kansas City) and our malls are packed. I did observe that almost all purchases were being paid with credit cards. So the problem of over using credit in this country seems to just keep feeding off of it self. The dollars value is down around the world and that helps American made products so don't look for too much government intervention from the U.S. to increase the value of the dollar any time soon. I recently read that Airbus is going to close some of its European manufacturing plants and open one in the U.S. to take advantage of what for them will be lower wages. So this dollar decline is really a win win for the American business cycle. For the American consumer-I don't know. For the Expats around the world its obviously not so good. My advise to every one living any where is to save more, spend less and to remain aware of what is happening with your money. I want to wish you, your family and all of your readers a happy holiday season. Ron
Bob; We also have family in the philippines, in the seventeen years I have been married we have never seen it so bad.Its just not that things cost more,jobs seem to harder to get, and harder to keep. In one family all the men or out of work,one of the women had good job with an americian company but that company is closing soon. We try to help the best we can ,but there only so much we can do,Iam retired and our resources are limited. I also would like wish you and your family a very merry christmas, and the best in the new year.
>> The dollars value is down around the world and that helps American made products
helps american-made products GET EXPORTED and consumed by non-americans! the dollars coming in don't redound to benefit of the americans, they are simply sent back out to make interest payments on all the Treasury bonds that the Chinese are holding!
>>> Airbus is going to close some of its European manufacturing plants and open one in the U.S. to take advantage of what for them will be lower wages. So this dollar decline is really a win win for the American
by this logic, america should seek to push wages down below that of the Bangladeshis. Then all those garment factories in Chittagong will be sent back to North Carolina….
Hi rick b – Yes, the American economy directly affects the Philippine economy, because the USA is one of the larger importers of Philippine produced products. Thus, a slowdown in the USA directly affects the Philippines.
Hi Jim – I agree that over time, the OFW game is a losing proposition. No country can keep exporting it's talent abroad and come out the winner in the long run. It is indeed great for the Philippines to have all those dollars remitted, but over time it doesn't work out for the betterment of the country.
Hi Scott – Yes, I agree. People like your family are getting squeezed from both ends – higher production costs and lower income. It's something that is really hurting a lot of people in the Philippines.
Hi Graham – You are right about the mining industry. But, there are also a couple of problems too with that… especially that the mining industry really leaves a lot of pollution in it's wake.
Hi James – The thing is… the US Government is at an advantage with a lower dollar due to the big debt. You see, they borrowed dollars that had a lot more value, and they are paying back in dollars that are worth way less. It makes it cheaper to service the debt.
Hi james williasm – Thanks for visiting my site! I don't know of anywhere that you can get a guaranteed 15% return on your money. I have been told that there are rural banks that pay 20% on long term deposits, but have not looked into it. There is a fellow named David who has a Yahoo Group about the rural banks. He stops in here from time to time and comments. Maybe he will come along and tell you more.
Hi Ron – Merry Christmas to you and Marlou! Wow… I didn't hear that Airbus is coming to the USA! Now, that is amazing to me! It also shows me that this low valued dollar is probably going to be more of a long term thing than many expect. Airbus wouldn't make that investment if they thought that the depressed US dollar would be around for a short period.
Hi Steven John – Merry Christmas to you too! And, I wish the best of luck to your family in finding jobs and a good way to survive!
The strength of the peso has some positive sides as well. It has kept inflation low, it has cushioned some of the high oil prices. It had reduced the cost of interest payments for the foreign loans. The peso has only dropped to the level it was 7 years ago, and if you are working in Europe, Canada, and Australia you are still ahead in the currency exchange. The market force is at play here. That will determine the exchange rate and has only a little to do with what GMA is doing. One thing in the future which may make the peso weaker is that the government is not doing a good job in collecting the taxes, it has benefited from sales of government businesses to the tune of around 80 billion pesos this year. These one time pay-outs will be limited in the future to only a few big assets can be sold mainly, meralco and san miguel holdings and two large land holdings, NBP land and another large piece of property. After this they will need to raise money from taxes which they have shown not to be very good at. If they change that around then the peso will appreciate still further. The call center jobs are taking a beating from the exchange rate but India which is the main competitor, their currency has appreciated 20% in the last 2 years. The OFW's will benefit more if the countries they work at (mainly the middle east and HK stop having the currency tied to the u.s. dollar but that is unlikely to happen. I think in the end having a strong peso does not indicate the economy is doing well or not.
