msme development and the financial crisis
TRANSCRIPT
-
8/14/2019 MSME Development and the Financial Crisis
1/76
FORUM SERIES
Global Financial Crisis and MSMEs
FOUNDATION
FOR
A
SUSTAINABLE SOCIETY
Proceedings
-
8/14/2019 MSME Development and the Financial Crisis
2/76
THEME
FindingAlternativesandSolutionstotheImpactsoftheGlobalEconomicCrisis
BACKGROUND
Nationsareconfrontedwithtwoofthemostsignificantcrisisofitstime:theclimatecrisisandtheglobal
economiccrisis.Theclimatecrisisnodoubtisaresultofunprecedented,unsustainablegrowthand
developmentwithoutregardofthecosttopeopleandtotheenvironment.Therecentmeltdown
amongeconomicgiantsonlyunderscorestheneededshiftinfocusamongsocietiesoverthe
predominanteconomicparadigms.Thereisapparentcalltowardsenhancedinstitutionalgovernance,
greaterparticipationofpeopleanddemocratizedaccesstoresources.
Micro,smallandmediumenterprises(MSMEs)constitutes99.7%ofbusinessfirmsinthePhilippines.It
contributes32%tototalGrossDomesticProductandgenerates70%ofallemployment.Nodoubt,
MSMEs
are
a
potent
force
for
sustainable
development
that
stimulates
local
economy
development
and
apotentialmechanismforimprovingsocialequityamongthepoor.However,thepresentglobal
economiccrisisposesgravethreattotheirgrowthandsurvivalconsideringthealreadymanyand
multiplechallengesinherentamongMSMEs.
ThePhilippinesremainsunclearintermsofwhatactionstotaketomitigatetheeffectsofthecrisis.
Ongoingdiscoursesarehappeningamongvariousgroupsandcivilsocietystakeholderstofind
alternativestothecrisisconfronted.FSSIworkingprimarilywithMSMEsandintheforefrontof
advocatingandpromotingthetriplebottomline(3BL)frameworkasthebasisforenterprise
developmentdeemsitrelevantandstrategictoprovideopportunitiesforsuchdiscussion.
FORUMOBJECTIVES
ThroughFSSIsadvocacyprogram,itisaimedthatthisproposedpublicforumwill:
Facilitatediscourseandexchangeamongvariousstakeholders(CSOs,privatesector,government)infindingsolutionsandalternativestomitigatetheimpactsofthecrisis;
Identifypractical(shortterm)andstrategic(longterm)solutionsthatcanbepursuedamongtherelevantstakeholderspresent;
Contributetoongoinginitiativesoffindingalternativesandsolutionstotheimpactsoftheglobaleconomiccrisis
-
8/14/2019 MSME Development and the Financial Crisis
3/76
COLLABORATINGORGANIZATIONS
TheFreedomfromDebtCoalition(FDC)
Philippinesisanationwidemultisectoral
coalitionconducting
advocacy
work
in
the
national,localandinternationalarenas,torealize
acommonframeworkandagendaforeconomic
development.
MindanaoAllianceofSelfHelpSocietiesSouthern
PhilippinesEducationalCooperativeCenter(MASS
SPECC)istheoldestcooperativefederationinthe
countryandconsistsof252cooperativesand
otherselfhelpgroupsoperatingin20outof23
provincesinMindanao.
TheCagayandeOroChamberofCommerceand
IndustryFoundation,Inc.(OroChamber)isanon
stockandnonprofitvoluntaryorganizationof
businessmenandprofessionalsworkingtogether
tofosterandpromoteprivatesectorinitiative
towardbusinessdevelopmentinCagayandeOro
City,MisamisOrientalProvinceandnearbyareas.
