Worsening permanent crisis amid the global crunch

In her New Year message, Mrs. Gloria Macapagal-Arroyo described 2008 as “tumultuous” due to the global recession. But fortunately, according to her, this “has not become a crisis in the Philippines”. In several occasions, Mrs. Arroyo had credited her “tough, unpopular” decisions for supposedly cushioning the impact of the world economic crisis on the country.

poverty1Malacañang assures Filipinos that the economy will not be in recession (i.e., two consecutive quarters of fall in the gross domestic product or GDP) this year. We are repeatedly told that the economy and the people are resilient. With supposedly correct policies and sound fundamentals, the country could weather the storm rocking the world’s largest industrial economies. However, the definite effects of the recession in the US and other major capitalist economies on the Philippines could not be denied. The National Economic and Development Authority (NEDA) already said that the GDP growth in 2009 will further slow down to 3.6%. The GDP has started to decelerate last year posting a third quarter growth of 4.6% from 2007’s 7.1%.

The structural defects of the domestic economy – fashioned and strengthened through centuries of colonialism and decades of neocolonialism – have tied a great majority of the Filipino people to perpetual and worsening poverty, have denied local productive forces of any real shot at genuine industrialization, and have condemned the economy to a permanent state of crisis. In the face of what some analysts describe as its worst crisis ever, US imperialism, which is primarily responsible for the country’s own permanent crisis, shall become more vicious in its exploitation, plunder, and aggression. This in turn will translate into more bankruptcies, joblessness, and poverty in the Philippines, feeding ever worsening social discontent and unrest, especially under the hugely unpopular Arroyo administration.

Emerging economic trends

1. Falling exports

The US remains the single largest market for commodities produced and shipped from the Philippines, directly absorbing 16.28% of the country’s total exports from January to September 2008. In addition, it is estimated that as much as 70% of the country’s exports are dependent on the US (and EU) market through networks of subcontractors, joint ventures, and affiliates established by its transnational corporations (TNCs) operating in China, the NIES and ASEAN countries, which directly consume a huge portion of Philippine exports of intermediate goods.

This early, the impact of a contracting export market is already being felt by the country. In October 2008, exports fell 14.9%, the worst in seven years. The drop was attributed to falling US demand for electronic products, which comprised 59% of the country’s total export receipts. Electronic exports slumped by 18.9%, as big US-based electronics retailers start to close shop due waning consumer spending.

Because the country’s supposed export-winners are import-dependent, falling imports of materials and components for their manufacture indicate the depth of the impact of the global crisis on Philippine exports in the coming months. The January to September 2008 imports of electronic products declined by 26% as electronic firms cut production due to the global economic crisis, and this will impact on electronic exports in the months ahead. While falling imports ideally could mean increasing local content of exports and thus a positive development, such contraction, in the context of the Philippines, is described by mainstream economists as a “sign of a weakening economy” and a “worrisome situation”.

2. Worsening destruction of domestic jobs and livelihood

As domestic production is in the main dictated by the whims of foreign capital and markets, primarily of the US and other centers of monopoly capitalism, the economy continues to fail to generate enough jobs and livelihood for the people. The huge army of unemployed Filipinos in fact continues to grow as imperialist globalization has further destroyed the domestic productive sectors that could provide local employment. With the worsening of the cyclic crisis of the US economy and global monopoly capitalism in general, domestic production will be further undermined and consequently, millions more of Filipinos will be added to the number of jobless.

Job scarcity is at its worst under the Arroyo administration. From 2001 to 2007, the official annual unemployment rate has consistently remained double-digits, with the yearly jobless rate pegged at almost 11.3% and almost 4 million workers unemployed every year. Due to the global crisis, the overall domestic unemployment situation is turning from bad to really, really worse. The Bureau of Labor and Employment Statistics (BLES) noted the three-year downtrend in what it calls “job opening rate”, a measure of the tightness of the labor market and an indicator of the economy’s ability to create new jobs. From 2005 to 2007, the job opening rate has been progressively declining and was pegged at 1.21%, with agriculture and manufacturing posting the lowest rates.

With the global economic crisis seen to deteriorate in the coming months, Filipino workers should indeed brace themselves for even more severe job insecurity and even more dwindling local employment opportunities. Around 1/3 of manufacturing employment can be found in the EPZs and thus will be directly hit hard by the falling US and global demand. The impact could be greater considering that EPZ locators have also built their own local subcontracting networks to further cut labor costs.

