Fearing Meltdown

Manila Standard

Thursday, September 24, 1998

By Alex Magno

THERE is a disturbing disparity between the sense of dread sweeping the business community and the appearance of complacency on the part of the political leadership.

The business community is fearing the worst. Past-due loans have risen dramatically. Investments have dropped. The stock market is in the doldrums.

Anything could give at any moment. After many years of heady growth, the economy now appears terribly vulnerable.

The air of dread is made heavier by the predicament of the Philippine Airlines (PAL). Deep in debt and burdened with labor disputes, PAL has looked like a corporate Titanic long before it announced closure plans.

PAL's predicament will exert tremendous pressure on our banking system. Its impact on the banking sector will have to be put in the context of numerous other corporations currently unable to service their debts.

The disruption of air service bodes ill for the economy. It will produce a bottleneck for domestic commerce. It will stifle the tourism industry. It will produce the semblance of a handicapped economy, strapped down by in-efficiency.

The situation is aggravated by calamities. After the long drought, floods have wiped out billions of pesos worth of crops and livestock in Pangasinan province. A spanking new interisland ferry sinks in stormy waters just out of Manila Bay.

And while things seem to be breaking apart, the politicians are out playing their usual games. Daily we are treated to stories of one Estrada faction or another angling to take over this or that corporation.

Unhealthy context

The regional and global context for our economic prospects in the near term is not very encouraging either. In fact, it is this context of volatility and uncertainty that makes our situation seem all the more vulnerable.

The turmoil in Indonesia has knocked off this very large country as a dynamic regional economic partner in the near term. Suharto has been deposed; but his successor has shown little indication that a new path to recovery has been opened for this nation.

The political and economic crisis in Indonesia has encouraged gloomy appraisals for the entire ASEAN region. These gloomy appraisals have been further boosted by the sudden transformation of Malaysia from an oasis of stability to a vortex of turmoil.

A few weeks ago, Malaysian Prime Minister Mahathir decided to go berserk. He imposed currency controls and sacked his deputy prime minister, Anwar Ibrahim, who enjoys the confidence of the international investment community.

Over the last weekend, Mahathir had Anwar arrested. That decision sparked riots in Kuala Lumpur. Now, people are comparing Malaysia with Indonesia: two very sick cousins in an unhealthy region.

Further out, China is feeling great pressure on its currency. If Beijing decides to devalue its currency, a new round of volatility could sweep the region.

With Russia struggling on the ledge, with growing uncertainty over the effect of Bill Clinton's predicament on the stock market, and with the Latin American economies showing signs of sagging, it is no longer fashionable to speak of the Asian Contagion. The worry warts are now looking at the possibility of a global financial meltdown.

Such an event will be catastrophic. For us, it will mean a shrinking of our export markets and a drying up of investments. A deep depression looms as a possibility.

Crisis leadership

The most insistent question being asked these days is this: Do we have a crisis leadership in place or is a crisis of leadership what we have?

It is a disturbing question to be saddled with as we survey a stormy economic horizon.

For as long as that question persists, there will be hesitation among investors. In a climate of uncertainty, investors will want to be assured that a plan is in place for any eventuality.

But there is little sense of strategy emanating from the top. No authoritative voice — certainly not the President's — is heard reassuring the nation that the urgency is felt and the complexities understood.

Malacañang Palace certainly does not look like the command post of the great economic war we must wage. Except for the feverish meetings held to save PAL, there is little visible effort to pool suggestions, gather advice and build consensus on a comprehensive strategy to fight off recession.

Because of this, many of us feel that the nation is adrift — like a ship without a captain.