-
8/14/2019 MSME Development and the Financial Crisis
4/76
PARTICIPATION
PERINDIVIDUALCOUNT 76
10 FSSIstaff
PERORGANIZATION
39
MEMBERS
CONVERGENCE,Helvetas,PHILSSA,FDC,PHILNETRDI,
PCFORVCF,MINCODE,MASSSPECC,APPEND,NCSD,
NCCP,FPSDC,HEKS,SMPFC
GreenForumPhilippines,NATTCCO,WAND,CBCPNASSA
18
PARTNERS
MILAMDECFoundation,MILAMDECcooperative,
Greenminds,CoopBankofMisamisOriental,MMASON,
CDOhandmade,PDAP,OroChamber,Bukidnon
Muscovado
8
OTHERSTAKEHOLDERS
VJandepBakeshop,PhilippineNationalBank,Boom
MarineCorp,Don2GNCandPharmacy,OroIntegrated
Coop,AlRoseGroupofCompanies,KAANIIS,BMCSVC,
NEDA,DepartmentofFinance,BOPC,Kpmpibmfi,IBON,
Ateneo,SalayHandmade
16
MEDIA
SunstarCDO,MindanaoGoldStarDailyABSCBN,CRA,
TheMindanaoCurrent,BomboRadyo,TV39
7
-
8/14/2019 MSME Development and the Financial Crisis
5/76
MEDIACOVERAGE
Program/Format Guest/Topic Date
MaayongAdlaw!Mindanao!,
LocalTv39
MiloTanchuling May26MainNews
May27LiveIntervidw
May28ForumCoverage
DXCO,RadioAsenso MiloTanchuling May28
ABSCBNTV,Northern
Mindanao
MiloTanchuling
DatuMakadinding
May30
SunstarCdo
InvestingInPeople BestExpo09SeenTo
BringInNewMoney
SalayHandmade,
OroChamber,FSSI,FDC,
MASSSPECC
May29
May14
PhilippineInformationAgency
BestExpo09SeenTo
BringInNewMoney
OroChamber,Fssi,Fdc,
MassSpecc
May13
BomboRadyo MiloTanchuling May28* RecordedInterview
-
8/14/2019 MSME Development and the Financial Crisis
6/76
-
8/14/2019 MSME Development and the Financial Crisis
7/76
Finding Altern
CasD
TIME ACTIVITY
08:00- 09:00 am REGISTRATIO
09:0009:30 am Opening Cere
Welcome RemMerce
ChairpBOT m
09:30-09:55am
09:55-10:20am
PANEL 1
PRESENTATIPerspectiveJosep
PRESENTATIResponse of th
Di r . Den
OPEN FORUM
10:20-10:45am
10:45-11:10am
11:00-12:00nn
PRESENTATICivil Society S Rosar io B
PRESENTATIEconomic Crisi
Clarence
OPEN FORUM
12:0001:30 pm LUNCH BREAK
In Collaboration with:
tives to the Impact of the
Financial Crisis
A Public Forum
May 28, 2009
Real Function Hall, VIP Hotelon A. Velez St., Cagayan de Oro City
(08822) 726-080
ony/Forum Introduction
rksdes Cast i l lo
erson, Committee on Education & Advocacyember, FSSI
: Understanding the Impacts of the Crisi
N 1: The Global Economic Crisis: Asian Context a
L i m, Economist, Ateneo de Manila University
N 2: The Global Economic Crisis: Assessment &e National Governmenti s Ar roy o , NEDA National Planning & Policy Staff
/ COFFEE BREAK
N 3: The Global Economic Crisis: A Perspective fctor
e l la Guzm an, IBON, Executive Director
N 4: Challenges in MSME Development in a Globs Situationascual , Labor Economist
lobal
FSSIPHTOEXHIBIT
FSSIPHOTOE
XHIBIT
s
nd
om
l
-
8/14/2019 MSME Development and the Financial Crisis
8/76
TIME
01:30-02:20pm PA
PRESENTATITimes J ing Pactu
PRESENTATIEconomic Chal Mayo r La
City Mayor
PRESENTATILore ta Raf
PRESENTATILydia Can
02:20-02:50pm PRESENTATI
Milo Tan
Secretar
02:50-03:20pm
From the
o Di
From theo Sy
From theo Di
From the P
o Ri
In
03:40-04:15 pm OPEN FORUM
04:15-05:00 pm SYNTHESIS/W
CLOSING REM
Ricardo M
President,
In Collaboration with:
ACTIVITY
EL 2: SHARIN G OF LOCAL EXPERIENCES
N 5: Community Experiences: Sailing Through R
r an , PDAP Executive Director
N 6: LGU Initiatives: Local Response to Globallengesw r e n c e Cr u z ( f o r c o n f ir m a t i o n )
, Iligan City
N 7: MSME Sector: Surviving in a Period of Crisissu ra , Salay Handmade Paper
ON 8: Cooperatives Amidst Economic Crisisl i j a , LIPI Employees MPC, Manager
N 9: Finding Alternatives and Solutions
chu l i ng
-General, Freedom from Debt Coalition (FDC)
PANEL 3: STAKEHOLDER REACTIONS
overnment:
. Alicia Eusenia, DTI Regional Directorooperative Sectorl v ia O. Paraguy a , MASS-SPECC Executive Directomen Sectora An i tan , WAND Mindanao Coordinator
rivate Sector
a rdo Me es, President, Oro Chamber of Commer
ustry Foundation
/ COFFEE BREAK
RAP-UP
RKS
ees
ro Chamber of Commerce & Industry Foundation
ugh
FSSIPHTOEXHIBIT
FSSIPH
OTOEXHIBIT
r
e &
-
8/14/2019 MSME Development and the Financial Crisis
9/76
The Global Economic Crisis: Asian Contextand Perspective
Joseph Y. Lim
mhastaughtintheUniversityofthePhilippinesSchoolofEconomicsfor20yearsbeforejoiningtheAteneodeManilaUniv
tyDepartmentofEconomics.LimhasnumerouspublicationsontheAsianfinancialcrisisandiscurrentlywritingastudyon
urrentfinancialcrisis.Limsmostrecentresearchtopicsincludeinternationalfinance,structuraladjustments,international
orstandardsandpovertyreduction.SeveraloftheseworkswerepublishedinconjunctionwiththeUNDPMacroeconomics
overtyReduction.
