Fluctuating Forex

Spybiz reports that the Philippine government has actively been buying US currency in order to prevent the decline of the dollar. This is being done in order to protect the dollar earning exporters who are bound to "lose heavily".

I agree with the article's rebuttal that the falling value of the US dollar will result to lower commodity prices, since a big number of household products in the country are imported.

It is not very wise for manufacturers to pay for raw materials "at sight". Besides, most regular importers pay their suppliers at a future date, normally, after having converted the raw materials into finished products. Therefore, the importers are not bound to lose that much (if they lose at all) from forex drops, come payment time. The only "crash" will take place on the profit portion of the export price.

Let's give the consumers some breathing space, especially this christmas.

"Let the market Dictate!" - Adam Smith

Related Topics: Fundamental Economics: The value of a currency


Funny: Role of Government

A strong proponent (M.Friedman) of the minimal role of government lists National Defense, administering Peace and Order & Social Justice and the provision of Public Infrastructures (Roads) as the only functions of the administration.

I know of some economists who even advocate the outsourcing of National Defense and Public Safety. At this point, this blog will not dive into the midst of the debate but rather illustrate a creative way in providing a Public Safety service.


RIP: Milton Friedman (1912-2006)

Many thanks to the CAT for the heads up.


"That government governs best which governs least."

As an economist, this author pays tribute to Milton Friedman, a Nobel Laureate (1976) and one of the greatest minds of this century. Very much a free market economist, he advocated the minimum role of governments (in the economy) and greater reliance in individual responsibility.

He passed away in San Francisco at the age of 94.


RP industries not ready to compete — PCCI study

A study of 24 sectors within the services, agricultural, and non-agricultural industries showed that the country is largely unprepared to compete in the global market..


Competitive Advantage of the Philippines II

Despite being a newcomer in the global BPO industry, the Philippines have steadily increased its foothold as a top outsourcing destination.

Rest of Asia ready to grab BPO jobs from India, RP--study, Agence France-Presse
Last updated 08:44pm (Mla time) 11/05/2006

THE PHILIPPINES and India have to boost their overall competitiveness, as Asian countries gear up to get their share of the global offshore outsourcing pie, a recent global study showed.

These top two outsourcing destinations will eventually compete with China, and other Asia Pacific countries that have similarly positioned themselves as outsourcing destinations, the latest Offshore City Competitiveness Report of market research firm neoIT showed.

The study noted that companies have "moved beyond India" and the Philippines into not so well-known cities in the world since companies want to create a "global footprint."

China and Eastern European countries are starting to attract offshore outsourcing deals because of specific language skills required.

China is particularly keen on toppling India in the "services globalization arena," the study added.

Meanwhile, Malaysia, Thailand, Vietnam, Sri Lanka, and Pakistan are emerging as alternative outsourcing destinations in the Asia Pacific region.

Companies outsourcing their non-core business processes are now looking for multiple locations that cater to specific requirements, the study said.

Manila is currently known for its strengths in English voice-based customer care services, which mainly caters to North American-based companies. It is also an ideal destination for back-office processing activities, such as payroll and accounting, the study said.

Manila has been a global services hub of many multinational companies, and has a "good talent supply" from universities, the study added.

The neoIT study identified two categories used to identify outsourcing destinations: generic and enterprise-specific factors. The generic factors include cost, human capital, infrastructure, risks, and environment. The enterprise-specific factors, on the other hand, include language compatibility, physical proximity (of offshore facility to the company), socio-economic affinity, and the availability of sector-specific expertise. The supply of middle managers and attrition rates are also considered.

Taking into account these categories, the study concluded that the National Capital Region of Delhi is the "most suitable location." This was, the study noted, despite the eroding cost advantage and supply constraints of these cities.

"A lot has been said about India's eroding cost advantage and supply constraints," senior neoIT consultant Sabyasachi Satyaprasad said Saturday.

"But the fact remains that in terms of talent supply and cost arbitrage, India is still the leader," said Satyaprasad, whose company is headquartered in San Ramon, California, with offices in India and the Philippines.

Industry analysts closely watch profit-margin trends of Indian outsourcing companies for signs their competitive edge is eroding.

But Satyaprasad said in an interview with Agence France-Presse that there was no sign of that happening and Indian outsourcing giants like Infosys, Wipro and Tata Consultancy Services routinely report profits that beat market expectations.

New Delhi, Bangalore, Hyderabad, Mumbai, Pune, Chennai and Kolkata were the seven most favored sites worldwide to locate offshore, said the report, assembled from feedback from over 60 clients.

The study also included Manila as among the top 10 cities in the world for offshore outsourcing jobs. Other cities identified were Ho Chi Minh and Shanghai.

Government Borrowing & Commitment Fees Again

The Philippine Daily Inquirer reports today, that the Philippine government is set to borrow $250 Million from the WB. If the commitment fees paid, as of the year 2002, was invested in mutual funds that gained an average of 40% per year (PhilEquity), it would have been close to saving the Filipino from this particular loan. Now, if all the other commitment fees paid on 2003~ present will be taken into consideration...

Let us take note that the US$ is going through a devaluation. However, it is very well capable of rapid recovery and increase (by leaps and bounds). If that happens, the interest payments for the $250M loan, as well as future Peso devaluations can easily defeat the gains made this year.