The much-hyped employment driver aggressively promoted by the US-GMA regime, the BPO service subsector, could be hit in the immediate term by slowing demand and possibly investment from the US, the country’s number one BPO client and investor. One BPO firm, Advanced Contact Solutions (ACS), has reportedly downscaled its workforce by about 900 call center agents in November due to declining business volumes from the US. But over the long-term, the BPO sector may continue to thrive precisely because of the never-ending efforts of TNCs in the imperialist countries to cut production cost and increase profits. However, this also means intensified exploitation of the country’s cheap labor as call center agents face even more depressed wages and exploitative and oppressive working conditions. Employment in the BPO firms will thus continue to grow until the next episode of the periodic crisis of the US and other monopoly capitalist countries.

3. Increasing exploitation Filipino migrant workers

The domestic job crisis is mitigated only through labor export, which under the Arroyo administration has been officially proclaimed as government policy for job creation. As of December 2007, there are 8.73 million overseas Filipinos at any given time, of which more than 2.8 million are based in the US (of which, in turn, 2.5 million are immigrants or permanent residents), according to official records.

Like the case of BPO, OFW deployment could be undermined in the immediate term by the raging global economic crisis. Domestic helpers who accounted for the largest portion of newly-hired OFWs last year at 15.6% of the total, for instance, could be immediately vulnerable as households in recession-hit countries like Hong Kong, Singapore, and Taiwan cut costs to cope with the crisis. In the US’s agriculture and service industries, more than 50,000 OFWs were already “possibly” displaced, according to a government report. Readying itself for the possible influx of jobless OFWs, the government has devised a contingency plan to redirect them to other potential foreign labor markets or to encourage those with savings to start a small business.

This betrays the lack of any comprehensive and long-term government plan to invigorate domestic sources of growth that could sustain local job creation.

But then again, since OFWs are a reliable provider of cheap labor power, American and other foreign businesses will continue to hire them, although expectedly at even more exploitative terms. The crisis in fact creates more conditions including the feared increase in number of undocumented OFWs as displaced migrant workers refuse to return home since no jobs await them, that make OFWs even more vulnerable to various forms of abuse and exploitation.

4. Intensifying economic liberalization

To address its economic crisis caused by overproduction, the US and other rich countries are also expected to become more aggressive in pushing for more trade and investment liberalization. Recent pronouncements by the imperialist powers, such as in the APEC and G20 meetings last year, indicate a renewed drive to further pry open the markets of neocolonies to accommodate their surplus commodities and create new openings for their capital to operate and squeeze more profits from the cheap labor and cheap raw materials of the Third World.

The imperialist powers find a ready and reliable ally in the Arroyo administration in its efforts to push for increased free trade. The regime has been aggressively pursuing new bilateral and regional FTAs in a misguided endeavor to increase access to export markets and invite more foreign investments for job generation. Last October, the Senate, under tremendous pressure from Malacañang and the Japanese government and businesses, railroaded the ratification of the Japan-Philippines Economic Partnership Agreement (JPEPA). Also in the pipeline is a Partnership Cooperation Agreement (PCA) with the EU as part of the process to establish an EU-ASEAN FTA. The RP-EU PCA formal negotiations will this year. And finally, the stalled negotiations for an RP-US FTA are expected to be revived soon as the US intensifies efforts to surmount its recession.

In terms of national policies, the US-GMA regime has recognized that trade and investment liberalization may have already reached its limits and thus the only way that the domestic economy can achieve more liberalization is through Charter change (Cha-cha). GMA said so herself in a roundtable with the business sector last October that the “next liberalization has to be through the Constitution… to liberalize economic provisions… mostly the 60-40 restriction (on foreign equity)”.

5. Increasing desperation for foreign capital

While tighter access to credit, aid, and investments may be felt in the immediate term, the export of capital from the monopoly capitalist economies to the neocolonies will continue and intensify. The export of capital remains one of the imperialist means to extract profits from the neocolonies and to accelerate the rate of profits. Usurious debt payments from the neocolonies, for instance, have remained a steady source of financial profits for the banks and financial institutions controlled by monopoly capitalists in the US, Europe, and Japan. From 2001 to June 2008, the cumulative debt service burden (interest and principal) already reached $56.66 billion – more than enough to wipe out the current external debt of $54.81 billion.

However, the bigger danger for the Philippines in the long run is not so much that it will have less access to foreign loans but that commercial creditors and the bilateral and multilateral banks will impose even more usurious terms and impose even more painful restructuring as conditionalities in their desperate attempts to get out of the crisis and increase profit rates.