-
8/14/2019 MSME Development and the Financial Crisis
10/76
Forum on Seeking Alternatives to theImpacts of the Global Financial Crisis:
May 28, 2009 Organized by FSSI
The Current GlobalFinancial Crisis
Presentation by:
Joseph Anthony LimEconomist
Ateneo de Manila University
Hard Landing to Global Imbalances in thepre-2007 period
Latest US boom in 2004-7 spurred by
consumption and housing boom as US
household savin s was ne ative and the
spending financed by debts and loans
Hard Landing to Global Imbalances in the
pre-2007 period
The resulting large US current account and
fiscal deficits were being financed by
countries with large current account
surpluses the export-oriented economies --
especially PRC, Japan, the other East Asian
emerging markets and the oil-producing
countries (notably Russia)
Global imbalances 2003-2007
4
-
8/14/2019 MSME Development and the Financial Crisis
11/76
Forum on Seeking Alternatives to theImpacts of the Global Financial Crisis:
May 28, 2009 Organized by FSSI
200.0
400.0
600.0
800.0
1000.0
Current Account vs Financial/Capital Accounts, billions &S $
Capital & Financial Accounts and Errors
Current Account,
-1000.0
-800.0
-600.0
-400.0
-200.0
0.0
US CA deficit is completely offset by net
capital inflows to the US. Capital inflows to
US from
private capital flows from other countries
central banks investment in US securities
from international reserves of other countries
most of net inflows to US in recent years go to
debt securities (T-bills and bonds)
But situation could not be sustained
The Current Global and Economic
Crisis: The Western Countries
Roots of the crisis:
the high leveraging in the US during the growth
period 2004 to 2007
the bubbles
the subprime lending and securitization of mortgage
and other loan assets
The spread of the leveraging, asset bubble andsecuritization of loan assets to Europe and other
Western developed countries
Origins of the US Subprime Crisis
The rise of the securitization of loan assets, especially
housing mortgages, in the 1990s and intensifying in the
2000s and the latest boom period in the US (2004-7)
The dot-com bubble bursting in 2001 caused authorities to
reduce Fed policy rates from 6.5% in 2000 to 1% by 2003.
Together with tax cuts by the Bush Administration, this led to
a consumption boom in 2003 to 2007 and large and
widespread household investments in housing through
mortgage loans
-
8/14/2019 MSME Development and the Financial Crisis
12/76
Forum on Seeking Alternatives to theImpacts of the Global Financial Crisis:
May 28, 2009 Organized by FSSI
Origins of the US Subprime Crisis (cont.)
Fannie Mae and Freddie Mac two government-sponsored
enterprises -- were given incentives to securitize mortgages
and make housing affordable and gear a sizeable portion of
the mortgages to low-income households
The lax monetary and fiscal policies enticed households,
financial institutions and firms into high leveraging (debt-
financing), especially in the housing market
The bad practices were given much incentives by low interest
rates, skyrocketing housing prices and irrational exuberance
and were largely unregulated
Origins of the US Subprime Crisis (cont.)
Loan assets were highly securitized into mortgage-backed
securities (MBS) and credit debt obligations (CDOs)
These securities were insured by financial instruments issued
by private financial institutions (like AIG) known as credit default
swaps (CDS)
Housing loans were given without much credit investigation by
the mortgage underwriters to borrowers that were in the past
shut out from the mortgage market because of their higher risks
of default (this is the subprime sector).
Origins of the US Subprime Crisis (cont.)
