MSME Development and the Financial Crisis

8/14/2019 MSME Development and the Financial Crisis

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FORUM SERIES

Global Financial Crisis and MSMEs

FOUNDATION

FOR

A

SUSTAINABLE SOCIETY

Proceedings


2/76

THEME

FindingAlternativesandSolutionstotheImpactsoftheGlobalEconomicCrisis

BACKGROUND

Nationsareconfrontedwithtwoofthemostsignificantcrisisofitstime:theclimatecrisisandtheglobal

economiccrisis.Theclimatecrisisnodoubtisaresultofunprecedented,unsustainablegrowthand

developmentwithoutregardofthecosttopeopleandtotheenvironment.Therecentmeltdown

amongeconomicgiantsonlyunderscorestheneededshiftinfocusamongsocietiesoverthe

predominanteconomicparadigms.Thereisapparentcalltowardsenhancedinstitutionalgovernance,

greaterparticipationofpeopleanddemocratizedaccesstoresources.

Micro,smallandmediumenterprises(MSMEs)constitutes99.7%ofbusinessfirmsinthePhilippines.It

contributes32%tototalGrossDomesticProductandgenerates70%ofallemployment.Nodoubt,

MSMEs

are

a

potent

force

for

sustainable

development

that

stimulates

local

economy

development

and

apotentialmechanismforimprovingsocialequityamongthepoor.However,thepresentglobal

economiccrisisposesgravethreattotheirgrowthandsurvivalconsideringthealreadymanyand

multiplechallengesinherentamongMSMEs.

ThePhilippinesremainsunclearintermsofwhatactionstotaketomitigatetheeffectsofthecrisis.

Ongoingdiscoursesarehappeningamongvariousgroupsandcivilsocietystakeholderstofind

alternativestothecrisisconfronted.FSSIworkingprimarilywithMSMEsandintheforefrontof

advocatingandpromotingthetriplebottomline(3BL)frameworkasthebasisforenterprise

developmentdeemsitrelevantandstrategictoprovideopportunitiesforsuchdiscussion.

FORUMOBJECTIVES

ThroughFSSIsadvocacyprogram,itisaimedthatthisproposedpublicforumwill:

Facilitatediscourseandexchangeamongvariousstakeholders(CSOs,privatesector,government)infindingsolutionsandalternativestomitigatetheimpactsofthecrisis;

Identifypractical(shortterm)andstrategic(longterm)solutionsthatcanbepursuedamongtherelevantstakeholderspresent;

Contributetoongoinginitiativesoffindingalternativesandsolutionstotheimpactsoftheglobaleconomiccrisis


3/76

COLLABORATINGORGANIZATIONS

TheFreedomfromDebtCoalition(FDC)

Philippinesisanationwidemultisectoral

coalitionconducting

advocacy

work

in

the

national,localandinternationalarenas,torealize

acommonframeworkandagendaforeconomic

development.

MindanaoAllianceofSelfHelpSocietiesSouthern

PhilippinesEducationalCooperativeCenter(MASS

SPECC)istheoldestcooperativefederationinthe

countryandconsistsof252cooperativesand

otherselfhelpgroupsoperatingin20outof23

provincesinMindanao.

TheCagayandeOroChamberofCommerceand

IndustryFoundation,Inc.(OroChamber)isanon

stockandnonprofitvoluntaryorganizationof

businessmenandprofessionalsworkingtogether

tofosterandpromoteprivatesectorinitiative

towardbusinessdevelopmentinCagayandeOro

City,MisamisOrientalProvinceandnearbyareas.


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PARTICIPATION

PERINDIVIDUALCOUNT 76

10 FSSIstaff

PERORGANIZATION

39

MEMBERS

CONVERGENCE,Helvetas,PHILSSA,FDC,PHILNETRDI,

PCFORVCF,MINCODE,MASSSPECC,APPEND,NCSD,

NCCP,FPSDC,HEKS,SMPFC

GreenForumPhilippines,NATTCCO,WAND,CBCPNASSA

18

PARTNERS

MILAMDECFoundation,MILAMDECcooperative,

Greenminds,CoopBankofMisamisOriental,MMASON,

CDOhandmade,PDAP,OroChamber,Bukidnon

Muscovado

8

OTHERSTAKEHOLDERS

VJandepBakeshop,PhilippineNationalBank,Boom

MarineCorp,Don2GNCandPharmacy,OroIntegrated

Coop,AlRoseGroupofCompanies,KAANIIS,BMCSVC,

NEDA,DepartmentofFinance,BOPC,Kpmpibmfi,IBON,

Ateneo,SalayHandmade

16

MEDIA

SunstarCDO,MindanaoGoldStarDailyABSCBN,CRA,

TheMindanaoCurrent,BomboRadyo,TV39

7


5/76

MEDIACOVERAGE

Program/Format Guest/Topic Date

MaayongAdlaw!Mindanao!,

LocalTv39

MiloTanchuling May26MainNews

May27LiveIntervidw

May28ForumCoverage

DXCO,RadioAsenso MiloTanchuling May28

ABSCBNTV,Northern

Mindanao

MiloTanchuling

DatuMakadinding

May30

SunstarCdo

InvestingInPeople BestExpo09SeenTo

BringInNewMoney

SalayHandmade,

OroChamber,FSSI,FDC,

MASSSPECC

May29

May14

PhilippineInformationAgency

BestExpo09SeenTo

BringInNewMoney

OroChamber,Fssi,Fdc,

MassSpecc

May13

BomboRadyo MiloTanchuling May28* RecordedInterview


6/76


7/76

Finding Altern

CasD

TIME ACTIVITY

08:00- 09:00 am REGISTRATIO

09:0009:30 am Opening Cere

Welcome RemMerce

ChairpBOT m

09:30-09:55am

09:55-10:20am

PANEL 1

PRESENTATIPerspectiveJosep

PRESENTATIResponse of th

Di r . Den

OPEN FORUM

10:20-10:45am

10:45-11:10am

11:00-12:00nn

PRESENTATICivil Society S Rosar io B

PRESENTATIEconomic Crisi

Clarence

OPEN FORUM

12:0001:30 pm LUNCH BREAK

In Collaboration with:

tives to the Impact of the

Financial Crisis

A Public Forum

May 28, 2009

Real Function Hall, VIP Hotelon A. Velez St., Cagayan de Oro City

(08822) 726-080

ony/Forum Introduction

rksdes Cast i l lo

erson, Committee on Education & Advocacyember, FSSI

: Understanding the Impacts of the Crisi

N 1: The Global Economic Crisis: Asian Context a

L i m, Economist, Ateneo de Manila University

N 2: The Global Economic Crisis: Assessment &e National Governmenti s Ar roy o , NEDA National Planning & Policy Staff

/ COFFEE BREAK

N 3: The Global Economic Crisis: A Perspective fctor

e l la Guzm an, IBON, Executive Director

N 4: Challenges in MSME Development in a Globs Situationascual , Labor Economist

lobal

FSSIPHTOEXHIBIT

FSSIPHOTOE

XHIBIT

s

nd

om

l


8/76

TIME

01:30-02:20pm PA

PRESENTATITimes J ing Pactu

PRESENTATIEconomic Chal Mayo r La

City Mayor

PRESENTATILore ta Raf

PRESENTATILydia Can

02:20-02:50pm PRESENTATI

Milo Tan

Secretar

02:50-03:20pm

From the

o Di

From theo Sy

From theo Di

From the P

o Ri

In

03:40-04:15 pm OPEN FORUM

04:15-05:00 pm SYNTHESIS/W

CLOSING REM

Ricardo M

President,

In Collaboration with:

ACTIVITY

EL 2: SHARIN G OF LOCAL EXPERIENCES

N 5: Community Experiences: Sailing Through R

r an , PDAP Executive Director

N 6: LGU Initiatives: Local Response to Globallengesw r e n c e Cr u z ( f o r c o n f ir m a t i o n )

, Iligan City

N 7: MSME Sector: Surviving in a Period of Crisissu ra , Salay Handmade Paper

ON 8: Cooperatives Amidst Economic Crisisl i j a , LIPI Employees MPC, Manager

N 9: Finding Alternatives and Solutions

chu l i ng

-General, Freedom from Debt Coalition (FDC)

PANEL 3: STAKEHOLDER REACTIONS

overnment:

. Alicia Eusenia, DTI Regional Directorooperative Sectorl v ia O. Paraguy a , MASS-SPECC Executive Directomen Sectora An i tan , WAND Mindanao Coordinator

rivate Sector

a rdo Me es, President, Oro Chamber of Commer

ustry Foundation

/ COFFEE BREAK

RAP-UP

RKS

ees

ro Chamber of Commerce & Industry Foundation

ugh

FSSIPHTOEXHIBIT

FSSIPH

OTOEXHIBIT

r

e &


9/76

The Global Economic Crisis: Asian Contextand Perspective

Joseph Y. Lim

mhastaughtintheUniversityofthePhilippinesSchoolofEconomicsfor20yearsbeforejoiningtheAteneodeManilaUniv

tyDepartmentofEconomics.LimhasnumerouspublicationsontheAsianfinancialcrisisandiscurrentlywritingastudyon

urrentfinancialcrisis.Limsmostrecentresearchtopicsincludeinternationalfinance,structuraladjustments,international

orstandardsandpovertyreduction.SeveraloftheseworkswerepublishedinconjunctionwiththeUNDPMacroeconomics

overtyReduction.