Hi James, my wife and I are working for a British assurance company. I am not allowed to mention the name, but I am sure you know everything about the TITANIC, As an expat I invest a lot of our savings there. As I observed the last two years, I got back more then 15%. 😉
Hi Klaus – Just want to clarify that it is not me that has asked you not to post the name of the company. I believe that it is the company in question that does not allow you to use the name.
Hi neil hecht – There are some benefits, but most of those benefits don't reach the people on the streets. I agree with you completely about the fact that a large amount of the economic gains in the Philippines have been through government sales of it's holdings in private companies over the past couple of years. Not something that can be duplicated year after year.
Hi Bob, you are totally right. I just follow the rules and regulations of this company. But if somebody is interested to know more, he can contact me by visiting my blog.
Hi Bob
Yes recently Senator Roxas wanted them to remove the vat tax on oil products but the government can't afford to do that since that brings in a steady source of revenue. I think regardless of the peso strength many of the economic gains are only reaching the top and if you are dependent on working for a local company or without an education you will not see many benefits and that will continue to be like that for many years. The country is having a large economic growth(for the Philippines) this year but the country will need that for a decade or two for the people on the street to really feel it.
Hi neil hect – You are 100% correct, my friend!
Hi BOB . Here in South Africa it is the same story . People have been buying like crazy on credit for the last 2/3years. Now is pay back time. During the last year interest rates have moved by plus 4.5%. Food prices throug the roof . 76% of disposable income goes on serving debt. T he world will have a hard time during 2008. On a brigher note Happy Xmas to all on the LIPblogand toall avived folloers around the world.Lets enjoy the festive season and worry about the economics of 2008 when she arrives.Thanks to all my friends around the world . i have really enjoyed LIP this year.I will be in Davao at the end of January so to save mney can i bring my own instant coffee.
Hi Frank Fealey – I agree, 2008 could be a difficult year economically for the entire world. I don't think that any country in the world is on solid financial ground at this time.
Merry Christmas to you, Frank, and thank you for your participation on this site in 2007!
China had done drastic ways to devaluate their currency so their exports would be cheaper.
Bad thing about the Philippines, whether the money increases or decreases value, either way, we suffer.
Hi Ken – Very true. It seems that no matter what happenes economically it always works out bad for the Philippines. Very unfortunate!
Hi Bob,
Correct me if i am mistaken. I am just a 4th year high school.
The government must issue the wage increase for the working class in our country. I heard that there is this one book called "Hyper Wage Theory".
And I think that its time for us Filipinos to stop(less) patronizing other countries import products. Because that can be a major contribution for the country's economic progress.
If they buy Filipino made products, then that means there will be enough for the Filipino business. More money for the business means higher salary for their workers and tenants that can be a cycle .
More salary–> More buying power–> More salary–> More buying power
–> Progress.
Good luck Philippines!
Hi Future Economist – for me, I patronize the best products, I don't choose based on what country they are made in. I go for the best quality, combined with the best value for the money. Cheap does not mean good value if it is an inferior product. If the Philippine made product is a good value, I buy it. If the Chinese product is the best value, that is what I buy, and so on. If the Philippine companies want to progress, they need to improve the quality of what they sell. This goes for the Filipino worker as well.
Hi greetings to you Bob. I have lived in Philippines for 38 years now, i have seen such a great deteriation in the Roxas Blvd area, and the poor getting poorer. I do my best to help the kids in Tabing Dagat but since the begining they have nothing and struggle the best they can to survive. How Sad, these are great people who deserve being helped.
Hi Geoffrey Streames – Thanks for visiting the site! It's a pleasure to meet you. Yes, I understand what you mean and how you feel about the poor getting poorer and those kids needing help. It is so unfortunate that few people even offer assistance, and a few people like you and I cannot help every one of them! It's a sad situation.
Hi Bob –
An article appeared in the _Asian_Times_Online_ today ("Politics of poverty in the Philippines" by Joel D. Adriano) that talks to the economic problems experienced by the poor of the Philippines and their probable sources. Other blogs have looked for the causes of poverty, citing everything from population growth caused by religious interference in government to manipulation of world currencies. This appears better grounded in reality.
While this article comes closest to hitting the nail on the head, I think that it probably won't get much further than print. 🙁
http://www.atimes.com/atimes/Southeast_Asia/JC21A…
Interesting article, Paul. Thank you for passing it along.