Manila Gets Set for the Downturn

By Carlos H. Conde
Asia Sentinel
Friday, 21 November 2008

Often described as the sick man of Asia, the Philippines appears to be walking an economic tightrope again. Its currency has fallen sharply against the US dollar from a high of P44:US$1 to P50:US$1, a fall of 13.6 percent since August. Three of the pillars of its economy – call centers, electronics exports and inward remittances — are all deeply exposed to the US economy, which is going into the tank.

Yet, for now at least, Simeon Mari Sillona, a human-resource officer at an outsourcing company based here, says he isn’t worried. In charge of recruiting the company’s call center agents, he says his company has not scaled down its hiring nor has it lost any clients.

“No one in my company has been laid off because of the financial crisis,” Sillona said. “So despite what we’ve been reading, things are actually looking up for us.”

His company, the Nasdaq-listed eTelecare Global Solutions, is one of the leading outsourcing companies in the Philippines, with top US clients such as AT&T, Sprint and Dell. Although the company posted a 67 percent decline in profits in the third quarter, it was mainly due to expenses for its expansion. The company, for instance, has put up eTelecare Nicaragua and is looking to expand to other Latin American countries.

If only the 900 employees of another Manila-based call-center company who were laid off this week after a major client in the US went bankrupt could share Sillona’s optimism. Although the company, Advanced Contact Solutions, employs more than 4,000 workers in the Philippines, the firing of the 900 caused concern in the local outsourcing industry, with many considering it a portent of worse things to come.

“This was due to declining business volumes from the ongoing US subprime financial crisis, as well as lingering customer concerns regarding a major US client which recently emerged from Chapter 11,” the company said in a disclosure on Thursday.

The impact of the crisis is not limited to outsourcing. The electronics sector, which accounts for nearly 60 percent of the country’s export revenues, declined by 2.7 percent in September compared to the same month last year, according to the National Statistics Office. Garments, the second biggest export revenue earner, also fell by 5.9 percent. The US has been the primary destination of the two export products.

Rosario Bella Guzman, executive director of the economic think tank Ibon Foundation, said in a recent paper that the Philippine economy will be affected by the global recession because “it is significantly linked to the US economy and other foreign economies” and that “it has basic weaknesses and vulnerabilities.”

“The Philippines has varying degrees of economic dependence on other countries—90 percent of its total foreign trade and investment is with these countries—so there will be a cascading effect through various countries,” she said.

As the crisis spreads across the globe, the primary worry now is its impact on the millions of overseas workers, whose remittances – more than US$14 billion in 2007 – are helping to keep the economy afloat. “In a global recession, immigrants are the first to go,” Emmanuel Leyco, an economist at the Asian Institute of Management, said last week.

However, Guzman hasn’t seen a drastic drop in the number of OFWs, as they are called here, saying that while they may be the first to get fired as the US economy worsens, “they will also be the first to be rehired in cheaper and lower quality jobs as the US economy continues to reel from the crisis.”

“What is likely, however,” she pointed out, “is that OFW remittances will slow down due to falling and negative incomes and social services and mounting debts in the host countries, particularly the United States.”

Apart from boosting consumer spending, which helps explain the popularity of huge shopping malls – some of the largest in the world — these remittances from an estimated 9 million Filipinos abroad, a tenth of the entire population, have likewise strengthened the banking system and the telecommunications industry, to name two industries. These remittances represent the second largest source of revenue for the country after manufactured exports.

They are also the primary engine of the real-estate growth here in the past several years, with property companies aiming their marketing strategies directly at them. Most of the buyers are OFWs in the US, Europe and the Middle East. Last week, Jaime Augusto Zobel De Ayala, chairman and CEO of Ayala Corp., which owns some of the largest shopping malls and property developments in the country, called these migrant workers the Philippines’ “new middle class.”

But many expect remittances to fall in the next months. The central bank projects that the inflow of OFW money for the remainder of the year would probably slow by 3 percent.

“Taking into account the possible slowdown of remittances, it might only grow about 15 percent which is still not bad given that 10 percent was the original projection to begin with,” said Nestor Espenilla, the deputy governor of the central bank, according to Reuters.

Others are not as optimistic. UBS said earlier this month that OFW remittances in 2009 could fall by as much as US$800 million, or nearly 6 percent of the $14 billion that flowed into the country last year.

As to the economy in general, the government has reduced its forecast for next year, from between 6.1 and 7.1 percent gross domestic product growth to 3.7- 4.7 percent. Earlier, the International Monetary Fund projected GDP growth next year at less than 3 percent.

The government also estimates that unemployment next year will likely increase to 9 percent, from 7.4 percent in January this year.

All of these contribute to a sense of gloom among many Filipinos, as reflected in recent surveys in which most consider themselves worse off than before. An October survey by Ibon Foundation, for instance, found that 75 percent of the 1,494 respondents “had difficulty buying enough food” during the preceding three months. The figure was no different from a similar survey in April.