10/76

Forum on Seeking Alternatives to theImpacts of the Global Financial Crisis:

May 28, 2009 Organized by FSSI

The Current GlobalFinancial Crisis

Presentation by:

Joseph Anthony LimEconomist

Ateneo de Manila University

Hard Landing to Global Imbalances in thepre-2007 period

Latest US boom in 2004-7 spurred by

consumption and housing boom as US

household savin s was ne ative and the

spending financed by debts and loans

Hard Landing to Global Imbalances in the

pre-2007 period

The resulting large US current account and

fiscal deficits were being financed by

countries with large current account

surpluses the export-oriented economies --

especially PRC, Japan, the other East Asian

emerging markets and the oil-producing

countries (notably Russia)

Global imbalances 2003-2007

4


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200.0

400.0

600.0

800.0

1000.0

Current Account vs Financial/Capital Accounts, billions &S $

Capital & Financial Accounts and Errors

Current Account,

-1000.0

-800.0

-600.0

-400.0

-200.0

0.0

US CA deficit is completely offset by net

capital inflows to the US. Capital inflows to

US from

private capital flows from other countries

central banks investment in US securities

from international reserves of other countries

most of net inflows to US in recent years go to

debt securities (T-bills and bonds)

But situation could not be sustained

The Current Global and Economic

Crisis: The Western Countries

Roots of the crisis:

the high leveraging in the US during the growth

period 2004 to 2007

the bubbles

the subprime lending and securitization of mortgage

and other loan assets

The spread of the leveraging, asset bubble andsecuritization of loan assets to Europe and other

Western developed countries

Origins of the US Subprime Crisis

The rise of the securitization of loan assets, especially

housing mortgages, in the 1990s and intensifying in the

2000s and the latest boom period in the US (2004-7)

The dot-com bubble bursting in 2001 caused authorities to

reduce Fed policy rates from 6.5% in 2000 to 1% by 2003.

Together with tax cuts by the Bush Administration, this led to

a consumption boom in 2003 to 2007 and large and

widespread household investments in housing through

mortgage loans


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Origins of the US Subprime Crisis (cont.)

Fannie Mae and Freddie Mac two government-sponsored

enterprises -- were given incentives to securitize mortgages

and make housing affordable and gear a sizeable portion of

the mortgages to low-income households

The lax monetary and fiscal policies enticed households,

financial institutions and firms into high leveraging (debt-

financing), especially in the housing market

The bad practices were given much incentives by low interest

rates, skyrocketing housing prices and irrational exuberance

and were largely unregulated


Loan assets were highly securitized into mortgage-backed

securities (MBS) and credit debt obligations (CDOs)

These securities were insured by financial instruments issued

by private financial institutions (like AIG) known as credit default

swaps (CDS)

Housing loans were given without much credit investigation by

the mortgage underwriters to borrowers that were in the past

shut out from the mortgage market because of their higher risks

of default (this is the subprime sector).


Sweeteners were given for mortgage debtors to purchase

houses (interest rate payments only in initial periods, a low

4% interest rate in initial years, with rates increasing

significantly after, etc.)

The securitization of loan assets especially mortgage loans


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Dangers in the 2003-2007 US HousingBoom

Lenders and mortgage brokers cut off from the borrower,

who pays to the servicer

The issuer of the mortgage-backed securities (MBS) or

CDO (investment banks, Fannie Mae/Freddie Mac) pools

different types of loan assets into one financial instrument

package product not clear and transparent

Rating agencies rated these securities very highly

disregarding the risks and concentrating on high prices of

real property used as collateral

Dangers in the 2003-2007 US HousingBoom

The whole process was leveraged with buyers of the

securities highly leveraged and commercial banks and

investment banks borrowing to buy these securities

any orrowe s or erm an nves e n secur es a are

based on long-term loan (mortgage) assets term mismatch

These dangerous activities were largely unregulated by the

Securities and Exchange Commission (in charge of

investment houses) and the Fed was lax with the commercial

banks.

The bursting of the asset bubble,

defaults and financial chaos

Rising inflation (partly caused by high fuel costs, partly by high

spending) made the US Fed increase the policy rates from 1% to

5.25% between 2004 to 2006

Risin interest rates directl affected ca acit to a of borrowers

Together with indiscriminate mortgage lending, this led to high

defaults in the subprime housing market, starting late 2006 and

intensifying in 2007 leading to crisis proportions in 2008

Bursting of asset bubbles collapse of housing prices and stock

market prices in 2007 and 2008 onwards

The bursting of the asset bubble,

defaults and financial chaos

Financial trouble hit all the investment banks and many commercial

banks, insurance companies and other financial institutions

Securitization of the loan assets made the crisis deeper with

Starting September 2008: Bankruptcy of Lehman Bros, takeover of

Merrill Lynch and Bear Sterns, bailout of AIG, Citigroup, Bank of

America shakes confidence; Stock markets worldwide collapse:

Beginning of depression mentality worldwide stock marketcollapse


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There is the question of how problems in one small

corner of US financial markets (the subprime mortgage

market) could affect financial markets so powerfully

(this slide borrowed from Barry Eichengreen)

Recall that subprime mortgages accounted for only 3 per cent of US

financial assets on the eve of the crisis (hence even a smaller share of

globalfinancial assets).

Part of the answer is leverage.

Many of those who held subprime-related assets were leveraged 12 to

50 times (12 for commercial banks, 25 times for investment banks, 50

times for certain now-notorious broker-dealers).

$1 of subprime related losses thus forced $12 to $50 of other assets to

be liquidated.

17

There is the question of how problems in one small

corner of US financial markets (the subprime mortgage

market) could affect financial markets so powerfully

(this slide borrowed from Barry Eichengreen)

Part of the answer is asymmetric information.

This was the fear that similar problems lurked in other asset classes,

precipitating panicked selloffs.

Part of the answer is counterparty risk.

The failure of certain counterparties (can you say Lehman Bros.?) led

to illiquidity and losses for other investors, creating a domino effect.

These propagation mechanisms will be studied for years...

18

Globalization: finance trade

Figure 1Finance driven globalization

1

140

160

180

250

300

350

80=100

19

0

20

40

60

80

100

1

1980 1990 1995 2000 2006

Years

0

50

100

150

200

AspercentofGDP,indices19

Global financial assets Global merchandise trade

Global financial assets as a percentage of GDP (right axis) Global merchandise trade as a percentage of GDP (right axis)

The Deepening and Spreading of the US

Financial Crisis to the Real Sector

The financial crisis led to strong credit squeeze as banks

refused to lend to borrowers and to other banks; interbank

rates increased sharply in September-November 2008.

Losses in business confidence among lenders, investors and

finally consumers cut their spending significantly.

Consumers were badly affected by sharp declines in wealth

collapse in housing prices, stock prices, pension fundpayments and credit squeeze. Retail sales plummeted.


15/76



The Deepening and Spreading of the USFinancial Crisis to the Real Sector

Firms earnings suffered from sharp drop in sales. Many firms

teetered on collapse (e.g. the auto industry)

Firms laid off workers increasingly leading to a vicious

ownwar spra o unemp oymen , ur er consump on cu s,

further firm losses, further layoffs, possible loan defaults of

firms and households (credit card defaults), further cuts in

lending, etc.

The Deepening and Spreading of the USFinancial Crisis to the Global Economies

European, Australian/NZ financial institutions participated in

the US subprime lending and had their own credit-led growth

and asset bubbles in their respective countries. They were

infected by the US financial and economic crisis in the US.

US, Europe and Japan now in deep recession. US GDP

contracted more than 6.5% in last quarter of 2008, another

6.1% 1st quarter of 2009. Economists officially declared US in

recession since December 2007.

Iceland suffered financial, economic and currency collapse

and had to ask for IMF help

The Deepening and Spreading of the US

Financial Crisis to the Global Economies

Hungary, Ukraine, Serbia and Pakistan also had to run to IMF

for foreign exchange funds as massive foreign capital outflows

in emerging markets led to liquidity shortages in foreign

reserves and sharp currency depreciation both contributing

to near-debt-defaults

Russia also in a serious crisis due to massive capital outflows,

oil price decline and sharp and continuing depreciation of the

ruble

Asian NIEs registered negative growth starting 3rd quarter of

2008

Market Failures

Contrary to the pronouncements of the institutions of the Washington

Consensus IMF and US trade and financial liberalization globally

carries tremendous risks through market failures

In the last two decades, economists have pinpointed market failures

(as opposed to market efficiencies) in goods, labor and capital

markets this global depression shows the failure in all three

sectors.

Perhaps the biggest market failures are in the financial markets

Moral hazards and adverse selection (You dont know whetherborrower will pay back, low interest rates attract good and bad

borrowers, when interest rate goes up, good borrowers become

bad, and you attract bad borrowers)


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Market Failures

Perhaps the biggest market failures are in the financial markets

Transactions are over time (credit, loans) even good borrowers

can become bad if market conditions change (low interest rates

become high interest rates, recession sets in, etc.)

Systemic risks domino effects -- aggravated by unregulated

securitization

Financial and capital account liberalization globalized the risks of

securitization and high leverage to Europe and other countries

The bankruptcy of Lehman Bros. and the systemic risks that

reverberated ensured that the subprime financial crisis became a

global financial and economic meltdown and possibly a global

depression.

Responses of the US: Monetary andFinancial Policies

The US Fed cut the Fed Funds Rate from 5.25% by end of

2007 to a range of 0-0.25% by December 2008.

