The Atlantic on Philippine Economic Boom: Looks Great on Paper

I spoke about unevenness of the Philippine boom last weekend

“Protectionist reflexes on sensitive sectors” represents as the “concentrated” segments of the economy that are controlled by the unholy alliance of political elites and their cronies. They are the key beneficiaries of today’s central bank asset market friendly policies. Many of them are into the yield chasing bubbles in the real economy. And so the unevenness of the much touted economic boom.

On the same issue, I also wrote about the discrepancy of today’s supposed economic boom in the lens of jobs or employment

Nonetheless what arouses my curiosity is that the much ballyhooed economic boom tagged as the “Rising Star of Asia” seems to have been “concentrated” on few sectors of the economy. And this is most likely the reason behind the supposed “boom” in joblessness, as pointed out by the survey.

Even the government’s statistics has not shown any material improvement in joblessness, despite Phisix at 7,200, the Peso at 40s or 6.6% GDP growth in 2012.

Today on the Bloomberg

Jeany Rose Callora left her home on the Philippine island of Negros last year to work at a soft- drinks factory in Manila, hoping to earn money for college. When her contract ended six months later, she said she couldn’t get another job in Southeast Asia’s fastest growing economy.

“I’ll do anything: saleslady, factory worker, waitress,” the 20-year-old high-school graduate said as she waited 11 hours for an interview in an employment agency in Manila, surrounded by dozens of other applicants.

Callora is one of 2.89 million unemployed Filipinos, swelling a jobless rate that climbed to 7.1 percent in January from 6.8 percent the previous month. About 660,000 positions have been lost since October 2011, even as the economy expanded 6.6 percent last year.

The nation is struggling to reconcile a lack of jobs for people like Callora, who have little training, with a shortage of skilled workers in industries such as information technology and shipbuilding. While the economy is being boosted by call centers and remittances from workers who moved abroad, the country’s poverty level hasn’t decreased since 2006.

Now the Atlantic on the Philippine paper tiger boom.

But that economic growth only looks great on paper. The slums of Manila and Cebu are as bleak as they always were, and on the ground, average Filipinos aren't feeling so optimistic. The economic boom appears to have only benefited a tiny minority of elite families; meanwhile, a huge segment of citizens remain vulnerable to poverty, malnutrition, and other grim development indicators that belie the country's apparent growth. Despite the stated goal of President Aquino's Philippine Development Plan to oversee a period of "inclusive growth," income inequality in the Philippines continues to stand out.

In 2012, Forbes Asia announced that the collective wealth of the 40 richest Filipino families grew $13 billion during the 2010-2011 year, to $47.4 billion--an increase of 37.9 percent. Filipino economist Cielito Habito calculated that the increased wealth of those families was equivalent in value to a staggering 76.5 percent of the country's overall increase in GDP at the time. This income disparity was far and away the highest in Asia: Habito found that the income of Thailand's 40 richest families increased by only 25 percent of the national income growth during that period, while that ratio was even lower in Malaysia and Japan, at 3.7 percent and 2.8 percent, respectively. (And although critics have pointed out that the remarkable wealth increase of the Philippines' so-called ".01 percent" is partially due to the performance of the Filipino stock market, the growth of the Philippine Composite Index during that period would not account for such a dramatic disparity from neighboring countries.) Even relative to its regional neighbors, the Philippines' income inequality and unbalanced concentrations of wealth are extreme.

This is obvious. We have an asset boom fueled by central bank policies. 

The major beneficiaries have been the politically connected elites whom has mainly benefited from government bubble policies, particularly from zero bound rates and the SDA.

As pointed out by Matthews Asia about 83% of the total market cap of publicly listed economies in the Philippines are held by a few families.

The Philippine stock market remains “concentrated”, which to paraphrase the Atlantic: The stock market boom has brought about an “increased wealth of those families was equivalent in value to a staggering 76.5 percent of the country's overall increase in GDP at the time”.

Given low penetration level of domestic stock market participants (1% or less) the boom has had residual effects on the economy. Retail participants are the poor folks lured by the easy money policies, who will bear the brunt of the losses, since many of these elites will eventually be rescued.

The other beneficiaries are foreign speculators who are also on a yield chasing mode due to their own easy money policies practiced by their respective central banks.

The failure of the Philippine Stock Exchange [PSE: PSE] to diffuse stock market ownership has also been one of the factors. For instance the refusal to hook up with the ASEAN trading link essentially means preserving the status quo of the high concentration of stock market ownership.

Equally asset boom means a boom in real estate. So rising asset markets also adds to the ballooning policy induced wealth inequality.  

Philippine Housing Prices has been in a bull market (tradingeconomics.com).

But one cannot look at housing alone as the Philippines has bubbles in shopping malls, vertical commercial or office and the casino.

And this is why today’s BSP’s engineered boom essentially means a redistribution program in favor of the elites and the banking system at the expense of the purchasing power of the members of society or the general economy. 

Political promises to deliver jobs will fail for the simple reason called interventionism and corporate protectionism or crony capitalism.

Today’s easy policies can be analogized as taking from the poor and giving to the rich. This is what media hails as the good governance economic model.

Look at the income statement by Philippine banking system as provided by the BSP.

The distribution of bank earnings from interest and non-interest as of December 2012 is 60-40. If you look at the non-interest portion of banking system’s income, they are mostly into fees and commissions, Gains/(Losses) on Financial Assets and Liabilities Held for Trading, Gains/(Losses) from Sale/Redemption/Derecognition of Non-Trading Financial Assets and Liabilities and Foreign Exchange Profit/(Loss)

In short, the non-interest income segment of the Philippine banking system largely relies on the continuation of an asset boom.  

The balance sheet of the Philippine banking system as provided by the BSP also demonstrates of the same story.

Aside from cash and loans portfolios, the banking system principal assets consist of Financial Assets, excluding Equity Investment in Subsidiaries/Associates/ Joint Ventures, net of amortization, Financial Assets, net of Allowance for Credit Losses and Equity Investment in Subsidiaries/Associates /Joint Ventures.

Again income and assets of the Philippine banking system principally depends on BSP’s easy money or bubble policies. This also shows how the banking system, or might I say a banking cartel, has been a politically preferred agency by the BSP.

People hardly realize that a bubble bust would effectively shrink both interest and non-interest earnings of the banking system that risks transforming a slowdown or a recession into a banking crisis.

So, the so-called “strength” or “boom” by the Philippine banking system and the economy are no more than a hype or a spin behind the scenes from the manipulations mostly through monetary policies. 

Again this wonderful reminder from the great Ludwig von Mises:

All governments, however, are firmly resolved not to relinquish inflation and credit expansion. They have all sold their souls to the devil of easy money. It is a great comfort to every administra­tion to be able to make its citizens happy by spending. For public opinion will then attribute the resulting boom to its current rulers. The inevitable slump will occur later and burden their successors. It is the typical policy of après nous le déluge. Lord Keynes, the champion of this policy, says: "In the long run we are all dead." But unfortunately nearly all of us outlive the short run. We are destined to spend decades paying for the easy money orgy of a few years.

The days of the easy money orgy are numbered.