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Bullish economy reminiscent of pre-1997 crisis

By: - Reporter / @daxinq
/ 10:00 PM December 25, 2012

(First of three parts)

Fund managers around the world have dubbed the Philippines the newest “tiger economy” of Asia. And for good reason. The latest government data showed the economy roaring ahead at its most vibrant pace in decades.

In fact, the country’s growth—measured by the rise in the gross domestic product (GDP)—is one of the strongest in the region.

Stocks on the local bourse have been rising to dizzying heights, marking record high after record high and making the Philippine Stock Exchange one of the best-performing equities markets in the world.


Meanwhile, fueled by low interest rates and rising confidence, the property market has been booming as well, with condominium and office buildings rising everywhere and construction cranes punctuating the city’s skyline.

The peso stands strong against the dollar and the central bank’s foreign exchange reserves are at record high levels, giving the country a buffer against sudden capital outflows.

But most importantly, the Philippines’ credit rating rests only a notch below the coveted “investment grade” bestowed by international debt watchers like Standard & Poor’s and Moody’s Investor Service—a hair’s breadth away from a level that promises to flood the country with more capital and lift more people out of poverty.

This could very well be the rosy description of the country’s economic situation today. But this was, in fact, the lay of the land in January 1997, less than six months before the East Asian financial crisis laid waste to the entire region and pushed millions of Filipinos into economic hardship for years to come.


To be sure, a world of difference separates the onset of the Asian crisis in the Philippines in July 11, 1997, from present day conditions.

“Our economy now is much stronger,” said  Governor Amando M. Tetangco Jr. of the Bangko Sentral ng Pilipinas. “Back then, our dollar reserves were limited so it became difficult very quickly once the capital outflows started. But today, our problem is [having] too much dollars coming in.”

Indeed, the country’s economic managers had to face the financial tsunami that swept across the region 15 years ago with only $11 billion in dollar reserves. In less than a week in July 1997—in a vain attempt to keep the peso’s value from collapsing—the BSP used up almost $2 billion of this precious “ammunition” trying to fend off currency speculators.


“Today, we have over $84 billion in reserves,” Tetangco said, noting that the amount was almost 700-percent higher than what the country had in 1997 to fight off the crisis. This amount can pay for more than a year’s worth of imports of goods and services, compared to only three months back then.

The chief of the BSP—the agency at the forefront of protecting the economy from sudden shifts in the economic tide—then proceeded to rattle off statistics to illustrate just how far the Philippines had come over the last decade and a half.

In the five years leading to 1997, the country’s inflation rate averaged 7.6 percent. This was relatively low for a country used to double-digit inflation. But in contrast, the prices of goods and services from 2007 to 2012 averaged only 4.7 percent.

Back in 1997, BSP’s overnight borrowing rate (the interest rate on which banks base their lending rates to the public) averaged 11.2 percent. This was also low then. But in the last five years, the overnight rate was only 4.8 percent, bringing the rates on bank loans for houses, cars or corporate use to their most affordable level in the country’s history.

In fact, all economic indicators showed that the country is better off now—from average bank lending rates (11.2 percent then against 7.7 percent today); money supply growth (20.7 percent versus 10.7 percent); peak property prices in Makati (P425,000 a square meter then versus P280,000 now), to the prices of stocks relative to their earning potential (28 times then against 17 times now).

1997 on his mind

But surprisingly, despite being interviewed by the Inquirer on short notice, Tetangco came fully armed with graphs, tables and slides that juxtaposed 1997 with the present day. His collection of economic data was kept handy in a single file folder for easy reference long before the interview was set. The comparison between 1997 and today—whether it yielded similarities on the surface or differences underneath—was clearly on his mind.

Traditionally, a central banker’s job has been defined as one of being the adult in the room in a big party, ever watchful to keep youngsters from becoming too rowdy and hurting themselves. And the current party is, though most revelers are still having a blast, is clearly on Tetangco’s mind.

“I think about it,” the BSP chief said. “The conditions are different. But we always have to be watchful.”

And he’s not the only one who has looked back at 1997 and cast a cautious eye on the present.

Col Financial Group president Conrado Bate is a grizzled stock market veteran who was in the thick of the previous crisis heading what was then the country’s top stock brokerage, Jardine Fleming Securities.

“People have to temper their expectations a bit,” he said in an interview. “Will there be a collapse? No. But are things in the market sustainable? I say, no.”

(To be continued)

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