ROCO, FPJ, ATE GLO SHOULD VISIT INDIA

MANILA, December 3, 2003 (STAR) DEMAND AND SUPPLY By Boo Chanco - India remains visibly Third World, Businessweek reports. "Per-capita income is just $460, and 300 million Indians subsist on $1 a day or less. Lethargic courts can take 20 years to resolve contract disputes. And what pass for highways in Bombay are choked, crumbling roads lined with slums, garbage heaps, and homeless migrants sleeping on bare pavement."

If that sounds so much like home, here’s more from Businessweek. "More than a third of India’s one billion citizens are illiterate, and just 60 percent of homes have electricity. Most bureaucracies are bloated, corrupt, and dysfunctional. The government’s 10 percent budget deficit is alarming."

Now, that should really make you think that the ordinary Pinoy will feel right at home or feel a notch superior. But before you start sneering at that strange smelling Bombay in his motorcycle doing his "5-6" rounds in your area, you should know that Indian brainpower is fast transforming the world’s second most populous country into a world-class new economy superpower.

McKinsey Consultants predict, according to Businessweek, that by 2008, IT services and back-office work in India will swell fivefold, to a $57-billion annual export industry employing four million people and accounting for seven percent of India’s gross domestic product. That growth is inspiring more of the best and brightest to stay home rather than migrate." That’s right. They don’t even have to line up for visas at the US Embassy because they can do work for Corporate America without leaving home.

The sad part about reading this report is that we could have very well done what India did. We could have leapfrogged development into the new economy because we have pretty much what India has – a college educated, English speaking workforce. Our being more culturally attuned to the American market is also one big advantage we have over India. But we blew it.

Compared to our young people today, Businessweek reports that "now, many talented Indians feel a sense of optimism India hasn’t experienced in decades." The younger generation feels they can deliver the country from poverty through this boom in IT. They are beyond mere call centers that Mar Roxas passes off as IT outsourcing. We should have recognized our competitive advantage in our educated manpower and given it all out support to make it a leading forex earner and jobs creator in this globalized world.

We should require our presidential hopefuls to take a break from their current campaign and visit India, specially Bangalore. They may pick up an idea or two or just get challenged enough to be useful to the country after the May elections. They are likely to see the new Indian Institute of Information Technology in Bangalore. The campus, according to Businessweek, is completely wired for Wi-Fi and boasts classrooms with videoconferencing to beam sessions to 300 other colleges.

Businessweek reports that confidence in India "is finally spurring the government to tackle many of the problems that have plagued India for so long. Since 2001, Delhi has been furiously building a network of highways. Modern airports are next. Deregulation of the power sector should lead to new capacity. Free education for girls to age 14 is a national priority."

Education is top priority in India in its effort to meet future demand for knowledge workers at home and abroad. Businessweek reports that India produces 3.1 million college graduates a year, but that’s expected to double by 2010. The number of engineering colleges is slated to grow 50 percent, to nearly 1,600, in four years. Nothing was reported about graduating more lawyers.

Indians apparently have a strong sense of nationhood such that overseas Indians are helping out. "India’s rich diaspora population is chipping in, too. Prominent Indian Americans helped found the new Indian School of Business, a tie-up with Wharton School and Northwestern University’s Kellogg Graduate School of Management that lured most of its faculty from the US. Meanwhile, the six ITT campuses are tapping alumni for donations and research links with Stanford, Purdue, and other top science universities."

I really think the Makati Business Club and the PCCI should organize a tour of India for the key political personalities in next year’s election. This would be money well spent if a visit to Bangalore would once and for all knock some sense into the heads of our leaders after seeing what the Indians, who are facing the same if not worse adversities as we are, have managed to do.

Sentiment

It was wrong for Sen. Tito Sotto to say that Malacañang manipulated the exchange rate to make the FPJ announcement appear in a bad light. But Tito can be forgiven because he does not know what he is talking about. A supposed professor of business of La Salle also came out with something that tried to minimize the negative impact of the FPJ announcement by giving a very technical explanation of how supply and demand affects the exchange rate. Thanks for the condescending Eco 101 lecture, but the professor misses the point.

Of course the element of supply and demand determines the exchange rate but the supposed business professor must go beyond that and look into the forces that influence supply and demand. The peso’s exchange rate the day after the FPJ announcement plummeted not just because companies demanded more dollars that day to pay obligations. Sentiment is the more important underlying factor.

In fact, in normal times, the peso’s value should be improving at this time of the year. OFW remittances are pouring in and most companies are done with their Christmas inventory buildup. There should be a flood of dollars from abroad to overwhelm normal domestic demand for dollars. Except for one thing: FPJ and our increasingly deteriorating political environment.

In today’s freely convertible regime for the peso, people vote their fears very quickly. That was why both the exchange rate and the stock market were negatively affected the day after FPJ’s announcement. There is some amount of speculation, as is par for the course in the world currency market. But even speculation works with sentiment. Those with money will not wait for the day FPJ is proclaimed President. They will act at the mere hint that FPJ could be president.

I am not saying that their fears are justified. That is another subject of debate. The important reality is that they are afraid our voters will mess up again. So they sell their pesos and protect themselves from another drastic devaluation. Expect something even more drastic in the weeks before the election if surveys show a definite Poe victory. Or if it looks like massive cheating is going to happen.

Don’t look at the Bangko Sentral to try to protect the peso by burning its dollar reserves trying to keep the peso’s value up. Tio Paeng would be guilty of gross incompetence and criminal negligence if he did that. For one thing, our reserves are puny. A couple of weeks of really bad market sentiment and that’s it for our reserves. Besides, our rules prescribe free market determination of the peso’s value. We screw up our politics, we get punished in the currency market. This is because there is no free lunch. Our politicians talk and act as if there is no retribution. I have news for them. There is always a time of reckoning and that happens every day in the free market for currencies and stocks.


Reported by: Sol Jose Vanzi

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