BOO  CHANCO:  CAN THE ECONOMY SURVIVE ATE GLO?

MANILA, July 13, 2005
 (STAR) DEMAND AND SUPPLY By Boo Chanco - At the sidelines of Ate Glo’s hurried Hong Kong business trip the other week, major bankers and investors sidled up to the now resigned economic managers to remind them that their money in the Philippines is basically in hot money stock market investments and ROP bonds, both easily liquidated. They said they will be carefully watching two things in deciding to stay with us: First, if Ate Glo is politically stable and willing to use political capital to implement tough but needed economic reform measures and second, the stability of the economic team itself.

Well, the second item is a goner with the resignation of the key members of Ate Glo’s economic team. While no one is indispensable, Ate Glo would be hard pressed to quickly form a new team with as much credibility as Cesar Purisima, Johnny Santos and Emy Boncodin. The first item is also now subject to doubt, given Ate Glo’s precarious political situation and her own inclination to sacrifice the EVAT, which precipitated the resignation of the economic team.

Ate Glo was effectively surviving on the borrowed international credibility of her economic managers for a while now. The all important ratings agencies turned somewhat positive early this year, based on the assurance of Purisima and company that the government means business in turning the fiscal situation around. Reading between the lines of their assessments, Ate Glo does not, herself, enjoy the same high credibility as her resigned economic managers.

In fact, the reaction was pretty quick. Fitch Ratings said last Monday it had cut the outlook on the Philippines’ BB long-term foreign currency rating to negative from stable, citing heightened political uncertainty as President Arroyo faces mounting calls to resign. According to Bloomberg, the outlook change suggests Fitch is more inclined to cut the Philippines’ long-term foreign-currency rating of BB and local-currency rating of BB+. Both ratings are junk grade. It was only last January when it raised the outlook from negative to stable. Standard and Poor’s followed a similar downgrade later in the day.

I imagine, appointing the senior undersecretaries in place of the resigned Cabinet members is not going to do it. But with what happened to well respected private sector superstars like Purisima and Santos, it would now be near impossible to attract people of their caliber to the Cabinet.

Ate Glo can perhaps appoint Donald Dee to DTI and Sergio Luis Ortiz to DOF and formalize the sycophantic relationship that exists between them and the Palace. But Dee and Ortiz do not have the same credibility that the resigned Cabinet members had. Investors’ creditors and ratings agencies will not take them as seriously, if at all. That would make the short term one tough time for Ate Glo and the country as well. (As I was finalizing this column, I got word that Land Bank president Gary Teves was appointed Finance Secretary. This is a good appointment but even then, it takes the aura of a holdover assignment unless the political crisis is decisively resolved.)

Of course, a lot also hinges on what happens to the EVAT Law now pending at the Supreme Court. If the Court upholds it, or only invalidates the portion which looks like undue delegation of legislative powers, maybe we could be given the benefit of the doubt. The ratings agencies are not likely to give us an upgrade but it is possible that they won’t further downgrade us either, provided the political situation does not get any worse than it is now.

With a lot of talk about impeachment as the remedy of choice, even by such Palace defenders as Joey Salceda, it is also possible that things would spiral irretrievably out of control. Ate Glo would hesitate to take the tough measures needed, even if the High Court validates the EVAT. That would result in massive loss of confidence in the economic sector with hot money in the stock market quickly evaporating. There would also be significant peso depreciation and capital flight. It would be difficult or expensive to raise additional credit from the international market, something we have to do later this year. It would be difficult to survive such economic pressures.

That’s why the resigned economic managers acted as if they were running out of time. They summed up the danger: "The longer the President stays in office under a cloud of doubt and mistrust, and with her style of decision-making, the greater the damage on the economy and the more vulnerable the fragile political situation becomes to extremists seeking to undermine our democratic life."

One of them lamented to me that people are wrong to think that their action had anything to do with jueteng or the Garci tapes. They acted the way they did because they saw a president so beleaguered and made so desperate by the threats to her political survival that she has instinctively set aside the business of governance. She has turned her back on her avowed commitment to fiscal health. They saw a president whose credibility was so heavily compromised that there was no way she could push the reform agenda, an observation also cited last Monday by Fitch.

They acted the way they did out of fear... of the dire consequences once the international financial community writes us off, for loss of confidence. They feel time is not our side. This was probably why they miscalculated the politics of it all, when they hurriedly opted for resignation as a solution that was quick and not as painful to the economy. They honestly thought that was in the nation’s interest. I think that was also the primary concern of Tita Cory and the business community.

In a sense, those economic managers were rather politically naive. They were thinking too much like results-oriented private sector managers. She was worried about her survival, they were worried if the economy can survive her.

In fairness, it is obvious that she is worried about that too. And she was conscious of her negative effect on the people. Notice that in her last two addresses, probably among the most important in her political career, she chose to use a media approach that is so 1940s.

She chose to do a radio address (ala Roosevelt declaring war on Japan). That forced the television stations (in this age of LIVE full color broadcasts from across the world), to use her still photo on the screen over her distinctive voice. I got a text message that tried to explain why she decided to hide her face as she spoke: wala na kasi siyang mukhang ipakita sa bayan.

If that’s true, at least nahihiya na siya and that’s progress in my book.

Wild idea

Reader Eric e-mailed me his wild idea about what to do about our country, given its present situation.

I’m a loyal reader of your column so I thought I’d share this funny thought with you. While having lunch with officemates today, we were discussing the dire situation of the Philippines, and I thought of this wacky idea of selling the Philippines to China! Here are my arguments:

China has $600 billion in reserves that it doesn’t know what to do with, while we have $ 50 billion in national debt. If they buy us, they can pay off our national debt and thus freeing our budget for all the essentials

China is in need of natural resources, while we have plenty of it, but without a good means to exploit them. So, they would surely be interested

We already have good mix of Chinese-Filipino culture here, it would be simple to pattern our government like HK. At the same time, we have too much democracy in this country so that nothing gets done! Why not give the Chinese government the authority to exert some discipline?

The US will never allow it! They need us as allies. So that just "FLOATING" the idea will alarm them and perhaps FORCE them to forgive or really help us pay off our debt. OR, there could be a bidding war between US and China.

Just think, instead of P 56:$1, it will become P 7.8: US$ 1 (WOW! It boggles the mind!) The cost of a Big Mac would be less than P 10.

We can finally get rid of GMA, ERAP, and all the other corrupt politicians. Why not send them all to jail? That would be pure heaven!!

Just some wishful thinking for you! It’s just that we’re so desperate, and I don’t see any deliverance in the near future from anyone.


Reported by: Sol Jose Vanzi

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