The Fed gave a total of $1.6 trillion (as of November 2008) of

The Fed supported JP Morgan and Bank of America to bailout

and takeover of Bear Stearns and Merrill Lynch, respectively, to

avoid systemic risks. But it let Lehman Bros. go bankrupt, led to

global havoc and depression syndrome. After this, it had to

bail out AIG.

Responses of the US: Monetary and

Financial Policies

The Fed also took the government-sponsored enterprises

Fannie Mae and Freddie Mac into conservatorship

In October 2008, to stop collapse of financial institutions and

encourage interbank lending and lending to firms and

households, Congress under Bush passed the creation of the

Troubled Asset Relief Program (TARP) with $700 billion given

to US Treasury to buy troubled assets (mostly mortgage-

backed securities and CDOs) of financial institutions to clean uptheir balance sheets.


Financial Policies

The initial $350 billion advanced to the US Treasury was used

instead by Treasurer Paulson to recapitalize troubled banks by

buying preferred shares of the banks. There is dissatisfaction

concerning the transparency of the disbursements of the funds

and conditions of the disbursements

The Obama economic team is using stress test approach to

solve banks insolvency problem. On May 6, 2009, the stress

test (which many consider too easy) determined that 10 of 19

US big banks required $75 billion capital infusion in case of a

worst scenario. Bank of America required $33+ billion, Wells

Fargo $13+billion, GMAC $11+billion.


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Due to banks unwillingness to lend to firms, the Fed in Oct.

2008 expanded collateralized lending to commercial papers,

making it effectively the alternative lender to firms

team) on cleaning up the bad assets or bad loans in the

financial system (this is a risky approach: the same approach

led to a ten year stagnation in Japan).


The Housing and Economic Recovery Act of 2008

(Bush)

insured $300 billion in mortgages assisting 400,000

borrowers

Lent money to mortgage bankers to help them

restructure mortgage debts by reducing the amount of

the mortgage in exchange for sharing in future

appreciation of housing prices

These did not lead to significant declines in foreclosures

and led to criticisms up to the current period about lack of

attention to solve the housing crisis


Financial Policies

Obama and his financial team announced

Refinancing for Up to 4 to 5 Million Responsible

Homeowners to Make Their Mortgages More Affortdable

A $75 Billion Homeowner Stability Initiative to Reach Up

to 3 to 4 Million At-Risk Homeowners

Supporting Low Mortgage Rages by Strengthening

Confidence in Fannie Mae and Freddie Mac.

Responses of the US: Old Fiscal

Stimulus of Bush

On Feb. 2008, Bush signed into law an

economic stimulus of $168 billion of income tax

rebates. This led to an artificial rise in GDP in

the second quarter of 2008. Since the tax

rebate was temporary the recession continued

in the third quarter as GDP growth turned

negative and deepened sharply in the fourthquarter of 2008 with GDP growth at -6.3%


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Responses of the US: Fiscal Stimulus

The Obama fiscal stimulus: passed American Recovery and

Reinvestment Act in Februuary 2009 ($787 billion)

It consists of:

Roughly 2/3 in government spending and 1/3 in tax cuts,

especially for middle and low-income families

Infrastructure spending consists of building energy grids,

roads and railways, modernization of schools

The plan also calls for cash infusion into strained state

budgets

Social spending included spending for education, ensuring

health care for low-income groups/ unemployed and

unemployment insurance

Responses of the US: Fiscal Stimulus

The Republicans

prefer a larger proportion of the stimulus going to tax cuts

and rebates as well as mortgage relief; they were able to

push for tax credits for housing and automobile purchases

insist on trimming the government spending portion.

Other developed and developing countries

committed to fiscal stimuli to stop the fast-

deteriorating economic decline but are in varying

proximity in arriving at a strong fiscal plan

But whether fiscal stimuli will lead to economic

recovery depends on

the soundness of the fiscal plan

the return of credit flows in the financial sector

the return of confidence of consumers, investors and

lenders

Coordinated Global Responses

In October 7-8, 2008, the Central Banks of the developed

countries simultaneously reduced their policy rates on the same

day. This cheered the markets only temporarily and did not stop

the financial deterioration in the developed countries

weaknesses had not led to significant results.

The G20 meeting in mid-November 2008 (sponsored by Bush)

got all the member countries promising to coordinate responses

to the global financial crisis. This did not have any impact on global confidence.

But it did get countries to calling for a rejection of protectionism


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Coordinated Global Responses The Davos World Economic Forum in Jan. 30-31 2009

Resulted in calls by UK and Germany for a multilateral global

watchdog overseeing financial institutions

Not attended by top US officials

Brought about fears of protectionism from the US

A US Congress bill stipulating the fiscal stimulus projects should

use US materials eventually watered down due to fear of trade

wars

A view that the bailout of the US auto industry was a protectionist

move

Subsequent G7 and G20 meetings powerless to stop the

global downslide


20/76

6/26/200

Forum on Finding Alternatives to theImpacts of the Global Financial Crisis


Asian Vulnerabilities to theGlobal Financial Crisis

Presentation by:

Joseph Anthony LimEconomist

Ateneo de Manila University

Financial Vulnerabilities of

East Asian Countries

Asian Countries Fixed Their Financial

Houses in Late 1990s and 2000s as a result

of the Asian crisis and other financial threats

Asian countries improved their financial

supervision and regulations after the Asian

crisis so that the financial sector was less

vulnerable to

The toxic assets from Western financial sectors

The over-leveraging that led to high asset bubblebursting and defaults

Asian Countries Fixed Their Financial Housesin Late 1990s and 2000s

Stronger financial regulations and supervision

led to

Higher capital adequacy ratios in banks

Limits to property lending

Limits to unhedged foreign exchange borrowings

Regulations and limits on financial investments

abroad by domestic financial institutions This led to declining Non Performing Loan

ratios in the 2000s


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6/26/200



Banks are generally in good shape for now : Data fromBanks are generally in good shape for now : Data fromAsian Economic Monitor Dec. 2008Asian Economic Monitor Dec. 2008

Table1

Risk-Weighted Capital Adequacy Ratios (% of risk-weighted assets)

Economy 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Hong Kong, China 17.9 16.5 15.7 15.3 15.4 14.9 14.9 13.4 14.8

Indonesia 21.6 18.2 22.4 19.4 19.4 19.3 21.3 19.3 16.8 17.8

Table 1

Japan 11.7 10.8 9.4 11.1 11.6 12.2 13.1 12.9 12.3

Korea, Rep. of 10.5 10.8 10.5 10.4 11.3 12.4 12.3 12.0 12.7

Malaysia 12.3 12.8 13.2 14.0 14.3 13.5 13.1 12.6 12.2 12.5

Philippines 15.6 15.3 16.6 17.4 18.7 17.7 18.5 15.9 15.5

Singapore 19.6 18.2 16.9 16.0 16.2 15.8 15.4 13.5 14.3

Taipei,China 10.8 10.4 10.6 10.1 10.7 10.3 10.1 10.6 10.8

Thailand 11.4 13.3 13.0 13.4 12.4 13.3 13.9 14.9 14.0 14.6

NPLs of Asian Bank s had declined and are low : DataNPLs of Asian Bank s had declined and are low : Datafrom Asian Economic Monitor Dec 2008from Asian Economic Monitor Dec 2008

Table 2

Non-Performing Loans (% of total commercial bank loans)

Economy 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

China, People's Rep. of 22.4 29.8 21.6 17.8 13.2 8.6 7.1 6.2

Hong Kong, China 5.9 5.2 3.9 3.2 1.6 1.4 1.1 0.8 1.2

Indonesia 18.8 12.1 8.1 8.2 5.8 8.3 7.0 4.9 3.8 4.3

Japan 5.3 8.4 7.2 5.2 2.9 1.8 1.5 1.5 1.4

Korea, Rep. of 6.6 2.9 1.9 2.2 1.7 1.1 0.8 0.6 0.9

Malaysia 8.3 10.5 9.3 8.3 6.8 5.6 4.8 3.2 2.2 2.2

Philippines 15.1 17.3 15.0 14.1 12.7 8.5 6.0 4.5 3.5 3.8

Taipei,China 5.3 7.5 6.1 4.3 2.8 2.2 2.1 1.8 1.5

Thailand 17.7 10.5 15.7 12.9 10.9 8.3 7.5 7.3 5.3

Exposure of some Asian banks to US

toxic assets

Even with better financial regulation and supervision,

some Asian banks were exposed and some may still be

secretly exposed to the toxic assets in the US

en e man ros. wen an rup , some ppne

banks led by Banco de Oro, DBP and Metro Bank

were exposed to Lehman financial products (total of

$300 million) and had to set up loan loss reserves

If more multinational financial institutions fail, more

Asian banks may be adversely affected

Financial Vulnerability: Open Capital

Accounts Volatilities of Hot Money

Asian economies continued an open capital

account economy after the Asian crisis. China,

Vietnam and India partly opened up their capital

.

in 2004 to early 2007.

The one with biggest capital control China is the

only currency in developing Asia not depreciating


22/76

6/26/200



From late 2007 up to the present, these Asian

economies suffered sharp stock market and sovereign

bond price collapse during the global financial crisis as

foreign money took flight

To get away from risk to safe assets i.e. from Asian

currency-denominated assets to US treasury notes

(US$), the yen and gold.

