THIS IS with regard to Dr. Cielito Habito’s column “Tracking investments.” (Inquirer, 6/28/11) I’m cautiously optimistic that the economy is honky-dory fine. Here are three reasons why.
1. Investors have been slow in placing their bet on the future. The proportion of income set aside for investment has been declining for the past 20 years. Private investment as a percentage of Gross National Product (GNP) plunged from a high of 24 percent in 1990 to a low of 9 percent in 2009. It had an uptick in 2010 at 10 percent.
Dr. Habito is right in pointing out in his article “Aquinomics” (Inquirer, 6/21/11) that public sector investment such as government construction could not fill up the slack. Blame it on either poor tax collection or slippery tax evaders. Tax collection as a percentage of GNP was on an all-time low of 12 percent in 2010. Gone are the days when the country’s tax effort would hit a high, say, 19 percent in 1994.
2. Fitch’s credit rating upgrade on June 23 was overdue. Fitch rated our country’s long-term foreign obligations at BB+ or just a notch below investment grade. We should have gotten this earlier. I bet that Standard & Poor’s (S&P) and Moody’s will follow Fitch soon.
But these are just opinions. These ratings do not speak of the market value of a security, the volatility of its price or its suitability as an investment. This was highlighted in the 2010 movie “Inside Job” where Matt Damon narrated how these rating agencies gave their highest ratings of “AAA” to residential mortgage-backed securities of lending days before they defaulted.
3. Bias for a strong peso. An appreciation of the peso is not the ultimate measure of our economy’s strength. On the other hand, a depreciation may help the economy in five ways. (a) It will give more value to the dollars remitted by OFWs. This will boost the incomes of almost half of Filipino households. (b) The peso costs, relative to the dollar, of firms that are into exports, import-substituting industries, and tourism will be less. These firms may sell more by pricing their goods at competitive rates abroad. (c) It will help lower government deficits provided that we buy more dollars to pay for our dollar-denominated debts. (d) It will not significantly raise oil prices since oil imports do not account for much of the country’s total imports and production cost. (e) It will dampen our appetite for imports in a more equitable and less bureaucratic way than tariffs.
—JOSE LEO LEMUEL
G. CAPARAS JR.,
jose.caparas@gmail.com