Bernardo M. Villegas
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Taking A Long Term View (Part 2-3)

          Another strong fundamental of the Philippine economy that no virus, no matter how virulent, can take away from the Philippines is what we can call a geographical dividend.  Our Archipelago is right at the epicenter of the most dynamic economic regions, Asia Pacific, during the early decades of the twenty first century. The last century, called the American century, was characterized by a three-cornered competition among the US, Japan and the EU for global economic dominance.  The twenty first century, called the Asian Century, is characterized by a co-opetition (cooperation and competition) among three enormous territories, i.e., China, India, and the ASEAN Economic Community to which we belong.  As many parts of the global economy are adopting inward-looking, ultra-nationalistic economic policies leading to a slowdown in global trade, the ASEAN Economic Community is still strongly committed to free movement of goods, services, investment and capital from which Philippine investors and entrepreneurs are benefitting.  Through the balancing strategy adopted by the Duterte Administration, the Philippine economy is also exerting much effort to engage the Northeast Asian economies like China, Taiwan, Hong Kong,  South Korea and Japan in trade and investment agreements. 

         Another strong foundation for long-term growth after we recover from the pandemic in the next two to three years is the abundance of natural resources, especially in the tourism industry.  There are enough very attractive destinations among our more than 7,000 islands that can help us to compete with such famous sites as Bali in Indonesia.  Very recently, the international journal, Travel and Leisure Magazine, rated Palawan as the best island destination in the world for international tourism.  Palawan has some 2,000 islands.  In fact, it will be the only group of islands that will have three international airports, i.e. Puerto Princesa, Coron and San Vicente. There are other regions in the Philippines that have similar attractions (Western and Eastern Visayas, Bicol, Northern Luzon, Southern Luzon, MIMAROPA, etc.) that render the long-term future of both domestic and international tourism very bright after we survive the present crisis.  Although international tourism may take at least the next two years to bounce back, the immediate prospects for tourism have to do with some 60 million Filipinos who, before the pandemic, were getting to know their own country.  It is important that the Government (both at the national and local levels) will be able to recover from their paranoia about COVID-19 so that we can allow freer movement from one province to another, from one island to another.  The Build, Build, Build program especially in the countryside will contribute to a quick recovery of domestic tourism as we continuously improve the Philippine Nautical Highway that has done much to stimulate domestic travel.  Filipino families will find it hard to resume their traveling to international destinations for the next year or so, especially because some of the favorite destinations in Europe and Asia Pacific seem to be suffering from second or third waves of the virus as happened in Spain during the last week of July 2020.   That is why we have to unleash the potentials of domestic tourism as soon as possible.


         Our young, growing and English-speaking population will also enable us to revive very quickly our export of manpower in the form of the Overseas Filipino Workers (OFWs) that have been the source of over $30 billion annually just before the pandemic.  As the developed countries slowly recover from the Great Depression, they will continue to suffer from the problem of ageing brought about by their demographic crisis (Japan is a leading example).  These developed countries (most of them are in Europe and Northeast Asia) will continue to have strong demands for health workers (especially nurses), care givers, teachers, IT professionals and even construction workers .  As long as we are investing heavily in the constant retraining and the upscaling of our workers (including  making them fluent in such languages as Japanese, Mandarin, German, Italian, etc.) we can reverse the flow of returning OFWs (an estimated 500,000 of them have returned during the pandemic) as long as we focus on sending younger and higher-skilled workers who can replace the domestic and other low-skilled service workers.  I know of a good number of Filipino manpower search companies partnering with Japanese, German, Norwegian, Dutch and other multinational enterprises in preparing Filipino workers for hiring in their respective countries once the global recovery gathers more steam.  We should encourage our educational system, especially the Tech-Voc sector, to  invest more in technical skills rather than in academic tertiary  education. Here I envision TESDA being more aggressive in replicating the models of such successful tech-voc schools as the Dualtech Training Centre, the Meralco Foundation Institute (MFI), the Centre for Technology and Enterprise (CITE) in Cebu, and company-sponsored technical schools in the construction, hospitality, and seafaring sectors. 


         Thanks to the large inflows of dollars from the OFWs in the last twenty years (recently more than $30 billion annually before the pandemic), we have accumulated record amounts of international reserves that resulted in our strong currency (which has been the only one appreciating among our ASEAN peers).  These abundant reserves have prevented the usual capital flight that haunted our economy in the 1980s and 1990s.   Because we have been able to stop capital flight, we have been able to increase our domestic liquidity leading to low interest rates, which in turn have enabled strong consumption and investing activities.  These low interest rates have also enabled us to fund from domestic sources a great portion of our Build , Build, Build program which included a s strong participation of the local construction industry and the real estate sector.  Although the high-end part of the real estate sector may have limited space to grow in the intermediate future, there is still a huge back log in the low-cost, economic and mid-market housing sectors that will lead the recovery in the real sector in the next five years.  The good news about the real estate and construction  sectors is that there are regions in the Philippines that have been growing faster than the National Capital Region over the last five to seven years, such as Central Luzon and Bicol; and provinces like Cavite, Laguna, Batangas, Iloilo and Davao.  With the Balik Provinsiya program of the government, these high-growth regions will attract housing and other real estate investments that will be part of the strong economic recovery three to five years from now. (To be continued.)


