Philippines 2015: A turning point

IN literature, “a turning point” is defined as the point where the drama or tension in a story reaches its peak, where the story’s climax begins to unfold. That is what the world—and the Philippines—faces in 2015.

It is an interesting coincidence that, as global events come together for this turning point, the Philippines will enter its presidential-election season later this year. The year 2015 will be a time of persistently high tension and drama.

Two events occurred in the financial markets as we closed 2014: The spot price of Brent crude oil hit its lowest since May 2009; and the United States dollar index, which measures the exchange rate for the US dollar against a basket of currencies, reached its highest level— 90.64—since December 2008.

While we are all looking at the price of crude oil as it affects local gasoline prices, the bigger picture is the general price of most commodities. Virtually every index that measures a broad basket of global commodity prices is trading at or near its 2009 level.

To have this situation can only mean one thing: The global economy is in such a bad shape that demand is falling rapidly. If it were only crude-oil prices falling, then we might be able to argue that this was being caused by increased supply. But it is across the board for other critical commodities.

Commodity-exporting countries, like Australia, Malaysia and Mexico, are going to see their economies hurt by a decrease in income. Of course, oil producers are in the same situation. Saudi Arabia is facing its worst budget deficit in its history.

The decrease in export income is having a negative effect on those nations’ currencies: The Malaysian ringgit fell significantly in the fourth quarter; the Mexican peso is back to levels not seen since it hit the bottom in 2009.

The US dollar is appreciating, in part, as these and other currencies fall in value. More important, the dollar is appreciating because there are problems with the Japanese yen and euro, the only major alternatives to the US currency. It is difficult to buy the yen when it is the stated policy of the government to depreciate the currency. The euro is faced with extreme uncertainty as the German economy, in particular, is hurting badly from the economic sanctions placed on Russia. In the last five years Germany supported its economy with exports to Russia that have now disappeared.

The turning point for the globe is twofold. The first is uncovering how bad the global economy really is as commodity prices fall; and the second is how much of the “emerging economies”, like Brazil, have been dependent on dollars flowing out of the US and into their countries.

The same thing happened during the 1997 Asian financial crisis, but the major emerging countries did not account for 50 percent of the global economy, like they do now.

The “gloom-and-doomers” have been saying the Philippine economy is in a bubble and it only grew in the last five years because foreign money supported it. I do not believe that. Foreign money, as investment coming into this country, has been dismal. Remittances from overseas Filipino workers and business-process outsourcing companies are significant. But with domestic sources accounting for 90 percent of all new investments, we are not dependent on foreigners and their money.

But in the next 12 months we are going to resolve the question of whether the Philippines is in a bubble, of whether we have finally achieved a growing, self-sustaining economy that can handle global economic shocks. I believe we have.

If the Philippine peso can maintain is relative strength and narrow-sideways movement in the face of the appreciating dollar, it means that we have finally reached economic maturity. If the interest rate that top corporations must pay on the debt does not widen in relation to the US corporate borrowing rate, it means that we are in great shape.

For stock-market watchers, caution is still the strategy. Either we will see a move on the Philippine Stock Exchange index (PSEi) above 8,500, or see 2015 take the PSEi to below 5,500.

This year will bring new meaning to “It’s more fun in the Philippines”. I’m looking forward to it.