Sweeteners were given for mortgage debtors to purchase
houses (interest rate payments only in initial periods, a low
4% interest rate in initial years, with rates increasing
significantly after, etc.)
The securitization of loan assets especially mortgage loans
-
8/14/2019 MSME Development and the Financial Crisis
13/76
Forum on Seeking Alternatives to theImpacts of the Global Financial Crisis:
May 28, 2009 Organized by FSSI
Dangers in the 2003-2007 US HousingBoom
Lenders and mortgage brokers cut off from the borrower,
who pays to the servicer
The issuer of the mortgage-backed securities (MBS) or
CDO (investment banks, Fannie Mae/Freddie Mac) pools
different types of loan assets into one financial instrument
package product not clear and transparent
Rating agencies rated these securities very highly
disregarding the risks and concentrating on high prices of
real property used as collateral
Dangers in the 2003-2007 US HousingBoom
The whole process was leveraged with buyers of the
securities highly leveraged and commercial banks and
investment banks borrowing to buy these securities
any orrowe s or erm an nves e n secur es a are
based on long-term loan (mortgage) assets term mismatch
These dangerous activities were largely unregulated by the
Securities and Exchange Commission (in charge of
investment houses) and the Fed was lax with the commercial
banks.
The bursting of the asset bubble,
defaults and financial chaos
Rising inflation (partly caused by high fuel costs, partly by high
spending) made the US Fed increase the policy rates from 1% to
5.25% between 2004 to 2006
Risin interest rates directl affected ca acit to a of borrowers
Together with indiscriminate mortgage lending, this led to high
defaults in the subprime housing market, starting late 2006 and
intensifying in 2007 leading to crisis proportions in 2008
Bursting of asset bubbles collapse of housing prices and stock
market prices in 2007 and 2008 onwards
The bursting of the asset bubble,
defaults and financial chaos
Financial trouble hit all the investment banks and many commercial
banks, insurance companies and other financial institutions
Securitization of the loan assets made the crisis deeper with
Starting September 2008: Bankruptcy of Lehman Bros, takeover of
Merrill Lynch and Bear Sterns, bailout of AIG, Citigroup, Bank of
America shakes confidence; Stock markets worldwide collapse:
Beginning of depression mentality worldwide stock marketcollapse
-
8/14/2019 MSME Development and the Financial Crisis
14/76
Forum on Seeking Alternatives to theImpacts of the Global Financial Crisis:
May 28, 2009 Organized by FSSI
There is the question of how problems in one small
corner of US financial markets (the subprime mortgage
market) could affect financial markets so powerfully
(this slide borrowed from Barry Eichengreen)
Recall that subprime mortgages accounted for only 3 per cent of US
financial assets on the eve of the crisis (hence even a smaller share of
globalfinancial assets).
Part of the answer is leverage.
Many of those who held subprime-related assets were leveraged 12 to
50 times (12 for commercial banks, 25 times for investment banks, 50
times for certain now-notorious broker-dealers).
$1 of subprime related losses thus forced $12 to $50 of other assets to
be liquidated.
17
There is the question of how problems in one small
corner of US financial markets (the subprime mortgage
market) could affect financial markets so powerfully
(this slide borrowed from Barry Eichengreen)
Part of the answer is asymmetric information.
This was the fear that similar problems lurked in other asset classes,
precipitating panicked selloffs.
Part of the answer is counterparty risk.
The failure of certain counterparties (can you say Lehman Bros.?) led
to illiquidity and losses for other investors, creating a domino effect.
These propagation mechanisms will be studied for years...
18
Globalization: finance trade
Figure 1Finance driven globalization
1
140
160
180
250
300
350
80=100
19
0
20
40
60
80
100
1
1980 1990 1995 2000 2006
Years
0
50
100
150
200
AspercentofGDP,indices19
Global financial assets Global merchandise trade
Global financial assets as a percentage of GDP (right axis) Global merchandise trade as a percentage of GDP (right axis)
The Deepening and Spreading of the US
Financial Crisis to the Real Sector
The financial crisis led to strong credit squeeze as banks
refused to lend to borrowers and to other banks; interbank
rates increased sharply in September-November 2008.
Losses in business confidence among lenders, investors and
finally consumers cut their spending significantly.
Consumers were badly affected by sharp declines in wealth
collapse in housing prices, stock prices, pension fundpayments and credit squeeze. Retail sales plummeted.
