Is 2012 looking gloomy?

By John Mangun / Outside the Box

PHILIPPINE gross domestic product (GDP) numbers are scheduled for release today and if the data come in near the current estimates of around 5 percent, the economy is in trouble. A slowing of growth by 20 percent from first quarter 2012 would knock a large hole in the government’s estimated target for 2012 of 6 percent.

The private sector has done all it can through increasing revenues and increasing profits but government policy is becoming a heavier and heavier anchor around the neck of the economy. All the talk about the Philippines being a bright spot on the world economic stage is premised on a follow-through of the first-quarter economic activity and that does not look like it is going happen.

Foreign direct investment is a disaster this year. Originally the Bangko Sentral ng Pilipinas had forecast $2 billion coming in and in June lowered its estimate by a staggering 40 percent to only $1.2 billion. If the world considers the Philippines as the healthiest economy in the region, they are not willing to put their money where their mouth is. While the stock market is seeing foreign money coming in, the rest of the economy is not on the radar.

If the government thinks that its mining-policy disaster is not part of the problem, it is sadly mistaken. The Philippines has some attractive financial and business qualities that make it a foreign-fund destination. But given the choice between putting $1 billion in the local stock market and committing $5 billion to a multi-year project, there is no choice. And it is the government’s liability completely. No one in his right mind puts big money on the table when there is uncertainty. While 20 years from now rainbow-colored chickens that lay solid gold eggs may inhabit the Philippines, six months down the road in the Philippines is a big question mark.

The government is sure to spin any decrease in economic growth on external factors. However, any mention of the Philippines’s future being better based on an improving situation in the West should set off flashing red lights. If the government counts on an improving situation in the West to help PHL, 2013 will be a calamity.

The focus of any US policy action is to boost economic growth. But after throwing in $2 trillion over the last three years, economic growth is actually going down. Dr. Marc Faber says this about past Federal Reserve money policies: “It has already impoverished the US economy.” It would take “massive easing, a huge balance-sheet expansion,” to boost economic activity in the US which is unlikely in the face of the already unimaginable $14-trillion debt.

Europe, on the other hand, cares very little about economic growth. They are where the US was several years ago, trying to save their banking system. Countries like Spain are bankrupt but it is the banks that own the debt. If the countries default, the banks collapse.

Economic-growth policies come after the banking fire has been put out.

European Central Bank President Mario Draghi said this: “The ECB is ready to do whatever it takes to preserve the euro” and “whatever” is not economic growth.

Preserving the euro is preserving the banks. If Spain drops the euro and goes back to the peseta, the peseta would probably be worth 50 percent of the euro, effectively doubling their euro-denominated debt. There would be no way to pay and the banks collapse. Paying the debt on a one-for-one euro in pesetas would leave the banks holding a currency that would only have value in Spain. The banks collapse.

The only choice the ECB has is to absorb the Spanish debt. For the Philippines, there is no global savior from ineffective government economic policy. It is time now for the government to do whatever it takes to get foreign direct investment, to get local companies to expand, and to make clear rules to implement those polices. Why am I not optimistic that will happen?

E-mail to mangun@gmail.com, web site iswww.mangunonmarkets.com, and Twitter @mangunonmarkets. PSE stock-market information and technical analysis tools provided by COL Financial Group Inc.