Breaktime
Blow the belt
By Conrado R. Banal III
Philippine Daily Inquirer
First Posted 04:09:00 10/30/2008
Filed Under: Banking, Central Banks, world financial crisis
At least, the world financial meltdown is challenging the best minds in our very own central bank, Bangko Sentral ng Pilipinas, or BSP.
Maybe the BSP is getting good advice from its policymaking body, the Monetary Board, which has for members all sorts of people except hard-nosed bankers. Hay naku!
Now, the guys down here in my neighborhood are really worried sick about the possible effects of the worldwide crisis on our country.
What with our government officials (take a bow, Jess) already presaging bad times for all of us, bestowing upon us a little imperative advice like we have to tighten our belts!
Thank you, boss, but we already knew that. Forget the belt, because we just needed you to tell us just exactly how we could brace ourselves up for this forthcoming economic below-the-belt blow.
We need some concrete guidance like, well, do we have to sell our mothers-in-law already or something like that?
* * *
At least, as I said, the BSP is quick to implement some imaginative accounting techniques.
For instance, apparently to help banks put on some makeup on their balance sheets, the BSP has ruled that the banks do not have to apply market value on their financial assets, such as bonds.
They could book the assets at their value as of last July 1—i.e., when things were still looking up in the world financial markets.
Of course, now we all know that the value of the assets have gone down to somewhere in the center of Earth.
If, according to BSP rules, the banks should value their financial assets accordingly—meaning, under the earth—there would be no telling which of our local banks would have to declare insolvency.
But the BSP reasoned that these are extraordinary times, needing… well, a little imaginative accounting.
And because the BSP perhaps tried to anticipate big trouble in certain banks, all the banks turned cautious on lending to other banks.
Oops, in the wonderful world of finance, that could only mean… well, credit crunch.
* * *
Aside from what banks were voted most likely to run into trouble, the other guessing game in banking nowadays is what country is likely to default on its foreign debts.
The BSP was quick to announce that we have enough foreign exchange reserves. Luckily, a lot of bankers believe the same thing. Whew!
To our sources in the banking system, the most likely candidate would be perhaps another Asian country or one in Latin American. Take your pick.
But then again, if the BSP claimed to have a lot of foreign exchange reserves, how come the peso’s exchange rate is taking a beating against the dollar lately?
It could be the result of some defensive moves of the business sector.
In the United States, for instance, the Internet giant Yahoo has laid off thousands of workers. To think that the company was not even directly hit by the crisis!
Well, Yahoo perhaps anticipated that the crisis would force businesses to cut on Internet ads, which have been the bread and butter of Yahoo. You know—defensive moves!
Now, multiply the Yahoo! layoffs thousands of times—such as the number of companies all over the world that would have cut on their workforce because of the crisis—and what do we have?
Some of those workers would have to be Filipinos. As of last count, there were roughly 10 million Filipinos working overseas. Not just a few of them could lose their jobs.
What could then happen to their foreign exchange remittances to the Philippines?
And still BSP officials went on record regarding their amazement over the weakness of the peso’s exchange rate. The BSP still had a lot of foreign exchange reserves, right?
Unfortunately, boss, the market does not often bet on the present. The market always tries to anticipate what can happen in the near future.
Another term for that is speculation. The real question is: How bad has speculation against the peso already become?
I guess that the drastic weakening of the peso’s exchange rate gave away the answer.
* * *
According to the former Philippine Permanent Representative to the United States, Ambassador Lauro Baja, we can play a role in promoting “solidarity” among countries with a lot of overseas Filipino workers, or OFWs.
The Philippines in fact was scheduled to host the second session of the Global Forum on Migration.
Baja said: “The Forum should be more than a “talk shop” and provide a mechanism to monitor or regulate the global phenomenon of migration…
“In light of this, the Philippines’ efforts to protect and promote the welfare of our OFWs should develop into a strategic pillar and tool of foreign policy.”
On the world financial meltdown, Baja said that it could also offer the Philippines an opportunity to pursue its advocacy on debt-for-equity swap.
The countries in the so-called Group of 77, plus the new economic muscleman China, have been endorsing the swap arrangement for the past several years.
Rich countries in the so-called Paris Club showed interest in the arrangement.
Baja said it is time for the Philippines to negotiate a pilot project under the debt-for-equity swap.
He added: “These initiatives will energize Philippine multilateral and bilateral diplomacy which has been criticized as timid, inept and drifting.”
Amen on that, Mr. Ambassador!
Previous columns:
Tampinco who? - 09/30/2008
Food loose - 09/23/2008
SLEx in the city - 9/16/2008
A way in a merger - 09/09/2008
Sewer RATS - 09/02/2008
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