To cash in on profits derived in emerging markets to

finance losses in their financial institutions

Stock shares and sovereign bonds also dumped by

domestic investors as their confidence plummeted as

global financial markets teetered towards collapse, local

exports declined, local earnings fell and layoffs

increased

500

600

700

800

Dow Jones Industrial Average

S&P 500

Nikkei 225

Shanghai A Share

Hang Seng Index

Jakarta Composite Index

KOSPI Index

Kuala Lumpur Composite Index

Philippine Composite Index

Stock Price Indexes(last daily price, 1 January 2002 = 100, local index)

0

100

200

300

400

Jan-02 Aug-02 Mar-03 Oct-03 May-04 Dec-04 Jul-05 Feb-06 Sep-06 Apr-07 Nov-07 Jun-08 Jan-09

trait Times Index

Taiwan Stock Exchange Index

SET Thailand

BSE 100

VNINDEX

Source: Bloomberg

Financial Markets in Asian Less Bank-Dependent

and More Equity and Bond Dependent

Structural change of Asian financial assets

Total billion US$ and shares on total: 1995 and 2007

Asia includes the People's Republic of China, Hong Kong, China, India, Indonesia,

Japan, Republic of Korea, Malaysia, Philippines, Singapore, Taipei,China, and

Thailand.

Thus the stock and bond market volatilities

and declines in the emerging Asian markets

reduce the efficiency and sources of financing

for the real sector.

Stock and sovereign bond market declines

also kill investors confidence and some

consumer confidence.


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Currencies tumble amid fl ight to safety: Data from AEM Dec. 2008Currencies tumble amid fl ight to safety: Data from AEM Dec. 2008

Broad Indices of Nominal Effective Exchange Rate (Jan 07=100): Selected Countries

100.00

110.00

120.00

India

60.00

70.00

80.00

90.00

Jan-07

Feb-07

Mar-0

7

Apr-0

7

May-07

Jun-07

Jul-0

7

Aug-07

Sep-07

Oct-0

7

Nov-0

7

Dec-07

Jan-08

Feb-08

Mar

-08

Apr-0

8

May-08

Jun-08

Jul-08

Aug-08

Sep-08

Oct-0

8

Nov-0

8

Dec-08

Jan-09

Feb-09

I i

Indonesia

Korea

Malaysia

Philippines

Taipei,China

Thailand

Sharp currency depreciations for the Asian economiesare stagflationary because the potential positive

impact on exports is shut off due to the plummeting

world export market, especially from developed

countries.

burden (Korea, Indonesia, Philippines) and lead to

higher sovereign spreads and risk of default and more

depreciation

Sharp currency depreciation also kills confidence and

reduces investors and consumers spending

Starting second half of 2008, foreign

exchange reserves of most East

Asian emer in economies exce t

PRC and Philippines) have fallen. But

it is not alarming.

Sovereign bond spreads and credit

default spreads have increased

reflectin forei n investors erceived

external and public debt risks of

emerging Asian economies.


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External funding expected to tightenExternal funding expected to tighten

and become more difficult and expensiveand become more difficult and expensive

1882

1500

2000

2500

JP Morgan EM BI Sovereign Stripped Spreads (basis points)1

173

764

355

440

671

0

500

1000

01-Jan-

07

11-Apr-

07

20-Jul-

07

28-Oct-

07

05-Feb-

08

15-May-

08

23-Aug-

08

01-Dec-

08

11-Mar-

09

a s an

Indonesia

People's Republic of ChinaMalaysia

PhilippinesViet Nam

1

As of 17 March 2009Source: Bloomberg.

The high foreign currency sovereign bond

spreads and credit default spreads make it

difficult for emerging Asian countries to

externally finance their economic stimulus and

social spending programs

For countries with moderately high debt burdens

or exposure to short-term debts, the high

sovereign bond spreads increase debt default

risks as they cannot borrow to fund their debt

service payments.

Vulnerabilities in the Real

Sector and Fiscal Sector

Results of Asian Crisis: East Asian economies, exceptfor China, had lower investment rates but higher

dependence on net exports

Gross Capital Formation (% of GDP) of East Asian C ountries declined after

Asian crisis

40.0

45.0

50.0

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

1 99 0 1 99 1 1 99 2 1 99 3 1 99 4 1 99 5 1 99 6 1 99 7 1 99 8 1 99 9 2 00 0 2 00 1 2 00 2 2 00 3 2 00 4 2 00 5 2 00 6 2 00 7

Korea, Rep.

Malaysia

Singapore

Thailand

Indonesia

Philippines


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With lower investment rates (except in PRC),East Asian growth had been more export

dependent

Lower investment rates is compensated by

higher positive net exports. Trade and current

account deficits before the Asian crisis had

ecome pos ve ra e an curren accoun

surpluses. This is part of the intl reserves

accumulation of these countries, or the so-called

savings glut, which is really the big gap of

savings over investments because of the

investment decline (as % of GDP)

Asias high dependence on trade and

exports had been its most vulnerable

spot in the current global financial

crisis and economic recession.


26/76


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28/76

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Structure of Asias TradingPatterns and Extent of

Advancing intraregional trade integrationAdvancing intraregional trade integrationand opennessand openness

Evolution of ASEAN+3 exports by destination

Shares (%) on total exports of ASEAN+3

1987

JPN, 8.3

PRC+HKG, 10.6

Asia, 33.8 2007

PRC+HKG, 22.0

Asia, 50.4

ASEAN, 7.8

Other Asia, 7.0

US, 31.7

EU, 14.9

ROW, 19.6

JPN, 6.4

ASEAN, 13.1

Other Asia, 8.9

EU, 14.3

US, 16.2

ROW, 19.2

From Giovanni Capanellis presentation Asian Financial Cooperation and the Global Crisis inAEA Conference ACAES Session, Financial Integration in Asia: New Wine in Old W ineskins?San Francisco, 3 January 2009


29/76

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Final Demand Composition of Asian Exports inFinal Demand Composition of Asian Exports in2006:2006:

Still Dependent from the WorldStill Dependent from the World

From Giovanni Capanellis presentation Asian Financial Cooperation and the Global Crisis in

AEA Conference ACAES Session, Financial Integration in Asia: New Wine in Old W ineskins?San Francisco, 3 January 2009

Although there is more intra-regional

trade, more than 2/3 of the final demand of

Asias exports is still outside Asia, mostly

in the US and Europe. Thus Asian

economies are hard-hit by the deep slump

in the developed economies.

Already, exports and GDP growth of

Asian economies had been hard hit

and mass la offs in ex ort industries

are going on.

10

20

30

40

50

People's Rep. of China

NIES4

India

ASEAN5

Export Growth1: PRC, India, NIEs and ASEAN5 ($ value, y-o-y, %)

-7.3

-9.3

-23.6

-20.2

-30

-20

-10

0

Jan-03

May-03

Sep-03

Jan-04

May-04

Sep-04

Jan-05

May-05

Sep-05

Jan-06

May-06

Sep-06

Jan-07

May-07

Sep-07

Jan-08

May-08

Sep-08

Jan-09

13-month moving average.

ASEAN5 includes Indonesia; Malaysia; Philippines; Thailand; and Viet Nam.NIES4 includes Hong Kong, China; Korea, Rep. of; Singapore; and Taipei,China.Source: OREI staff calculations based on CEIC data.


30/76

6/26/200



Exports industries affected and actual orpossible layoffs in these sectors

Japan, Korea, Taipei,China automobile, electronics, other

high-tech manufactured products

PRC electronics, garments, toys and handicrafts, processed

food (already affected by melamine scandal)

India garments, IT, others

Malaysia electronics, primary commodities

Philippines electronics, garments, coconut

Indonesia primary commodities, others

Thailand tourism, electronics, garments, etc

Cambodia tourism

Vietnam garments, electronics, coffee

Some countries are highly dependent on overseas

workers remittances for GDP growth, especially the

Philippines and South Asian economies like Pakistan,

Sri Lanka and India.

Inflows of remittances are also significant for Vietnam,

, ,

three largely unrecorded and coming from Thailand)

If the overseas workers lose their jobs (almost all

countries are contracting and laying off workers), the

economic slowdown may be significantly worsened in

these Asian economies.

Growth of OFW Remittances (y-o-y, in percent)

Indonesia Philippines

Dec-2007 22.3 8.9

Mar-2008 13.7 13.2

Jun-2008 16.0 21.1

Sep-2008 16.9 17.1

Dec-2008 6.3 4.6

Jan-2009 na -0.1

Feb-2009 na 4.9

Mar-2009 na 3.1


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Latest WB prediction is that OFW

remittances of RP to fall in 2009 by 4%.

Latest POEA data show 216,803 land-based

new OFWs in 2008 compared to 306,383 in

2007 (30% decline)

Latest Reuter poll survey revealed that

Philippine overseas remittances expected to

fall by 5%.

IMF Growth Forecasts getting worse andworse: Crisis worse than expected

Latest IMF Growth Rate Projections forDeveloping Asia

Note that countries with predicted positive

growth are those countries with high gross

capital formation (China, Vietnam), big

domestic demand due to large population

(China, India, Indonesia, Pakistan,

Bangladesh) and/or lower dependence on

exports (China, India, Indonesia,

Philippines).


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Unemployment Rates Increase!