Taking A Long Term View (Part 3)

September 8, 2020


         As President Duterte announced in his State of the Nation Address last July 27, 2020, the Government will play a leading role in addressing the challenge of the recession that is expected for the next twelve to eighteen months.  It has already disbursed P32 billion cash grants that have been given to some 5.1 million poor households to help them to protect their purchasing power during the pandemic. Furthermore, Congress is considering an additional P140 billion stimulus fund.   Also very crucial is the help to Micro, Small and Medium-Scale (MSME) enterprises in the form of subsidies to their employees amounting to some P51 billion.  The Social Security System (SSS) is also helping out in the pump priming of the economy by giving loans amounting  to P7.5 billion.  To assist in the transition of many sectors like banking, education, trade and entertainment towards digital solutions, the GSIS is offering loans of a maximum of P30,000 per individual for the purchase of computers and other digital devices.  This is especially crucial in the shift of education from in-person classroom instruction to online and blending learning.  Many families are struggling to continue supporting their children who want to enroll in high-quality private schools.  The Land Bank has launched a study now, pay later program with an initial P260 million fund.  Fortunately, there are private fund managers who have discovered the educational loan program as a way of investing their funds that can yield reasonable rates of return, considering the very high priority given by middle-income households to the education of their children.  In fact, there are real estate companies that are also taking advantage of this priority for quality education of middle-income families by building condominium towers close to the University of the Philippines, Ateneo University, De La Salle University, the University of Sto. Tomas in the Metro Manila area and similar university cities all over the country so that parents can invest part of their savings in these very sellable units in which college students can stay while they are enrolled in these quality universities.


         As Secretary Carlos Dominguez reported in his pre-SONA address, other government programs to help the economy to recover from the recession brought about the pandemic are the infusion of additional capital to government  financial institutions; allowing banks to dispose of non-performing  loans and assets; immediate passage of the CREATE bill that, among other benefits, will lower corporate income taxes (from 30 percent o 25 percent) which can infuse further liquidity to the economy through increased private investments; and  a significant increase in the support to the agricultural sector, especially in the improvement of rural infrastructures.  Another possible government initiative that was proposed in a Webinar for CPAs and auditors last July 28 is to increase the amount that the Government is spending to directly address the pandemic (former NEDA Secretary General Ernesto Pernia pointed out that the Philippines has the lowest per capita expenditure on directly addressing the COVID-19 crisis among its ASEAN peers).  This can be done by shifting part of the huge budget for the Build, Build, Build infrastructure projects away from some of the urban infrastructures that are facing all sorts of technical delays because of right-of-way and other legal and bureaucratic reasons toward bigger investments in the capital and operating budgets of the Department of Health and the Department of Education.    This would be an effective way of increasing consumption further in the two sectors that logically  are leading whatever growth is happening in the economy:  the health and wellness sector and educational sector.


         Since, as mentioned above, there is great potential for a quicker recovery in the OFW sector, it is paramount that Congress should act as soon as possible on the request of the President in his last SONA to create  a Department for OFWs.  As he said this sector is sufficiently important to the Philippines , not only on economic grounds but on humanitarian considerations  that we cannot continue with the present practice of treating the offices that have to do with OFWs as appendices of the Department of Labor and Employment   (DOLE).  DOLE  is already swamped with too many problems and concerns affecting the very large domestic labor force that there is very little  attention paid to the welfare of the people we call heroes, the OFWs.  This became evident in the very inefficient way tens of thousands of OFW returnees were treated during the height of the pandemic.  Some of them were forced to live under bridges while they were waiting to go home to their respective provinces or in public places ill -suited to social distancing required of people during the pandemic.  Having a separate Department promoting the welfare of OFWs could improve the attention the Government is paying to these very important resources of our economy.


   As a final note, I would like to strongly recommend that our monetary authorities seriously consider the disservice we are giving to the OFWs and their families by allowing the peso to appreciate.  This is one time when we should manage the currency to make  it depreciate (say from the P49 to P50 level  to an average of P52 to P53 over the next six to eight months).  This moderate depreciation of the peso will have two salutary effects.  First, it will stimulate higher consumption on the part of the relatives of the OFWs who will now be receiving more pesos for every dollar they receive, also helping them survive better the economic slowdown.  The second benefit is that a  depreciated peso may help boost our manufactured exports, competing more  effectively with our peers like Vietnam and Indonesia.  These countries have lower minimum wages and electricity rates and in the case of Vietnam a more attractive environment for Foreign Direct Investments. A depreciated peso may help in making our manufactured exports a little more competitive. Furthermore, with record low domestic inflation rates of 2 to 3 percent, a peso depreciation is very unlikely to lead to inflationary forces. For comments my email address is