While not meaning to sound so angry about the whole thing (I am not), let us remember that the present minimum wage is Php275 and the exchange rate is PhP49=US$1.00. If we will simply distribute $250 Million to the populace, it would be enough to feed 123,737 Filipino families, for one year.


IMF auditors to inspect RP's econ figures

And the economists are not at all worried...

RP budget system lacks transparency

The newspapers are saying something which most Filipinos already know. The other day, I asked an economist for information regarding the total amount of commitment fees that the Philippine government has paid its lenders. I was told that the thick 2007 national budget only has one page alloted to foreign debts. No mention was ever given regarding commitment fees....

THERE is not much accountability and transparency on the Philippine government’s budget process which, with the limited accessibility, holds back stakeholder participation in the efficient allocation and use of public funds, a new study from the US-based Center on Budget and Policy Priorities (CBPP) on Wednesday revealed.
in addition....
“The level of transparency is strongly influenced by the willingness of the government to be accountable to citizens…transparency is possible in both developed and developing countries,” Datinguinoo commented.
Datinguinoo, meanwhile, commented transparency and accountability, not only in the budget process but in other governance aspects as well, would be boosted if the legislature passes the Right to Information bill and provides broader access to government information.

Arvind Kejriwal, this year’s Ramon Magsaysay Award for Emergent Leadership awardee, earlier stressed the need for a law strengthening the Filipinos’ constitutionally-mandated right to information as a tool for empowerment and stemming corruption in government. “I encourage Filipinos to [demand] from government to have a law… and stop corruption by pushing for greater accountability among government employees,” he said.

Economics is what economists do

John Maynard Keynes, one of the most prominent figures in modern economics, has this to say;

"Another definition is Economics is what Economists do. John Maynard Keynes described what he thought economists do in Essays in Biography in 1933. An economist, he wrote, must

possess a rare combination of gifts. He must be mathematician, historian, statesman, philosopher-in some degree. He must understand symbols and speak in words. He must contemplate the particular in terms off the general, and touch abstract and concrete in the same flight of thought. He must study the present in light of the past for purposes of the future. No part of man's nature or his institutions must lie entirely outside his regard. He must be purposeful and disinterested in a simultaneous mood; as aloof and incorruptible as an artist, yet sometimes as near the earth as a politician."


Government Borrowing & Commitment Fees

It has been mentioned that in the annual budget, national governments compute for the level of expenditures (farm to market roads, hospitals, schools, etc..) that will be needed to finance a growing population. To be able to finance the planned spending, ways on how to raise the needed money (taxes, tariffs, etc.), are included and put into action.

In instances when the projected income fails to equal the needed amount, governments have naturally resorted to borrowing (both domestic and foreign loans).


In the past, the Philippine government borrowed a lot from institutions such as the IMF, WB & ADB, as well as ODA (Official Development Assistance) loans.

To date, debt servicing remains a big slice in the country’s national budget. Despite this, the country has a poor record in the actual usage of such loans due to delays in the implementation of the programs (which the loans were earmarked for). This naturally contributed to the failure of some sectors (in the economy) to receive the benefits of the delayed programs. What makes it worse is a little known fact that the government is slapped with Commitment Fees for the late availment of the loan funds. As of 2002, the commitment fees paid by the Philippine government to the ADB and WB has already reached US$40 Million. The amount (at present day costs) would be enough to feed 20,000 families for a year.

For a heavily indebted country, a wasted $40M (only for ADB & WB), is not funny at all. The figure for the two agencies must have reached a bigger number, by now. If we will compute the total figure for all the loan institutions, the end figure will surely be gigantic.

As of last Saturday, the government reports of instituting methods that will minimize, if not eliminate delays that will lead to the payment of commitment fees. The news simply means that the commitment fees still live on. So much for professional economists…

To be continued.....


Economics is generally defined as the study of the optimal allocation of scarce resources, in order to satisfy the unlimited human wants. Among other matters, it deals with issues such as production, distribution and consumption, in order to maximize the people’s satisfaction.

In a small scale (Microeconomics), the discipline covers the individual, household and companies. A household concern will be the distribution of the family income in an attempt to satisfy the needs and wants of the family. A typical household concern is whether to prioritize the repair of a potentially damaged roof, the purchase of new electronic appliances or pay for the down payment of a new car.

In a larger scale, the field covers organizational activities such as the strategic planning and operations, when companies plan and implement policies that will minimize cost and maximize the employees’ compensation package as well as shareholder profits. Examples include the implementation of management programs such as Kaizen, TQM, and most recently, the use of robots as a cheap and more efficient substitute to human labor.

In a much larger scale (Macroeconomics), the discipline covers the aggregate (governments, entire economy). An example is the national budget wherein, governments compute for the level of expenditures (example: farm to market roads, hospitals, schools, etc..) that will be needed to finance a growing population. To be able to finance the planned spending, ways on how to raise the needed money (example: taxes, tariffs, etc.), is put into action.


Germany: No Bailout for Debt-Ridden Capital

The German constitutional court rejected attempts to force the federal government to pay Berlin's debts.

I will discuss the economic significance of this in one of my next posts.