2007 2008 2009 2007 2008 2009

1st Q 3.4 2.6 Jan 4.1 3.1 4.3

2nd Q 4.0 4.0 Feb 4.1 3.1 4.7

3rd Q 2.1 2.8 Oct 4.0 3.6

4th Q 2.3 3.5 Nov 3.5 3.7

Dec 3.2 3.8

2007 2008 2009

1st Q 3.4 3.6 2007 2008 2009

4

Countries With Monthly

Unemployment Rate

Hongkong, China

Korea, Rep. of

Countries With Quarterly

Unemployment Rate

China, People 's Rep. of

Malaysia

n .4 . Jan . . .

3rd Q 3.1 3.1 Feb 3.7 3.5 3.9

4th Q 3.0 3.1 Oct 3.0 3.0

Nov 3.0 3.1

2007 2008 2009 Dec 3.1 3.3

1st Q 7.8 7.4 7.7

2nd Q 7.4 8.0 2007 2008 2009

3rd Q 7.8 7.4 Jan 3.8 3.8 5.3

4th Q 6.3 6.8 Feb 3.8 3.9 5.8

Oct 3.9 4.4

2007 2008 2009 Nov 3.9 4.6

1st Q 3.4 2.6 Dec 3.8 5.0

2nd Q 4.0 4.0

3rd Q 2.1 2.8

4th Q 2.3 3.5

=data unavailable

Source: National sourc es acces sed through CEIC.

Singapore

Taipei,China

Philippines

Need more social insurance as more

people lose jobs and poverty will increase

Just like the Asian crisis, Asian countries

still not prepared for these social

Fiscal stimuli should include social

spending for the poor and vulnerable

sectors adversely affected by the crisis.

Fiscal Stimuli of countriesdepend on their tax

EconomyTotal

Revenue

Overall

Surplus/Deficit

Public

Sector Debt

Singapore 22.4 6.7 96.3

Hong Kong, China 21.8 7.2 171.2

Korea, Rep. of 27 3.8 32.1

Taipei,China 13.3 -0.2 30.7

China, People's Rep. of 20.6 0.7 17.3

Mala sia 21.8 -3.2 41.6

Government Finance (as % of nominal GDP for 2007)

. . .

Thailand 17.2 -1.7 37.5

Indonesia 17.9 -1.2 35

Philippines 17.1 -0.2 62.3

Viet Nam 24.9 -5.4 43.4

Cambodia 12.1 -1.2

Lao PDR 13.6 -2.7 69.3

=data unavailable

Source: Asian Economic Monitor, December 2008.


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Fiscal Capacity for Fiscal Stimulus Countries with limited tax effort (tax revenue less than 18%

of GDP): Cambodia, Taipei,China, Lao PDR, Philippines,

Thailand, and Indonesia

Countries with already significant fiscal deficit in 2007:

Vietnam, Malaysia, Lao PDR, Thailand, Cambodia, and

Indonesia

The Philippines just came out of severe fiscal crisis in 2002

to 2006.

There is also the question of government capacity,

transparency and honesty in channeling infrastructure

and social projects efficiently to the proper sectors and

without leakages (e.g. through corruption)

Cost of Fiscal Stimulus Package (as % of GDP)Total

announced

size

Size of

approved

budget

China, People's Rep. of 12.6 12.6

Malaysia 9.0 9.0

Singapore 8.2 8.2

Viet Nam 5.8 5.8

Philippines 4.1 2.0

Korea, Rep. of 3.8 3.8

Hong Kong, China 3.6 3.6

Thailand 1.6 1.6

Japan 2.0 2.4

Indonesia 1.4 1.4

Source:

The cost of fiscal s timulus package are draw n f rom OREI country

w rite up; new s releases; national budget documents; ADO 2009(Japan). Data on the fiscal balance are obtained from Asian

Development Outlook (various issues), Asian Development Bank;

International Monetary Fund Article IV, Internat ional Monetary

Fund; National sources; CEIC; and OECD Outlook estimate.

Second-Round Vulnerabilities

Economic slowdown or recession in Asian economies

will lower tax revenue collections and hamper fiscal

stimuli

Failure of export firms and other firms affected by

weaken financial sector

Reduction in household income due to layoffs,

diminished work hours, currency depreciation may

lead to bank defaults, especially in mortgage loansand credit card payments again weaken financial

sector and may lead to property bubble bursting


34/76

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Just like the Asian crisis lack of

adequate regional response to the

extremely grave crisis. Asian

Monetary Fund a long way off

Latest developments on the Chiang MaiInitiative Multilaterilization (CMIM)

ASEAN+3 Finance Ministers Meetings in 2008 and

Feb. 29 2009 recommended the multilateralization of

the CMI with a pool of originally $120 billion of

currency swaps. Pledges are:

$38.4 billion each from China and Japan (total of $76.8B)

$19.2 billion from South Korea

$24 billion from ASEAN (ASEAN countries squabbling about

how much to give)

But still no details on the mechanisms

Latest developments on the Chiang MaiInitiative Multilaterilization (CMIM)

But a country can avail 80% of funds only with IMF

conditionality!!

.

a self-managed reserved pooling arrangement

governed by a single contract

Details still to be determined in the CMIM

how to conduct surveillance: which agency?

IMF conditionality to fight for: 20%, 50%, or zero?

expansion of membership?

scope -- only liquidity provision or other support?

bank rescue funds? Fiscal funds? Trade financing?

mechanisms of funds disbursement, repayment

schemes, escape clauses

first step to create an Asian Monetary Fund (AMF)?

MALAYO PA!


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Continuing Failure in the InternationalFinancial Architectures

In Oct 2008, US Fed gave Singapore, Korea, Brazil, Mexico,

Australia $30 billion currency swap credit line each and $15

billion to NZ

n ec. , orea, na, apan orge e o owng

currency swap agreements: China and Japan will provide

Korea bilateral currency swaps worth $26.5 billion and $ 20

billion, respectively, to help stem won depreciation

Continuing Failure in the InternationalFinancial Architectures

Only important countries are given special treatment and

early help (US giving money to Singapore??????). The

others have to run to the IMF: Pakistan, Iceland, Hungary,

Ukraine etc.

Developing countries badly affected only has IMF to run to

no new international financial and economic architecture in

place since 1997!! Especially since source of contagion is

US and international finances inability to do global financial

surveillance!

The latest and most serious global recession

(depression) since the 1930s is a result of a

combination of

Globalization of finance

Globalization of trade

,

capital flows and trade

For the sake of developing and emerging

economies, need a new paradigm and world

order that controls, monitor and regulate

Financial and capital flows

Trade flows

Need developing countries pool of

emergency funds controlled and

conditionality imposed by developing

countries themselves


36/76

The Global Economic Crisis: Assessment andResponse of the National Government

Dennis Arroyo

rroyoistheDirectoroftheNationalEconomicsandDevelopmentAuthorityNationalPlanningandPolicyStaff.Heispartof

eamthatpreparedtheEconomicResiliencyPlantocopewiththeglobalcrisis.ArroyoworkedwiththeWorldBankWashing

ndManilaOfficesasaconsultantfromMarch20012004.HewroteextensivelyoneconomicsforthePhilippineDailyInquir

rom1998to2004.HehasearnedhismasteraldegreeinEconomicsfromtheUniversityofthePhilippinesDilimanandiscur

entlyadoctoralcandidateinthesameuniversity.ArroyoalsoreceivedfurthertrainingintheUnitedNationsatGenevainHi


37/76

The Global Crisis and thehe Global Crisis and theEconomic Resiliency Planconomic Resiliency Plan

Dir. Dennis ArroyoDir. Dennis Arroyo

National Economic and Development AuthorityNational Economic and Development Authority

The lack of confidence is t otal consumers

Global CrisisGlobal Crisis

The world economy i s in a once-in-a-hundred years recession.

Japanese Prime Minister Taro Aso

are not consuming, businessmen are nott aking on workers, i nvest ors are notinvesti ng, and the banks are not l ending.

Governor Ordonez (Bank of Spain)

Grim signs of the recessionGrim signs of the recession

Suicide rate in Japan increased to 2,345 inJanuary 2009, or up by 15%

Two-thirds of the world is in recession

s o arc , e nanc a cr s s awiped out around 45 percent of globalwealth

US unemployment at a 26-year high

Philippine Economic GrowthPhilippine Economic Growth

5.9

8.0

6.1

6.97.2

6.47

8

9 G N P G D P

.

2.3

4.2

5.4 5.45.0

4.4

1.8

4.64.9

0

1

2

3

4

5

2 0 01 2 00 2 2 00 3 2 0 04 2 0 05 2 0 0 6 2 0 0 7 2 00 8

growthrate,

Source: NSCBSource: NSCB


38/76

2009 Macro2009 Macro--assumptionsassumptions2009 Feb 20 2009 April 16

Inflation 3.0 5.0 2.5 4.5

91-day T-bills 5.0 7.0 5.0 7.0

. . . .