-
8/14/2019 MSME Development and the Financial Crisis
15/76
Forum on Seeking Alternatives to theImpacts of the Global Financial Crisis:
May 28, 2009 Organized by FSSI
The Deepening and Spreading of the USFinancial Crisis to the Real Sector
Firms earnings suffered from sharp drop in sales. Many firms
teetered on collapse (e.g. the auto industry)
Firms laid off workers increasingly leading to a vicious
ownwar spra o unemp oymen , ur er consump on cu s,
further firm losses, further layoffs, possible loan defaults of
firms and households (credit card defaults), further cuts in
lending, etc.
The Deepening and Spreading of the USFinancial Crisis to the Global Economies
European, Australian/NZ financial institutions participated in
the US subprime lending and had their own credit-led growth
and asset bubbles in their respective countries. They were
infected by the US financial and economic crisis in the US.
US, Europe and Japan now in deep recession. US GDP
contracted more than 6.5% in last quarter of 2008, another
6.1% 1st quarter of 2009. Economists officially declared US in
recession since December 2007.
Iceland suffered financial, economic and currency collapse
and had to ask for IMF help
The Deepening and Spreading of the US
Financial Crisis to the Global Economies
Hungary, Ukraine, Serbia and Pakistan also had to run to IMF
for foreign exchange funds as massive foreign capital outflows
in emerging markets led to liquidity shortages in foreign
reserves and sharp currency depreciation both contributing
to near-debt-defaults
Russia also in a serious crisis due to massive capital outflows,
oil price decline and sharp and continuing depreciation of the
ruble
Asian NIEs registered negative growth starting 3rd quarter of
2008
Market Failures
Contrary to the pronouncements of the institutions of the Washington
Consensus IMF and US trade and financial liberalization globally
carries tremendous risks through market failures
In the last two decades, economists have pinpointed market failures
(as opposed to market efficiencies) in goods, labor and capital
markets this global depression shows the failure in all three
sectors.
Perhaps the biggest market failures are in the financial markets
Moral hazards and adverse selection (You dont know whetherborrower will pay back, low interest rates attract good and bad
borrowers, when interest rate goes up, good borrowers become
bad, and you attract bad borrowers)
-
8/14/2019 MSME Development and the Financial Crisis
16/76
Forum on Seeking Alternatives to theImpacts of the Global Financial Crisis:
May 28, 2009 Organized by FSSI
Market Failures
Perhaps the biggest market failures are in the financial markets
Transactions are over time (credit, loans) even good borrowers
can become bad if market conditions change (low interest rates
become high interest rates, recession sets in, etc.)
Systemic risks domino effects -- aggravated by unregulated
securitization
Financial and capital account liberalization globalized the risks of
securitization and high leverage to Europe and other countries
The bankruptcy of Lehman Bros. and the systemic risks that
reverberated ensured that the subprime financial crisis became a
global financial and economic meltdown and possibly a global
depression.
Responses of the US: Monetary andFinancial Policies
The US Fed cut the Fed Funds Rate from 5.25% by end of
2007 to a range of 0-0.25% by December 2008.
The Fed gave a total of $1.6 trillion (as of November 2008) of
The Fed supported JP Morgan and Bank of America to bailout
and takeover of Bear Stearns and Merrill Lynch, respectively, to
avoid systemic risks. But it let Lehman Bros. go bankrupt, led to
global havoc and depression syndrome. After this, it had to
bail out AIG.
Responses of the US: Monetary and
Financial Policies
The Fed also took the government-sponsored enterprises
Fannie Mae and Freddie Mac into conservatorship
In October 2008, to stop collapse of financial institutions and
encourage interbank lending and lending to firms and
households, Congress under Bush passed the creation of the
Troubled Asset Relief Program (TARP) with $700 billion given
to US Treasury to buy troubled assets (mostly mortgage-
backed securities and CDOs) of financial institutions to clean uptheir balance sheets.
Responses of the US: Monetary and
Financial Policies
The initial $350 billion advanced to the US Treasury was used
instead by Treasurer Paulson to recapitalize troubled banks by
buying preferred shares of the banks. There is dissatisfaction
concerning the transparency of the disbursements of the funds
and conditions of the disbursements
The Obama economic team is using stress test approach to
solve banks insolvency problem. On May 6, 2009, the stress
test (which many consider too easy) determined that 10 of 19
US big banks required $75 billion capital infusion in case of a
worst scenario. Bank of America required $33+ billion, Wells
Fargo $13+billion, GMAC $11+billion.
-
8/14/2019 MSME Development and the Financial Crisis
17/76
Forum on Seeking Alternatives to theImpacts of the Global Financial Crisis:
May 28, 2009 Organized by FSSI
Responses of the US: Monetary andFinancial Policies
Due to banks unwillingness to lend to firms, the Fed in Oct.
