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.”

Mindanao’s Wrecked Peace Deal

A botched agreement, domestic politics and insurgent violence threaten to renew war in the southern Philippines

By Carlos H. Conde
Asia Sentinel
21 August 2008

By many accounts, the Moro Islamic Liberation Front, the separatist group in the southern Philippines, should have emerged the victor in what is now widely regarded as a fiasco involving a peace deal with the administration of President Gloria Macapagal-Arroyo. But the ensuing violence of the last week in Mindanao may well have ended any chance for peace in the immediate future.

The peace agreement, called the Memorandum of Agreement on Ancestral Domain, sought to give far more concessions to the MILF than previous administrations had offered to other Muslim groups. Among these were an expanded Muslim territory and the power and authority to exploit the rich natural resources in these areas as the autonomous Muslim rulers would see fit.

Perhaps more important for the MILF, the agreement was groundbreaking in that it did not mention the Philippine Constitution, the subtext being that the MILF or the would-be rulers of the proposed Bangsamoro Juridical Entity, the name of the expanded Muslim region, would operate outside its framework. This would be a sort of dream come true for the MILF, whose leaders, ever since the front’s inception in the late ’70s, had always maintained that any settlement should not be under the terms of the national Constitution.

Ironically, that proved to be the agreement’s undoing, along with the longstanding fear among many in Mindanao that the concessions could threaten Christian communities. Some Christian local officials sought the intercession of the Supreme Court, which issued a restraining order stopping the government and the MILF from signing the accord in Kuala Lumpur on Aug. 6.

What followed pretty much destroyed whatever goodwill the MILF gained in the negotiations and, as a result, now threatens to return Mindanao to a state of war. Two days after the signing was scuttled, hostilities erupted when MILF elements in North Cotabato province under the command of Umbra Kato refused to vacate villages they had earlier occupied, according to the military. The military responded with force, plunging the province and nearby areas into violence and displacing more than 160,000 people from their homes.

Less than a week after that, MILF elements, this time under the leadership of one Commander Bravo, went on a rampage in several towns and villages in the province of Lanao del Norte, shooting civilians, hacking people to death, taking hostages as human shields, and burning down houses. Images of mutilated and burned bodies, including that of a two-year-old girl named Love-Love, flooded the mainstream media, eliciting an outcry from many sectors, including those who had been supportive of the peace process.

The MILF insisted that the attacks were not approved by its central leadership and promised to investigate and punish those responsible. Al Haj Murad, the MILF’s chairman, told ABS-CBN television on Wednesday that the peace process remained a paramount consideration.

“We are trying our best to restrain our commanders in order to save the situation. This can be a beginning of the war if not properly handled,” Murad said. “There is still a chance in going back to peace as long as both parties ? for us and for the side of the government ? will implement utmost restraint in order to hold back the situation.”

But to many Filipinos, the damage created by this week’s atrocities is such that, in some parts of Mindanao, people are already reliving the horrors of the 1970s, the height of the government’s so-called “pacification campaign” against the Moro National Liberation Front, which dominated the Moro movement at that time but has since largely come to terms with the government under a previous autonomy agreement. The MILF broke away from the MNLF in 1981. On Wednesday, pictures emerged of a group of Christian militias, the Ilaga (literally, rats), arming themselves against the MILF. The name is itself frightening as the Ilaga were the often-vicious militias that faced Muslims in battle a generation ago.

Senator Rodolfo Biazon, who was a Marine Corps commander in Mindanao in the 1970s, said Thursday that civilians arming themselves present “a big problem in this country.” He recalled that during the insurgency drive in the 1970s, soldiers were taken from other areas to be deployed to Mindanao to pacify civilians who were killing each other. “We do not want a repeat of that,” he said, but “that could happen if the government fails to restore peace and order and protect civilians.”

In Manila, politicians denounced the MILF and called once again for an “all-out war” against the group, similar to the one launched by then-President Joseph Estrada in 2000. Estrada himself went on national television this week to accuse the Arroyo administration of treating the MILF with kid gloves.

Almost instantly, the other aspect of the peace deal that had riled many Filipinos prior to the attacks – the allegation that the agreement was a Trojan horse designed to keep Arroyo in power beyond 2010 – was nearly forgotten.

Before the attacks, Arroyo and her officials had insisted that the agreement could only be implemented if the Constitution was amended and the form of national government changed from the present centralized system into a federal one. Her critics and allies alike concede that during deliberations by the Philippine Congress on such amendments, no one could be prevented from introducing a proposal to shift to a parliamentary form of government in which Arroyo could be elected prime minister or to abolish the constitutional provision that bans a president from standing for re-election after a single six-year term. Arroyo’s term expires in 2010.

The paranoia that greeted the peace deal can be partly explained by the fact that Arroyo, apart from being the most unpopular president since the dictator Ferdinand Marcos, has been plagued with questions over her legitimacy in office since ascending to power after Estrada was overthrown by a military-backed uprising in 2001. Matters were made worse by charges that she stole the 2004 elections through massive cheating – an allegation that prompted three impeachment complaints against her.

Also, many Filipinos still view her as ambitious and power-hungry, someone who would not hesitate to lie about her political plans if it suited her. (Prior to the 2004 elections, she promised Filipinos that she would not run for president. After being named president, she was quoted by Time magazine as saying, “God put me here.”)

Her critics believe she wants to amend the Constitution to extend her term, a fear that has had the effect of poisoning even well-meaning campaigns to improve the charter hurriedly passed in 1987 after Marcos was overthrown. Indeed, at least two of the senators who had earlier backed a Senate resolution calling for a federal system withdrew their support, saying they did not want Arroyo to ride on that issue to prolong her stay.

After the attacks, all of these issues have been pushed to the periphery, allowing Arroyo to take the moral high ground and vow to crush the MILF factions that went on a rampage in Mindanao. Arroyo, said political analyst Ramon Casiple of the Institute for Political and Electoral Reforms, “still wants the memorandum of agreement but the pressure is on her to deal forcefully with MILF.”

“The MILF leadership, if they are serious about achieving peace in Mindanao, should discipline their ranks and not allow them to wreak havoc on the people of Mindanao,” said Aquilino Pimentel Jr., a senator from Mindanao who is the foremost proponent of federalism as a way to end the decades of conflict in the region.

The Lanao atrocities, said Casiple, “exposed the fact that the MILF does not really respect human rights, the niceties of democratic and legal processes, and that they do not yet have the requisites of a responsible political movement and a credible aspirant for state governance.”

For Bobby Tuazon, a political analyst at the Center for People Empowerment in Governance, a Manila think tank, the atrocities were a pity because the MILF “may have gained something out of this fiasco. It was able to press the government to recognize – at least in motherhood principles – the ancestral domain claim of the Bangsamoro people.” This, he said, “is a step forward in the MILF’s jihad toward self-determination.”

For the moment, many sectors, afraid that Mindanao will once again burn, are calling for restraint. “The primacy of the peace process is important,” said Julkipli Wadi, an Islamic scholar at the University of the Philippines. “The government cannot afford not to have peace talks in Mindanao.”