Forex P 45 - 48 P 46 - 49

Dubai oil $ 45 - 60 $ 45 - 60

Merch exports -8% to -6% -15% to -13%

Merch imports -10% to -8% -14% to -12%

Export Grow thExport Grow th

0

10

8.84.4 6.6

1.1

-50

-40

-30

-20

-

June

'08

Jul Aug Sept Oct Nov Dec Jan

'09

-14.8-11.4

-40.3 -41.0

The most vulnerable sectorsThe most vulnerable sectors

OFWs vulnerable to displacement:OFWs vulnerable to displacement:

OFWs who work in the US under temporary workingvisas (129,000);

Seafarers in the cruise ships (130,000);

Factory workers in South Korea, Taiwan and Macau(268,000);

Household service workers in Singapore, Macau andHong Kong (48,000)

Commodity exports vulnerable jobs:Commodity exports vulnerable jobs:

Garments (121,000);

Electronics (111,000); Wiring and harness (2,000);

Coconut oil (2,000)

Shock absorbersShock absorbers

Oil prices trending down: from $ 140/ barrel to $ 50

Inflation is easing: from 9.3% in 2008 to 3.5% in2009

Share of US to total Philippine exports falling: from34.2% in 1998 to 20.1% in 2001 to 16.0% in Jan-Aug 2008

Ample supply of Gross International Reserves, at$ 39 B

Corporate income tax rate to fall from 35% in 2008

to 30% in 2009 Minimum wage earners exempt from income tax


39/76

Strong banking sectortrong banking sector Banks with exposure to Lehman Brothers and

Merrill Lynch: Banco de Oro Unibank, DBP,Metrobank, RCBC, Standard Chartered, Bank ofCommerce, UCPB, Security Bank

Banks exposure to Lehman Brothers: $ 386million, or only 0.3% of total banking assets

Capital adequacy ratio (banks capital in relationto their risks) is 15.49% (2008).

Non-performing loans (NPL) ratio, once 18% in2001, down to less than 4%.

Bank lending continues to expand

GIR, Current account balance,

Remittances ($Mn)

10,940**

35,696*

12,000

16,000 40,000

C AB R em it ta nc es G IR

1,707***

-4,000

0

4,000

8,000

2000 2001 2002 2003 2004 2005 2006 2007 2008

0

10,000

20,000

30,000

Source: BSP; *As of Oct 2008, **Janource: BSP; *As of Oct 2008, **Jan-Aug2008, ***Janug2008, ***Jan-Jun2008un2008

2008 Q4 GDP of Selected Asian Countries2008 Q4 GDP of Selected Asian Countries

0.1

4.5

5.2

5.5

6.8China

Vietnam

Indonesia

Philippines

Malaysia

-8.4-4.3

-4.2

-3.4

-2.5

-10 - 8 -6 -4 -2 0 2 4 6 8

Hong Kong

S. Korea

Singapore

Thailand

Taiwan

Quote from Agost Bernard,Quote from Agost Bernard,

Associate Director at Standard and PoorsAssociate Director at Standard and Poors

Yes, the Philippines is 'lucky' because they have

made the necessary adjustments and reforms when

times were still good. So the are facing the global

market problems and economic slowdown from a

considerably improved position, compared to what

they were in 3-4 years ago

The Philippines is an 'island of calm' currently, while

there is turmoil in the higher rated and previouslystable countries


40/76

The Philippines is inherently strong, a potential

beneficiary of these financial woes, Bank of New

York Mellons chairman for Asia Pacific, Christopher

Sturdy, said in an interview (Philippine Daily Inquirer)

weather the global downturn with the economy driven

by private consumption and services, which are less

vulnerable to external shocks, JP Morgan said in a

report titled ASEAN Year Ahead 2009: Philippines

Well-Positioned to Withstand the Downturn.

Economic Resiliency Plan: ObjectivesEconomic Resiliency Plan: Objectives

1. To ensure sustainable growth, attaining the

higher end of the growth targets.

2. To save and create as many jobs as possible.

3. To rotect the most vulnerable sectors: the

poorest of the poor, returning OFWs, and

workers in export industries.

4. To ensure low and stable prices to support

consumer spending.

5. To enhance competitiveness in preparation for

the global rebound.

Breakdown of the P 330 B PackageBreakdown of the P 330 B Package

PhP 160 B addition to the budget

PhP 40 B corporate and

PhP 100 B GOCCs, GFIs, private

sector

PhP 30 B temporary additional

benefits to GSIS/SSS/PhilHealth members

Two waves of infrastructureTwo waves of infrastructure

2009 P 160 billion budget increment funds this

4,000 5,000 small projects in the BESF

Stress s eed in ob creation

2010 P 100 billion off-budget funding

Big-ticket items for PPP


41/76

P 160 billion incrementP 160 billion increment

Award contracts quickly. Take advantage of

window of opportunity (i.e., good weather)

Reali n bud et from ro ects that ma be difficult to

implement (i.e., right of way issues, no detailed

engineering plans) to fast projects

Downscale/defer implementation of new projects

without ICC/NEDA Board approval and/or

difficult to implement immediately

Scale up quick-disbursing high impact projects (i.e.,labor intensive, high local value added) such asConstruction, Repair, or Rehabilitation ofIrrigation Systems, other local infra like roads,asphalt overlay, etc.,

P 160 billion incrementP 160 billion increment

Spend 60-80% of the productive portion of theImplementing Agencies budget in the S1 of 2009

Work with LGUs on infrastructure projects

Periodic review of agency performance by theEconomic Managers

Labor DisplacementLabor Displacement

as of April 15, 2009as of April 15, 2009

Laid-off OFWs

(6,695) Under flexible workinghours 5 2 4 98

Laid-off domesticworkers (58,379)

Source: Philippine Overseas Employment Administration

Asian Crisis LayAsian Crisis Lay--offs vs. Global Crisisoffs vs. Global Crisis

84,500

58,379

Lay-offs fromAsian Crisis

Lay-offs fromGlobal Crisis*

As of April 15, 2009

Source: Philippine Overseas Employment Administration


42/76

Comprehensive Livelihood and EmergencyComprehensive Livelihood and Emergency

Employment Programs (CLEEP)Employment Programs (CLEEP)

Objectives:

To hire for emergency employment

To fund and supervise livelihood projects

Activities are aligned to:

Super Region priorities

Needs of the 12 poorest provinces

Needs of the 12 most food-poor, provinces, and

the food-poor in NCR

CLEEP job targetsCLEEP job targets

Generate 456,595 jobs

Upland forest work, farm to market roads,

irrigation, fertilizer production, roadside

maintenance, classroom construction, other public

works projects

Total cost: P 10.45 billion

Protecting the most vulnerableProtecting the most vulnerable

Overseas Filipino Workers

24 x 7 monitoring of overseas labor-marketdisplacements

Contract monitoring of job orders

Identification and development of new market niches Redeployment to emerging foreign labor markets

Repatriation assistance Expansion of livelihood /business formation programs

Business counseling, strengthening reintegration services Massive skills upgrading and retooling services

OFW LayoffsOFW Layoffs

Others 7.1%

Brunei 2.3%

Macau 2.9%

Taiwan 78.7%

Canada 3.4%

UAE 5.6%


43/76


Workers in the export sector

Quick Response Teams (QRTs) in DOLE regionaloffices; maintain early warning system to trackstrugg ng rms

Job placement facilitation

Livelihood formation/enhancement Assistance in claiming unpaid salaries

Advocacy for companies to adopt alternatives to lay-offs Promotion of non-wage benefits

Emergency employment

Top Areas AffectedTop Areas Affectedby the Global Crisisby the Global Crisis

49,613

10,225

Region 4A, mainlyLaguna and Cavite

Caraga, mainlySurigao Norte and Sur

8,529

6,212

3,906

Region 7, mainlyMactan and Mandaue

Region 3, mainlySubic and Clark

National CapitalRegion

*as of February 16, 2009


Expand social protection programs

A. Double budget for conditional cash transfers

B. Accelerated Hunger-Mitigation Program

.

D.Add P 5.66 billion for Training for Work scholarships

E.Hike DOH allocation for primary and secondary hospitals

F.Deploy nurses to underserved areas (NARS program)

G.More student loans

H.Matching grants to LGUs

P 100 billion for large infra projectsP 100 billion for large infra projects

Large infrastructure projects, some mentioned in

the 2007 SONA

Longer time frame: after 2009

Drawn from the master list of the Comprehensive

and Integrated Infrastructure Program (CIIP)

More time for public scrutiny; important to stress

transparency


44/76

Comprehensive and IntegratedInfrastructure Program (CII P)

Relending

Programs

36.69

Support to ARCs

31.88

2%

Social

Infrastructure

167.91

8%Communications

2008-2010 and beyondTotal investments = PhP 2,006.26 bil l ion

Water Resources

347.53

17%

Power and

Electrification

611.0730%

Transportation

754.69

38%

2%56.49

3%

P 30 billion for additional benefitsP 30 billion for additional benefits

To increase purchasing power

Provide additional benefits for PhilHealth, GSIS and SSSmembers for at least 18 months

un s ta en rom t e erence etween contr ut ons an

claims and benefits.

PhilHealth Board of Directors approved on Feb 12 the

revised Inpatient Benefit Package

Results in a 35% increase in annual benefit payments

SOME RECENT UPDATESSOME RECENT UPDATES

Government Spending:Government Spending:

Largest Projects in HistoryLargest Projects in History

700

800

900

1000

USD

sted)

NASA

Source: Intel

0

100

200

300

400

500

600

1803 1933 1947 1958 1969 1986

inbillionsof

(inflation-adju

LouisianaPurchase

The New Deal

Marshall Plan

Race tothe

Moon

S&LCrisis


45/76

Government Spending:Government Spending:

Largest Projects in HistoryLargest Projects in History

2500

3000

3500

USD

sted)

09 RescueFunds

Source: Intel

0

500

1000

1500

2000

1803 1933 1947 1958 1969 1986 2009

inbillionsof

(inflation-adj

LouisianaPurchase

TheNewDeal

MarshallPlan

NASA

Race tothe

Moon

S&LCrisis

We have agreed t o make avail able anaddit ional $850 bn of resources thr u t he

IMF and MDBswe wi ll ensure avail abil i t yof at least $250 billi on over t he next t wo

years to support t rade fi nance

G20 Communique

"This could well be a t urning pointbecause t he aut hori t ies got t ogether and

t hey have t aken t he st eps.