2008 expanded collateralized lending to commercial papers,
making it effectively the alternative lender to firms
team) on cleaning up the bad assets or bad loans in the
financial system (this is a risky approach: the same approach
led to a ten year stagnation in Japan).
Responses of the US: Monetary andFinancial Policies
The Housing and Economic Recovery Act of 2008
(Bush)
insured $300 billion in mortgages assisting 400,000
borrowers
Lent money to mortgage bankers to help them
restructure mortgage debts by reducing the amount of
the mortgage in exchange for sharing in future
appreciation of housing prices
These did not lead to significant declines in foreclosures
and led to criticisms up to the current period about lack of
attention to solve the housing crisis
Responses of the US: Monetary and
Financial Policies
Obama and his financial team announced
Refinancing for Up to 4 to 5 Million Responsible
Homeowners to Make Their Mortgages More Affortdable
A $75 Billion Homeowner Stability Initiative to Reach Up
to 3 to 4 Million At-Risk Homeowners
Supporting Low Mortgage Rages by Strengthening
Confidence in Fannie Mae and Freddie Mac.
Responses of the US: Old Fiscal
Stimulus of Bush
On Feb. 2008, Bush signed into law an
economic stimulus of $168 billion of income tax
rebates. This led to an artificial rise in GDP in
the second quarter of 2008. Since the tax
rebate was temporary the recession continued
in the third quarter as GDP growth turned
negative and deepened sharply in the fourthquarter of 2008 with GDP growth at -6.3%
-
8/14/2019 MSME Development and the Financial Crisis
18/76
Forum on Seeking Alternatives to theImpacts of the Global Financial Crisis:
May 28, 2009 Organized by FSSI
Responses of the US: Fiscal Stimulus
The Obama fiscal stimulus: passed American Recovery and
Reinvestment Act in Februuary 2009 ($787 billion)
It consists of:
Roughly 2/3 in government spending and 1/3 in tax cuts,
especially for middle and low-income families
Infrastructure spending consists of building energy grids,
roads and railways, modernization of schools
The plan also calls for cash infusion into strained state
budgets
Social spending included spending for education, ensuring
health care for low-income groups/ unemployed and
unemployment insurance
Responses of the US: Fiscal Stimulus
The Republicans
prefer a larger proportion of the stimulus going to tax cuts
and rebates as well as mortgage relief; they were able to
push for tax credits for housing and automobile purchases
insist on trimming the government spending portion.
Other developed and developing countries
committed to fiscal stimuli to stop the fast-
deteriorating economic decline but are in varying
proximity in arriving at a strong fiscal plan
But whether fiscal stimuli will lead to economic
recovery depends on
the soundness of the fiscal plan
the return of credit flows in the financial sector
the return of confidence of consumers, investors and
lenders
Coordinated Global Responses
In October 7-8, 2008, the Central Banks of the developed
countries simultaneously reduced their policy rates on the same
day. This cheered the markets only temporarily and did not stop
the financial deterioration in the developed countries
weaknesses had not led to significant results.
The G20 meeting in mid-November 2008 (sponsored by Bush)
got all the member countries promising to coordinate responses
to the global financial crisis. This did not have any impact on global confidence.
