EVEN AS the Philippine stock market suffered its steepest decline in two years last Tuesday, losing all of its gains for the year, President Aquino predicted a rebound. “I think we will stand and fall on our own merits,” he said. True enough, the stock index bounced back on Wednesday, adding 133.11 points to close at 4,290.14 or 2.1 percent higher than its yearend level of 4,200.
Nothing remarkable there, given how closely the local market was tracking the movement of stocks on Wall Street. Tuesday’s steep plunge in the local stock index, in fact, mimicked a massive sell-off in the US market the day before, which saw the Dow Jones industrial average falling by 5.4 percent, following last week’s unprecedented downgrade of the US government’s credit rating by Standard & Poor’s. And Wednesday’s recovery came after a US Federal Reserve pledge to keep interest rates low for at least two years sent US stocks gaining 4.7 percent or 429 points.
Thursday’s trade, however, saw the local bourse breaking the pattern. While the Dow Jones again lost 520 points overnight, the local stock index climbed up 0.49 percent to close higher at 4,311.
Is panic selling perhaps giving way to more rational trading? Is the Aquino administration’s economic team getting the message across that our economic “fundamentals” are sound, making the country an attractive investment destination? Are investors looking at the value locked in many Philippine stocks?
It is too early to say. Nothing is certain except perhaps that we live in uncertain times. The causes of the current turbulence in the international financial markets remain widespread and deeply rooted. So many governments in Europe, from Greece to Spain and Italy, are teetering on the brink of bankruptcy. The world’s biggest economy, the United States, avoided a default on its obligations only at the last minute, and even that could not save it from a ratings downgrade.
What is even worse is that very few are convinced that the US government will ever be able to pare down its $14 trillion debt. With a Republican majority in Congress that refuses to tax America’s richest some more and a Democratic administration that is loath to deprive ordinary Americans of the benefits they have now come to expect, the only compromise they are likely to hammer out in the future is one that would again raise the debt ceiling and put their government deeper in the red. The close call from default has only confirmed the growing suspicion that US leaders would risk almost anything, including economic ruin for their country and the world economy, just to show everyone who is the boss.
This endless political bickering and gridlock have eroded the credibility of US leaders and raised doubts about their ability to deal with the debt problem. As Harvard economist Kenneth Rogoff put it, “Four years into the financial crisis, it is becoming increasingly clear that the biggest deficit is not in credit, but in credibility. Markets can adjust to a downgrade of global growth, but they cannot cope with a spiraling loss of confidence in leadership and a growing sense that policymakers are disconnected with reality.” In other words, unless US leaders get their act together, there will be no way out of their government’s debt problem and the financial crisis it has created.
Seeing such reckless behavior on the part of US leaders, the rest of the world has very good reasons to be mad. After all, America’s economic woes easily turn into a global contagion. For example, for all the talk about its solid fundamentals, the Philippines cannot expect to escape unscathed by the threatening double-dip recession in the US, which is its biggest export market. The US is also home to millions of Filipino professionals and workers who send back home dollars to support family members they left behind. And the bulk of the Philippines’ international reserves are in US Treasury bonds.
The Philippine economy has proven strong enough to weather the worldwide recession that began in 2008. But it will need to do more to cushion the impact of another economic crisis that may develop. Because of political upheavals in the Middle East that has shut down several markets for Filipino labor, that burden rests even heavier on the government. It is time to roll out those projects that have lain in storage while the new administration made sure everything was in order, from processes to contracts. Ensuring the prudent use of resources does not have to be a hindrance to economic growth and job creation.