With more foreign exchange actually being squeezed from the country through foreign direct and portfolio investments, ODA and foreign debt, and through colonial trade as mentioned earlier, it is OF remittances that really save the day for the country in terms of foreign exchange earnings and in keeping the dollar-dependent national economy afloat. Most of the OF remittances come from the US, which accounted for 55.2% of the accumulated remittances from 2000 to September 2008 of around $82.13 billion. OF remittances is the single largest factor that sustains the Balance of Payments (BOP) position, which measures the foreign exchange transactions between the domestic economy and the rest of the world. However, the BOP surplus may not last for long as the global economic crunch intensifies and investors particularly from industrialized countries resort to “risk aversion” as an immediate reaction to protect their wealth. While most OFWs may be able to keep their jobs or are able to find other jobs illegally as discussed earlier and deployment continues, migrant workers face the reality of even cheaper wages or lower incomes. Combine this with even higher taxes and higher consumer prices and cost of living like what is happening in the US, the migrants’ remittance flows will certainly be not as brisk as before which will affect not only the BOP’s current account but household spending and domestic production as well.

6. Aggravating poverty and inequities

The years leading to the three-decade high GDP growth of more than 7% in 2007 ironically have been characterized by a dramatic increase in the official poverty figures. Between 2003 and 2006, the number of poor Filipinos grew by 3.8 million, according to the government. It was also in 2007 that the most number of Filipinos have perceived themselves as hungry, based on the regular hunger survey of the Social Weather Stations (SWS). This phenomenon highlights structural flaws in the country’s economic system which could not only produce enough wealth for its own industrialization but also whatever little wealth it creates is monopolized by TNCs and other foreign corporations and share what is left to their local agents composed of compradors and landlords.

In the face of even more dwindling wealth available in the domestic economy as the imperialist crisis worsens, local compradors and landlords will be even more aggressive to consolidate and expand their control of whatever wealth is left in the domestic economy. As such, bureaucrat capitalism in the form of cronyism has become more pronounced under the US-GMA regime. These cronies, such as Mike Defensor and Enrique Razon, have partnered with big foreign businesses to corner government contracts, investment deals, and privatization projects.

Immediate relief and long-term reforms

The immediate challenge today is to assert for urgent economic relief and policy reforms that will at the minimum address the further deterioration of the state of the domestic economy and the people. With increased uncertainties in the global economy, the key is to promote internal drivers of growth, increase domestic consumption, and in the process invigorate domestic production. This can be achieved through substantial reduction in and effective control of the prices of basic goods and services that the people consume. The 12% VAT and other onerous taxes must be scrapped and proposals for additional burdensome taxes must be vehemently opposed. Neoliberal policies that have allowed global and local cartels to abuse the people with exorbitant prices must be opposed such as the ODL, EPIRA, and ongoing, gradual privatization of the NFA and implement state regulation and increased intervention.

Complementing these efforts to bring down prices and keep them in check is the implementation of a substantial wage hike that will allow millions of poor families to at least lessen the disparity between the cost of living and their daily incomes. Filipino small and medium enterprises (SMEs) must be supported and protected by the government not only to allow them to substantially increase their workers’ wages but also to help them cope with the raging global and local crises.

Domestic resources must be freed up and public investment in social and economic services urgently needed by the marginalized sectors must be significantly increased. This entails the repeal of automatic debt servicing, the cancellation of odious debt, and a big cutback in military spending so that enough resources will be immediately made available for social services such as education, health, and housing. More taxes must be collected from big business, especially the TNCs operating in the country and reverse the trend of declining tariffs on international trade.

The domestic economy and local industries must be protected. The implementation of the JPEPA should be stopped and all means must be exhausted to abolish the treaty. Ongoing FTA negotiations must be opposed, including the concession of additional liberalization commitments in the WTO especially on agriculture and non-agricultural market access. New efforts aimed at more trade and investment liberalization such as through Cha-cha must be decisively derailed.

Finally, the latest flare-up in the periodic crisis of monopoly capitalism and its consequent impact on the weak and pre-industrial domestic economy have made it more imperative to create the material conditions that will allow the economy to break free from its permanent crisis of backwardness and poverty. This necessitates the implementation of a genuine agrarian reform program to encourage the productivity of Filipino farmers and farm workers, who comprise a great majority of the direct producers of wealth in the economy. This will allow agriculture to create the needed economic surplus for industrial development and widen industrial production as it boosts domestic consumption in the countryside where an overwhelming majority of poor and exploited Filipinos live. (END)

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