On the US-Macapagal-Arroyo regime's "reforms": Continuously worsening economic crisis in the country
The economic crisis in the country continued to worsen in the first six months of the US-Macapagal-Arroyo regime's term. Even the ruling classes have been shaken by this crisis. But most severely affected are the people, especially the toiling masses.
The country is beset by a chronic crisis due to the continued existence of the decadent semicolonial and semifeudal social system that has been exacerbated by the crisis of the world capitalist system. The latter is approaching a general recession coupled with deflation. This recession, which may last for a number of years, is pulling the country's plummeting economy to take a further plunge. The most striking indication of this crisis is the steep fall in production and the drop in exports in the past six months. From an average of 4.01% and a peak of 4.6% in 2000, the annual GDP (gross domestic product) growth rate fell to 2.5% in the first five months of the year. This is lower that the 3.3% level for the same period in 2000 and the 3.8% level the year before. Computed per capita, the GDP grew by a mere 1.5% in May.
Fall of industrial sector
Lower GDP growth rates are due mainly to the fall of the industrial sector. From 4.4% in the same period in 2000 and 4.1% in the immediately preceding quarter, the sector grew by a mere 0.1%. The fall of industry was reflected in the drop in the country's overall exports. GDP growth appeared to be positive due to higher prices and a slight growth in the services sector (4.5%, mainly from the expansion of cellphone services by telecommunications companies) and agriculture (2.3%). Overall, there has been a drop in the utilization of the country's productive capacity from 79.8% in 1999 and 80.1 % in 2000, towards 77.8% in the first quarter of 2001 and 76.3% in May.
The economy further ran aground in the second quarter of the year. Exports fell sharply by 24.7% in June. This is estimated to be the worst drop in exports since the 1970s. Production for export comprises 57.4% of the country's overall production.
Export of electronic componeents fell by 39.27%, reflecting the biggest drop. In the main, these are mere reexports of semiconductors partially processed in the country for use by the ICT industries of other countries. These exports comprise 52.7% of the country's overall exports. Before the latter dropped this year, they comprised from 71.3% (2000) to 72.5% (1999) of the country's overall exports. The export of electronic components from the Philippines is dependent on the US' ICT economy. Due to the overproduction of computers, accessories and services and other high technology electronic products, the ICT economy continuously fell along with the entire capitalist system in the US and worldwide. This will mean the continued drop of the country's exports. The country's backward and moribund economy is further being pulled down by the currently falling ICT economy in the US and the rest of the world.
Garments exports also fell by 9.1%. This remains the country's second biggest export, with 76% destined for the US market. There is an overproduction of garments worldwide and many other countries export cheaper garments to the US. Garments production in the country continues to plunge, with a further drop expected due to the dumping of imported and smuggled garments. Half of the 300,000 tons of garments consumed nationwide is imported or smuggled. In the earlier part of the 1990s, up to 1.5 million spindles were produced by 12,000 garments companies in the country. Since then, 9,000 companies have collapsed, with only 350,000 spindles produced by the industry's remaining 3,000 companies.
Growing balance of trade deficit. The 24.4% drop in exports is the main reason behind the sudden increase in the balance of trade (BOT) deficit for the second quarter of the year. The drop in exports was due to shrinking international markets for the country's exports. This has led to a $31-million deficit in the BOT for the month of June. This, despite a mere 4.6% increase in the country's imports, which is lower than the 10% growth in May. It is amusing to note that while electronic parts imports are droppping monthly, there has been a growth in telecommunications imports (at the level of $260-$290 million monthly) geared only towards expanding the number of cellphones serviced by Smart, Globe and other telecommunications companies in the country from 4,000,000 to 7,000,000.
One cause of higher import ations is the increased cost of the dollar vis a vis the peso. From an average of P48.47=$1 in March, the exchange rate stood at P53=$1 in July. The dwindling value of the peso has resulted in economic instability and lack of confidence in the country's economy. The Bangko Sentral's intervention has temporarily raised the peso's value to P51-P52=$1.