George Soros

AllAll--Time Low Global Interest RatesTime Low Global Interest Rates

4

5

6

0

1

2

3

2003 2004 2005 2006 2007 2008 2009

Fed Funds Rate ECB Key Interest Rate

US Fed Chief Bernanke tells Congress:US Fed Chief Bernanke tells Congress:recession over by endrecession over by end--20092009

Economy to bottom out, then turn up later in 2009

US GDP contracts by 6.1% in Q1, but largely due

to depletion of inventories.

As inventories are worked down, then firms will

be able to increase their production to meet what

looks to be some stabilization in final demand.

Firms may still be cautious about hiring


46/761

Stock market up 47% in April from trough inOctober 2008

Car sales hit monthly record in March

Cement sales of biggest manufacturer up by

Chinas Stimulus Package is WorkingChinas Stimulus Package is Working

New loans of $670 B in Q1 almost as much asfor whole 2008

Index of entrepreneurs confidence up in Q1,after plunging in Q4

Overseas employment holds upOverseas employment holds up

15,000 to 20,000 jobs offered in Guam, 60,000 in

Saudi Arabia, 20,000 in Qatar

Saudi Arabia building 5 mega cities; Filipino

wor ers avore

Deployment to the Middle East will push

remittances higher in the second semester

Only 6,695 OFW layoffs so far, compared to

3,000 OFWs deployed per day

Inflation rapidly falling,Inflation rapidly falling,

will boost personal consumptionwill boost personal consumption

6.4

8.3

9.5

11.412.3 12.4

11.811.2

9.9

87.1 7.3

6.48

10

12

14

ate(in%)

4.95.4

4.8

0

2

4

6

Jan Feb M ar Apr M ay Jun Jul Aug Sep Oct Nov Dec Jan Feb M ar Apr

2008 2009

InflationR

Source: National Statistics Office

Stock markets still on the uptrendStock markets still on the uptrend

Market Lowest Latest % Change

DJIA 6,547.05

8574.65

30.979 Marc 8 May

Nikkei 225 7,054.98(10 March)

9432.83(8 May)

33.70

FTSE 100 3,512.10(3 March)

4462.10(8 May)

27.05

PSEi 1,769.67(16 March)

2265.55(8 May)

28.02


47/761

Exports start to grow againExports start to grow again

Growth of Merchandise Exports (%)

Year-on-YearMonth-on-

Month

Oct-08 -14.8 -10.5

Nov-08 -11.4 -11.5

Dec-08 -40.3 -23.9

Jan-09 -40.6 -6.1

Feb-09 -39.0 -0.2

Mar-09-30.9

15.9

Job losses here now tapering offJob losses here now tapering off

SEIPI: Electronics industry starting to recover

We are seeing month-on-monthimprovements it looks like the market has

. ,

Sec. Roque OF DOLE: 14,000 employeesdisplaced by the crisis got their jobs back ascompanies started to rehire

Sec. Panganiban of NAPC: 75,000 have beenaccepted into the CLEEP

NLEX Phase 2 C5 to create 100,000 jobs

Layoffs bottom outLayoffs bottom out

- Smoking gun ofimpending recovery:layoffs sharply drop

October 08 4,454

November 08 11,116

Workers Displaced by the Crisis

in AprilDecember 08 11,961

January 09 10,333

February 09 10,228

March 09 14,512

April 1-15 09 1,026Total 63,630

Leave no one behind.

Walang iwanan.


48/76

The Global Economic Crisis: A Persepectivefrom the Civil Society

Rosario Bella Guzman

uzmanistheExecutiveEditorofIBONFoundationInc.,anindependentdevelopmentinstitutionestablishedin1978thatpr

desresearch,education,publications,informationworkandadvocacysupportonsocioeconomicissues.Herauthoredbook

TheGlobalFoodCrisis:HypeandReality"isoneofhermanywritingsonsocioeconomics.Shehasgivenmanylecturesacros

hecountryandroundtheglobeinsupportofpeoplescampaignsandstruggles.


49/76

6/26/200

The Global Economic Crisis: APerspective from Civil Society

IBON Foundation

May 28, 2009

From crisis to crisis

Subprime mortgage crisis 2007-08

Fuel and food price crisis early 2008

Global financial crisis late 2008 to today

Given systemic imbalance between production &consump on, cap a soug pro s rom:

1. Cheap labor & raw materials

2. Capturing markets for goods

3. Capturing markets for services

+

1. Debt-driven consumption

2. Speculation in finance & commodities

End of globalization?

1. Stalling global trade World exports 4Q-08 decreased by 20% (Q-o-Q) or 11% (Y-o-

Y) (c/o WTO)

2. Stalling capital flows (investment/debt) Worldwide FDI inflows shrank 21% in 2008 to $1.4 trillion (c/o

UNCTAD) Note: FDI flows to 3W still rowin in 2008 albeit b onl 4%

from a rise of 21% in 2007

Net private debt and equity flows to 3W will fall from $1 trillionin 2007 (7.7% of GDP) to $530 billion in 2009 (3%) (c/o WB)

Net private-capital inflows into 3W: $929 billion (2007) halvingto $466 billion (2008) est. $165 billion 2009 (c/o IIF) 3W bond market transactions $50 billion in 2Q-08 down to $5

billion in 4Q-08

ODA flat in 2005-07 falling by $20 billion in 2009 (c/o ODI)

3. Stalling migration Remittance flows: $281 billion (2007), $305 billion (2008)

est. $290 billion (2009) (c/o WB)

Since 1980s: globalizing thePhilippine economy

Tr ade & i nves tm en t now mu ch l a r ge r sha r e o f domes t i c economy ( as % o f GD P )

Trade doubled:52% (1980) 95-105% (2005-2007)

Foreign investment quadrupled:

Record joblessness in last 8 years; 4.1 millionjobless+ 6.6 million underemployed in 2008

Deep poverty:

approx 70 million Filipinos live off P110 or less/day

P18/day in poorest 10% of families+ then for succeeding deciles P28, P36, P44, P54,P68


50/76

6/26/200

Since 1980s: globalizing thePhilippine economy

Growing inequality

Top 20% (3.5 M families) account for 53% oftotal family income poorest 80% (13.9 Mfamilies) divide remaining 47%

Record economic refugees

9-10 million OFWs

Manufacturing smallest share of economysince 1950s, agriculture smallest in countryshistory

Since 2008: globalized sectors atgreatest risk

Internal weaknesses + greaterexternal vulnerability

Unprecedented dependence on lowvalue-added exports, one-sided foreigninvestment & overseas remittances

84% of exports to just 10 countries

77% of FDI from just US, EU & Japan

88% of remittances from only 10 countries

Source count r ies a l l see ing drast ica l ly Source count r ies a l l see ing drast ica l ly s low ing o r even nega t i ve g rowt h s low ing o r even nega t i ve g rowt h

Deepening Philippine crisis

1. Drastically slowing economic growth

2008: growth slowed in 60% of economy

2 0 0 9 : W i l l f a l l t o l e ss t h a n 3 % w h i ch i s l ess 2 0 0 9 : W i l l f a l l t o l e ss t h a n 3 % w h i ch i s l ess t h a n h a l f g ro w t h i n 2 0 0 7 t h a n h a l f g ro w t h i n 2 0 0 7

2. Worst joblessness in countrys history is risingeven ur er

2008: 10.7 million unemployed + underemployed

2009: Cou ld r i se t o some 12 2009: Cou ld r i se t o some 12- - 1 3 m i l l io n 1 3 m i l l io n

Of which at least 5 million outright jobless (increase of900,000)

Retrenchments, less job creation, deteriorating qualityof jobs

Deepening Philippine crisis

3. Falling real incomes & worseningpoverty

2006, at approx P110 or less per person perday:

. .

