decoupling a dream, IMF hits panic button

there’s a lot of hoping and praying going around that asia has truly decoupled, i.e. weaned itself, from the u.s. economy. ibig sabihin kasi, it would be possible for the rest of the global economy to roll on despite the u.s. recession (ok, slowdown, maybe). china and india, the new big trading partners of the world, could take up the slack, provide what the humungous u.s. consumer market used to provide but can provide no more because its credit has run out (sub-prime pala in more ways than one).

it is true that we have decoupled somewhat from the u.s. economy, but just a little. cielito habito writes:

If we count China and Hong Kong as one country (even though the trade statistics still separate the two), the US has already been dislodged as our largest export market, whose 17-percent share of our exports is now just second to China-Hong Kong’s 23 percent. Contrast this to only 10 years ago, when the US took more than one-third (35 percent), while China-Hong Kong took less than one-twentieth (5 percent). Our vulnerability to a US recession via an export slowdown is therefore far less than what it would have been 10 years ago.

“But let’s look more deeply into the details, particularly the destinations of our top exports. Electronic products, which account for two-thirds of all our export earnings, are now well distributed among our top four buyers for these products, with the US taking only 14 percent. China-Hong Kong takes 23 percent, Japan takes 15 percent, Western Europe takes 14 percent, and even Singapore and Malaysia take sizable shares of about 8 percent each. On the other hand, the US takes up the bulk (79 percent) of our garments exports, our second (but a far second) largest export. Mineral exports to the US hardly matter, with most going to our neighbors. Woodcraft and furniture, another top export earner, mostly go to Japan, with only 20 percent going to the US.”

problem is, all these markets to which we export goods – japan, western europe, china, singapore, malaysia – also have sizeable exports to the u.s. chances are, if they lose that market, they’re going to cut back on our products, too. and really, our exports have been down since the peso started rising (falling), so we have to look elsewhere for salvation.

such as interest rate cuts maybe, like the federal reserve has done to encourage entrepreneurs and consumers to keep on borrowing (don’t stop investing, don’t stop spending). but like the bank of england, our bangko sentral is wary of inflation, even if the IMF mismo advises “monetary easing,” if we are to withstand the global repercussions of the credit crisis.

in fact, the IMF is hitting the panic button:

The intensifying credit crunch is so severe that lower interest rates alone will not be enough “to get out of the turmoil we are in”, Dominique Strauss-Kahn, the managing director of the International Monetary Fund, warned at the weekend.

“In a dramatic volte face for an international body that as recently as the autumn called for “continued fiscal consolidation” in the US, Dominique Strauss-Kahn, the new IMF head, gave a green light for the proposed US fiscal stimulus package and called for other countries to follow suit. “I don’t think we would get rid of the crisis with just monetary tools,” he said, adding “a new fiscal policy is probably today an accurate way to answer the crisis.”

on the ball naman si albay governor joey salceda, top economic adviser ni gma, who brooks no arguments: a storm is coming, thus this Php75 billion stimulus package:

• A P16-billion expansion in income tax deductions (to benefit middle-class working families).

• An P8-billion rebate to households consuming less than 200 kilowatt hours of electricity a month.

• A P51-billion increase in government spending this year (P15 billion for increasing agriculture production, P16 billion for infrastructure, P12 billion for education, P4 billion to increase PhilHealth memberships to 5 million, and P4 billion for mass housing).

“We must implement the economic equivalent of a preemptive evacuation. Domestic growth is our first line of defense against the incoming virus of global credit and corporate earnings recession. Not because it is fashionable, but because there are fundamental arguments for some kind of recession-proofing for the Philippine economy to preserve the gains of 27 uninterrupted quarters of GDP expansion,” Salceda said in an interview.

problem is, salceda’s package is not too stimulating. sana rebates across the board for all taxpayers. and why not suspend VAT? masyadong malaking revenues ang mawawala sa gobyerno? so why not suspend debt payments? this is a good time as any for a moratorium, if the IMF really wants to help.


  1. We are all in this together, one way or the other. It’s what happens to China that may determine the fate of Asia from the American Flu.

    Lucky we, our mobile-labor based economy may be more resilient than the others though, because we can deploy where it is most lucrative. Skilled labor is a valuable ingredient to any economy. Perhaps the absence of a “real economy” at home is a blessing in this weird sense.