In the October survey, 64.5 percent said they had difficulty paying for their children’s education, 68 percent said they didn’t have enough money for transportation, nearly 73 percent said they had trouble paying their bills, and nearly 69 percent said they had problems paying for their medical expenses.

In the same survey, 78.4 percent of the respondents rated themselves poor, up from 74 percent last year.

The government, meanwhile, says it is doing its best to mitigate the impact of the crisis. The department of labor has said it is putting together a contingency plan for the expected return of OFWs and those who lost their jobs domestically. Last month, President Gloria Macapagal-Arroyo announced that money has been set aside for this purpose.

“For returning expatriates should there be, we will have constant monitoring of job orders of foreign principals, we will have an expanded livelihood and business formation program with a P250-million livelihood fund,” Arroyo said in a speech in October. She also pushed through a measure that would give indefinite visas to foreign investors who can employ 10 workers or more.

While many analysts and economists are not as worried as the others about the state of the economy, with JP Morgan saying last week that the Philippines is in a position to weather the crisis, many Filipinos are not holding their breath. Some, like Eduardo Castillon, are, at the very least, cautiously optimistic.

Castillon, a 27-year-old engineering graduate, is considering applying for a job at a call-center company, the common fallback among many Filipino graduates who cannot immediately find a job after graduation.
“Does the news that the US economy is in trouble bother me? Of course it does,” he said in a phone interview.

Applying for a call-center job used to be easy, he said, pointing out the high turnover rate of call-center agents in the Philippines, as employees hop from one company to another looking for better salaries, benefits and working conditions. “I’m not so sure if that is something that we can continue to do.”

40 die as Philippine ferry capsizes

By Carlos H. Conde
International Herald Tribune
Published: November 5, 2008

MANILA: Forty people, 11 of them children, died after a ferry capsized in the central Philippines, the Coast Guard said Wednesday, the latest in a long line of maritime tragedies.

The Philippine Coast Guard said the interisland ferry, the Don Dexter Cathlyn, overturned on Tuesday after being buffeted by strong winds and waves en route to Sorsogon Province south of Manila.

The Philippine Red Cross said more than 100 passengers had been rescued by Wednesday but that at least a dozen more were missing. The ship’s manifest listed only 119 passengers, although the coast guard said many passengers often do not register. Interisland ferries in the Philippines are often overloaded with passengers and cargo.

The Red Cross said two of the bodies have not been claimed by relatives. The survivors, most of whom suffered shock, sleeplessness and starvation, will undergo “stress debriefing,” the relief agency said.

A coast guard official, Captain Efren Evangelista, told The Associated Press that charges could be brought against the owners of the ship because it sailed without the required clearance and may have been overloaded.

“The coast guard should have inspected it and prevented it from leaving if it found violations,” Evangelista said. “In this case, the operator of the ship did not inform us it was leaving port.”

Such violations are common in this archipelago nation, where ferries are the primary mode of transportation between islands.

Several overloaded passenger ships have sunk here over the years, killing thousands of people, mainly because of lax safety regulations, said Harry Roque, a lawyer who represents several families of victims of some of these mishaps.

Richard Gordon, the chairman of the Red Cross, which often deals with these tragedies, said the maritime industry in the Philippines was so primitive that sea disasters were inevitable. “We have the best sailors in the world, but our ships are really old,” Gordon said in a recent interview. “We really have to modernize the industry.”

Roque said that corruption at the ports was a problem that allowed ships to sail without the necessary clearance. He also said shipping companies had successfully evaded sanctions, even closure by the government, because they often settle cases with victims for paltry sums.

Despite the series of sea tragedies in the past several decades, government safety regulation has not improved, Roque said.

Sulpicio Lines, the company that owns the Princess of the Stars ferry, which sank in June, killing most of its 800 passengers, remains in operation despite evidence that it had been negligent – it left port despite an oncoming typhoon – and despite a poor safety record, Roque said.

The company had insisted that bad weather caused the ship to sink in the central Philippines on June 23, at the height of a typhoon, even suing the government’s weather bureau for its alleged faulty weather forecast. Ships owned by Sulpicio Lines figured in several of the worst maritime disasters in the country.

Meanwhile, rescuers only managed last week to start retrieving bodies from inside the overturned Princess of the Stars, four months after it sank. Rescuers had to first take out the highly toxic pesticide endosulfan from inside the ship, which was the reason for the delay. Officials said the deadly cargo should not have been loaded on the passenger ship – yet another apparent sea safety violation.

Michelle Basco, a maritime lawyer whose family is also into the shipping business, said the government is hard put to strictly enforce maritime regulations because “shipping is very capital intensive and the government cannot really strictly implement standards because otherwise nobody will invest or operate these ferries.”