Poor Filipinos 70 million (official: 27.6 M)

2009 : Worsen ing pove r t y due to 2009 : Worsen ing pove r t y due to job lessness and fa l l ing incom esjob lessness and fa l l ing incom es

More poor

Deeper poverty for already poor


51/76

6/26/200

Government response

Pseudo-stimulus/ mitigation measuresfor now Reported plan/package: P330 billion

P160 B increase in 2009 natl govt (NG) budget P40 B corporate/individual tax breaks P100 B off-bud et infrastructure fund GOCCs GFI private, ,

sector) P30 B additional benefits to GSIS/SSS/PhilHealth members + Alternative livelihood programs, jobs placement services &

loans

befo re re tu r n ing to bus iness as usua l and g loba l i za t ion po l i c ies w h i c h h a v e s u p p os ed l y b u i l t s o u n d f u n d a m e n t a l s

Urgent relief: Give people more of socialservices & economic share long deniedthem

1. Restore real per capita social services spendingto at least 1997 levels

Additional P205 B (education), P36 B (health) and P5B (housing)

2. Su ort consum tion:

P125 ATB nationwide wage hike, P3,000 increase ingovernment salaries

Protection against formal/concealed cuts in wages,salaries & benefits

3. Remove VAT on food & oil products

increase taxes on wealth, luxury goods & services,unproductive assets & transactions

Urgent relief: Give people more of socialservices & economic share long deniedthem

4. Shift public spending to labor-intensive & basicrural infrastructure projects that directlyimprove peoples livelihoods

Ex. P100 billion not for a few big projects but smallirrigation systems, farm-to-market roads and post-

arvest ac t es

5. Free up public resources:

Stop debt payments and cancel odious/illegitimatedebt

Crackdown on corruption

Reducing spending on military and war which just

feeds human rights violations

Radical economic reforms: back tobasics

1 . A g ra r i an r e f o rm & a g r i cu l t u ra l d e ve l o p m e n t

Land to the tillers, extension & support services

Cooperativization & modernization

2 . Bu i ld ing na t iona l i ndust ry

Filipino industry is possible

.. and essential for jobs, incomes, capital accumulation,technology & sustainable growth

3 . Ensure ga ins f rom fo re ign t rade and investment

Protect the Philippine economy

Support Filipino agricultural & industrial producers

4 . Bank ing , f i nance and f i sca l po l i cy

Resources towards national agricultural, industrial & socialdevelopment

Crackdown on wasteful spending & corruption

Oppose financial services liberalization


52/76


53/76

Recovery and

Reconstruction

Finding Alternatives to the Impact of theGlobal Financial Crisis

FSSI Public Forum28 May 2009

Clarence G Pascual

Some key issues facing the

Phili ine econom and the

impact of the global crisis

Labor left behind in last growth cycle

Inability of the economy to create enoughjobs, let alone quality jobs, liesbehind the slow progress intackling mass poverty and hunger

Growth and unemployment in

past crises and recovery

11.010.6

10.1

11.0

Unemployment during crisis and recovery, % of labor force

8.4 8.6

1985/1990 1991/1996 1998/2006


54/76

Unemployment and hunger rates

Unemployment and Hunger Rates, SWS

30

35

40

Unemployment

0

5

10

15

20

25

Jul-9

8

Jan-99

Jul-9

9

Jan-00

Jul-0

0

Jan-01

Jul-0

1

Jan-02

Jul-0

2

Jan-03

Jul-0

3

Jan-04

Jul-0

4

Jan-05

Jul-0

5

Jan-06

Jul-0

6

Jan-07

Jul-0

7

Jan-08

Jul-0

8

Jan-09

Hunger

Net job losses in last 2 crises

-250

-200

-150

-100

-50

0

Thousands

Jan-08 May-08 Sep-08 Jan-09

Global Crisis, 2008

-250

-200

-150

-100

-50

0

Jul-98 Nov-98 Mar-99

Asian Crisis, 1997/98

Mfg

Mfg Construction

Mfg employment down to 2.8 M in Jan 2009from 3 M in Oct 2007 or net job loss of 280,000

Net losses of 40,000 in construction and

30,000 in finance in Jan 2009

Source: NSO, LFS various quarters

Dismantling of manufacturing

Long-term decline in manufacturing,a key driver of growth in high performingAsian economies

Weak job creation before crisis

150

200

Net Job Creation, mfg

-150

-100

-50

0

50

Thousand

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

Source: NSO, LFS various quarters


55/76


56/76

Social services, % of GDP

4

5

6

t

0

1

2

3

perce

2000 2001 2002 2003 2004 2005

Cumulative gap: 7 % GDP

Lessons

Short term impacts must be attended to Welfare impact of job loss can be dramatic

for the displaced worker and family

Deep scars that will take time to heal Lost productive capacity cannot be

re lacedoverni ht

Investor confidence takes time to recover Labor market lags in terms of recovery

Crisis shook confidence on many cherishedbeliefs (and silly thoughts) about the economy Globally, a rethinking of major planks of growth

strategies and economic policy (e.g. export-ledgrowth, finance, regulation, deficits)

Need for a bold program of

short-term recover and

long-term reconstruction

Two principles

Long-term elements (reconstruction)embedded in short-term programs (recovery)to achieve impact and sustainability

Fundamental reversal of direction andstrategy: we must reject the free-marketpolicies, esp in their extremeforms


57/76

Some elements

A more realistic fiscal policythat promotes growth and job creation

Industrial policy that pays attention tothe linkage between industry and

,

Full employment as the central goal ofdevelopment (poverty reduction follows)


58/76

Community Experienes:Sailing Through Rough Times

Jerry Pacturan

acturan.JingistheExecutiveDirectorofthePhilippineDevelopmentAssistanceProgramandChairpersonoftheOrganicCe

cationCouncilofthePhilippines(OCCP).Hehasbeenattheforefrontofruralenterprisedevelopmentandpeaceanddeve

mentforalmosttwentyyears.HeinitiatedandmanagedaGTZfundedcountryentrepreneurshipprojectoftheDepartment

radeandIndustry,aswellastheWorldBankfundedcommunitybasedtrainingenterprisedevelopment.


59/76

SSocialocial EEnterprises innterprises in

OOrganicrganic AAgriculture:griculture:

SSmallmall FFarmersarmers

SSocialocial EEnterprises innterprises in

OOrganicrganic AAgriculture:griculture:

SSmallmall FFarmersarmers

EEconomicconomic CCrisisrisis

J.E.PacturanJ.E.Pacturan

EEconomicconomic CCrisisrisis

J.E.PacturanJ.E.Pacturan

Changing Agricultural ContextChanging Agricultural ContextChanging Agricultural ContextChanging Agricultural Context

Agriculture, a key issue in tradeAgriculture, a key issue in tradenegotiationsnegotiationsOpportunity to put SA/OA in the development debate, agendaOpportunity to put SA/OA in the development debate, agenda

& priorities of governments & multilaterals; food crisis& priorities of governments & multilaterals; food crisis

Rise of supermarketsRise of supermarkets

New markets, new approachesNew markets, new approaches

Preference for healthy foods & organicPreference for healthy foods & organicproductsproducts

US$40B organic market; 31 million has. of certified organicUS$40B organic market; 31 million has. of certified organic

farms; Philippine market of about US$20Mfarms; Philippine market of about US$20M

Food security & hunger reductionFood security & hunger reduction

Per FAO halving hunger by 50% in 2015 cant be met; need toPer FAO halving hunger by 50% in 2015 cant be met; need toseek new solutions to address FS & hunger (SA/OA & VC)seek new solutions to address FS & hunger (SA/OA & VC)

DISTRIBUTORS

FIs/CPs Financing fortrading, equipment,working capital;

production

CONSUMERS

NGAs, LGUs, Academe, NGOs,Donors, Private Sector Policy support; Information;Technology; Communication

PRIME Value Chain & StakeholdersPRIME Value Chain & StakeholdersPRIME Value Chain & StakeholdersPRIME Value Chain & Stakeholders

2 Industry Associations +2 Industry Associations +1 Marketing Corporation1 Marketing Corporation2 Industry Associations +2 Industry Associations +1 Marketing Corporation1 Marketing Corporation

TradesTradesTradesTrades

SellsSellsSellsSells

MEs

LMCs

BDS (NGOs)Capacity bldg fortechnology,organizational &

enterprise devt

FarmersFarmersFarmersFarmers



Examples of communityExamples of communityefforts in mainstreamefforts in mainstreammarketsmarkets

Don Bosco Foundation in North &South Cotabato Organic & Conventional Rice

Sultan Kudarat MuscovadoFarmers & Millers Corporation Muscovado Sugar

Pecuaria DevelopmentCooperative in Camarines Sur Organic Rice


60/76

Don Bosco - BiosDynamis Coop

Sales composition: 60% OR, 40% CR

Increasing annual sales from P27M in2007 (8mths); P54M in 2008; projectedP64M in 2009

2.2 % net income in 2007 & 3.8% in2008

OR production cost per hectareaverages P17k compared to P35k forCR

OR retail price is higher at P34-40/kg.compared to P31-35/kg. for CR

OR gross profit margin of 10%compared to CR 1%

Distribution channel through localshops ensures faster sales turn-over

Pecuaria Coop Snapshot (6years growth)Indicators Year 2002 Year 2008

Area Planted to OrganicRice (in hectares)

55.5 262

No. of farmers involved inOR

37 100

Productivity or yield perhectare

60 sacks 90 sacks

Total production cost perhectare* P 20,000 P24,978Farmgate price per kilo P 20 P 35UMFI buying price per kilo P 25 P 35No. out outlets/buyers inMetro Manila

Selected SM Supermarkets,Shopwise,

All SM SupermarketAll Rustans SupermarketAll Ever Supermarket

opwse upermar eAll Robinson SupermarketAll South SupermarketAll Puregold SupermarketAll ROB SupermarketAll CVC SupermarketAll Tropical Convenience

StoreAll Walter Mart

Local market Selected outlets ofRobertson Supermarket;Liberty Commercial Center;other institutional buyers

All RobertsonSupermarkets; LibertyCommercial Center; otherinstitutional buyers

Farmers income (per ha.) P 16,000.00 P 26,718.00Coop Sales from OR P 1.7 M P 14.7 MCoop Net Income from OR ( P .533 M ) P 1M*Bulkof the costsare landpreparation, transplanting, post-harvest (harvesting, threshing) andirrigation

Pecuaria Cooperative P7M sales in 2007; P14M in 2008 due to

expansion outside of estate

Jan-March 09 sales is 40% only of salesof same period last year; temporary slumpin demand in Metro Manila market

Manila market in

Documents

MSME Development and the Financial Crisis