But it did get countries to calling for a rejection of protectionism
-
8/14/2019 MSME Development and the Financial Crisis
19/76
Forum on Seeking Alternatives to theImpacts of the Global Financial Crisis:
May 28, 2009 Organized by FSSI
Coordinated Global Responses The Davos World Economic Forum in Jan. 30-31 2009
Resulted in calls by UK and Germany for a multilateral global
watchdog overseeing financial institutions
Not attended by top US officials
Brought about fears of protectionism from the US
A US Congress bill stipulating the fiscal stimulus projects should
use US materials eventually watered down due to fear of trade
wars
A view that the bailout of the US auto industry was a protectionist
move
Subsequent G7 and G20 meetings powerless to stop the
global downslide
-
8/14/2019 MSME Development and the Financial Crisis
20/76
6/26/200
Forum on Finding Alternatives to theImpacts of the Global Financial Crisis
May 28, 2009 Organized by FSSI
Asian Vulnerabilities to theGlobal Financial Crisis
Presentation by:
Joseph Anthony LimEconomist
Ateneo de Manila University
Financial Vulnerabilities of
East Asian Countries
Asian Countries Fixed Their Financial
Houses in Late 1990s and 2000s as a result
of the Asian crisis and other financial threats
Asian countries improved their financial
supervision and regulations after the Asian
crisis so that the financial sector was less
vulnerable to
The toxic assets from Western financial sectors
The over-leveraging that led to high asset bubblebursting and defaults
Asian Countries Fixed Their Financial Housesin Late 1990s and 2000s
Stronger financial regulations and supervision
led to
Higher capital adequacy ratios in banks
Limits to property lending
Limits to unhedged foreign exchange borrowings
Regulations and limits on financial investments
abroad by domestic financial institutions This led to declining Non Performing Loan
ratios in the 2000s
-
8/14/2019 MSME Development and the Financial Crisis
21/76
6/26/200
Forum on Finding Alternatives to theImpacts of the Global Financial Crisis
May 28, 2009 Organized by FSSI
Banks are generally in good shape for now : Data fromBanks are generally in good shape for now : Data fromAsian Economic Monitor Dec. 2008Asian Economic Monitor Dec. 2008
Table1
Risk-Weighted Capital Adequacy Ratios (% of risk-weighted assets)
Economy 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Hong Kong, China 17.9 16.5 15.7 15.3 15.4 14.9 14.9 13.4 14.8
Indonesia 21.6 18.2 22.4 19.4 19.4 19.3 21.3 19.3 16.8 17.8
Table 1
Japan 11.7 10.8 9.4 11.1 11.6 12.2 13.1 12.9 12.3
Korea, Rep. of 10.5 10.8 10.5 10.4 11.3 12.4 12.3 12.0 12.7
Malaysia 12.3 12.8 13.2 14.0 14.3 13.5 13.1 12.6 12.2 12.5
Philippines 15.6 15.3 16.6 17.4 18.7 17.7 18.5 15.9 15.5
Singapore 19.6 18.2 16.9 16.0 16.2 15.8 15.4 13.5 14.3
Taipei,China 10.8 10.4 10.6 10.1 10.7 10.3 10.1 10.6 10.8
Thailand 11.4 13.3 13.0 13.4 12.4 13.3 13.9 14.9 14.0 14.6
NPLs of Asian Bank s had declined and are low : DataNPLs of Asian Bank s had declined and are low : Datafrom Asian Economic Monitor Dec 2008from Asian Economic Monitor Dec 2008
Table 2
Non-Performing Loans (% of total commercial bank loans)
Economy 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
China, People's Rep. of 22.4 29.8 21.6 17.8 13.2 8.6 7.1 6.2
Hong Kong, China 5.9 5.2 3.9 3.2 1.6 1.4 1.1 0.8 1.2
Indonesia 18.8 12.1 8.1 8.2 5.8 8.3 7.0 4.9 3.8 4.3
Japan 5.3 8.4 7.2 5.2 2.9 1.8 1.5 1.5 1.4
Korea, Rep. of 6.6 2.9 1.9 2.2 1.7 1.1 0.8 0.6 0.9
Malaysia 8.3 10.5 9.3 8.3 6.8 5.6 4.8 3.2 2.2 2.2
Philippines 15.1 17.3 15.0 14.1 12.7 8.5 6.0 4.5 3.5 3.8
Taipei,China 5.3 7.5 6.1 4.3 2.8 2.2 2.1 1.8 1.5
Thailand 17.7 10.5 15.7 12.9 10.9 8.3 7.5 7.3 5.3
Exposure of some Asian banks to US
toxic assets
Even with better financial regulation and supervision,
some Asian banks were exposed and some may still be
secretly exposed to the toxic assets in the US
en e man ros. wen an rup , some ppne
banks led by Banco de Oro, DBP and Metro Bank
were exposed to Lehman financial products (total of
$300 million) and had to set up loan loss reserves
If more multinational financial institutions fail, more
Asian banks may be adversely affected
Financial Vulnerability: Open Capital
Accounts Volatilities of Hot Money
Asian economies continued an open capital
account economy after the Asian crisis. China,
Vietnam and India partly opened up their capital
.
in 2004 to early 2007.
The one with biggest capital control China is the
only currency in developing Asia not depreciating
-
8/14/2019 MSME Development and the Financial Crisis
22/76
6/26/200
Forum on Finding Alternatives to theImpacts of the Global Financial Crisis
May 28, 2009 Organized by FSSI
From late 2007 up to the present, these Asian
economies suffered sharp stock market and sovereign
bond price collapse during the global financial crisis as
foreign money took flight
To get away from risk to safe assets i.e. from Asian
currency-denominated assets to US treasury notes
(US$), the yen and gold.