Oil prices also rose by 12% in the international market in April. This, along with other factors, brought about an $81-million BOT deficit in May. In April, this went as high as $477 million. The country's BOT deficit will continue to worsen due to the ongoing trend of falling exports and the dwindling value of the country's currency.
Investment and finacial crisis
The fall in the country's production and exports and increasing import costs have brought about a further worsening of the country's investments and finances.
Growing balance of payments deficit. The country's balance of payments (BOP) deficit went up to $755 million (or an equivalent of P37.75 billion based on a P50=$1 exchange rate) in April. This is a reverse of the $820-million BOP surplus for the same period in 2000. This is due mainly to the previously mentioned rise in the BOT deficit, a 16.8% reduction in remittances by migrant workers ($2.15 billion from $2.58 billion) and the big amount of foreign capital withdrawn or repatriated.
Withdrawal of foreign investments. Since 1997, there has been no change in the negative ratings given by Moodys and Standard & Poor-both monopoly capitalist institutions that analyze political, economic and financial conditions and risks and give out investment recommendations. Their ratings have caused the country to fall from 29th to 40th place. Ratings from Merril Lynch, a leading international stock broker, have caused the Philippines to drop from being 15th in the list of "newly emergent markets" in January 2001 to 30th place in the second quarter of the year.
In the first five months of the year, total direct investments in the country plunged by 292%. In this period, direct foreign investments fell by 29.59% while portfolio investments (speculative capital) dropped by 50.76%. It is speculative capital that spurred the artificial "growth" of the Philippine economy before the financial crisis of 1997. Among those that have withdrawn investments from the Philippines are companies from the US, Germany, Japan, Hong Kong and Australia.
In 1992-98, direct investments withdrawn from the country stood at an average of $1.25 billion annually. This has suddenly and dramatically increased in the past two years, reaching $18.9 billion in 1999 and $14.97 billion in 2000. This year, $7 billion have already been withdrawn in the first five months alone.
The country's huge external debt. The Philippines' external debt reached $49.95 billion in March 2001. This comprises 64.6% of the GNP. This is slightly lower than last year's figure of $52.45 billion (64.7% of GNP) due to the rescheduling of the country's debts. On the other hand, the rate of debt servicing has increased. It is debt servicing that gobbles up the country's earnings. This now stands at $6 billion (or P300 billion based on an exchange rate of P50=$1) annually. In March, up to 17.24% of the GNP went to foreign debt servicing, the highest in the past eight years. In March 2000, only 11.83% of the GNP was allotted for this purpose.
Because of the huge government budget deficit, the regime has been scrounging around for new credit. Thus, the country's foreign debt will exceed $52.45 billion, the highest level reached the previous year.
Worsening government bankruptcy. The national budngetary deficit continues to grow at an unprecedented rate. From P50 billion in 1998, it rose to P111.7 billion in 1999 and P134.2 billion in 2000. It is expected to reach P147 billion or more for the whole of 2001.
The government has nowhere to turn to, to fill up the worsening deficit except to sell more government-owned corporations and public utilities, levy more taxes on the people and incur more debts. The government will impose an even heavier debt burden on the people. Its debts, which stood at only P2,166 billion in 2000, have risen to P2,575.4 billion in July. Of this, P1,103.4 billion or 42.8% are internal debts and P1,472 billion (or $29.44 based on an exchange rate of P50=$1) are external debts.
Ironically, however, almost half of the government's budget and income goes to debt servicing. This only further increases the government's expenditures and deficit. As time passes, the government ends up paying a growing amount for debt service. In 1997, 26.6% of its income was allotted by government to service debts; 35.4% in 1998; 42.9% in 1999; and 44.3% in 2000. This has gone up to 46% in June (30.1% for interest and 15.9% for amortization).
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