To cash in on profits derived in emerging markets to
finance losses in their financial institutions
Stock shares and sovereign bonds also dumped by
domestic investors as their confidence plummeted as
global financial markets teetered towards collapse, local
exports declined, local earnings fell and layoffs
increased
500
600
700
800
Dow Jones Industrial Average
S&P 500
Nikkei 225
Shanghai A Share
Hang Seng Index
Jakarta Composite Index
KOSPI Index
Kuala Lumpur Composite Index
Philippine Composite Index
Stock Price Indexes(last daily price, 1 January 2002 = 100, local index)
0
100
200
300
400
Jan-02 Aug-02 Mar-03 Oct-03 May-04 Dec-04 Jul-05 Feb-06 Sep-06 Apr-07 Nov-07 Jun-08 Jan-09
trait Times Index
Taiwan Stock Exchange Index
SET Thailand
BSE 100
VNINDEX
Source: Bloomberg
Financial Markets in Asian Less Bank-Dependent
and More Equity and Bond Dependent
Structural change of Asian financial assets
Total billion US$ and shares on total: 1995 and 2007
Asia includes the People's Republic of China, Hong Kong, China, India, Indonesia,
Japan, Republic of Korea, Malaysia, Philippines, Singapore, Taipei,China, and
Thailand.
Thus the stock and bond market volatilities
and declines in the emerging Asian markets
reduce the efficiency and sources of financing
for the real sector.
Stock and sovereign bond market declines
also kill investors confidence and some
consumer confidence.
-
8/14/2019 MSME Development and the Financial Crisis
23/76
6/26/200
Forum on Finding Alternatives to theImpacts of the Global Financial Crisis
May 28, 2009 Organized by FSSI
Currencies tumble amid fl ight to safety: Data from AEM Dec. 2008Currencies tumble amid fl ight to safety: Data from AEM Dec. 2008
Broad Indices of Nominal Effective Exchange Rate (Jan 07=100): Selected Countries
100.00
110.00
120.00
India
60.00
70.00
80.00
90.00
Jan-07
Feb-07
Mar-0
7
Apr-0
7
May-07
Jun-07
Jul-0
7
Aug-07
Sep-07
Oct-0
7
Nov-0
7
Dec-07
Jan-08
Feb-08
Mar
-08
Apr-0
8
May-08
Jun-08
Jul-08
Aug-08
Sep-08
Oct-0
8
Nov-0
8
Dec-08
Jan-09
Feb-09
I i
Indonesia
Korea
Malaysia
Philippines
Taipei,China
Thailand
Sharp currency depreciations for the Asian economiesare stagflationary because the potential positive
impact on exports is shut off due to the plummeting
world export market, especially from developed
countries.
burden (Korea, Indonesia, Philippines) and lead to
higher sovereign spreads and risk of default and more
depreciation
Sharp currency depreciation also kills confidence and
reduces investors and consumers spending
Starting second half of 2008, foreign
exchange reserves of most East
Asian emer in economies exce t
PRC and Philippines) have fallen. But
it is not alarming.
Sovereign bond spreads and credit
default spreads have increased
reflectin forei n investors erceived
external and public debt risks of
emerging Asian economies.
-
8/14/2019 MSME Development and the Financial Crisis
24/76
6/26/200
Forum on Finding Alternatives to theImpacts of the Global Financial Crisis
May 28, 2009 Organized by FSSI
External funding expected to tightenExternal funding expected to tighten
and become more difficult and expensiveand become more difficult and expensive
1882
1500
2000
2500
JP Morgan EM BI Sovereign Stripped Spreads (basis points)1
173
764
355
440
671
0
500
1000
01-Jan-
07
11-Apr-
07
20-Jul-
07
28-Oct-
07
05-Feb-
08
15-May-
08
23-Aug-
08
01-Dec-
08
11-Mar-
09
a s an
Indonesia
People's Republic of ChinaMalaysia
PhilippinesViet Nam
1
As of 17 March 2009Source: Bloomberg.
The high foreign currency sovereign bond
spreads and credit default spreads make it
difficult for emerging Asian countries to
externally finance their economic stimulus and
social spending programs
For countries with moderately high debt burdens
or exposure to short-term debts, the high
sovereign bond spreads increase debt default
risks as they cannot borrow to fund their debt
service payments.
Vulnerabilities in the Real
Sector and Fiscal Sector
Results of Asian Crisis: East Asian economies, exceptfor China, had lower investment rates but higher
dependence on net exports
Gross Capital Formation (% of GDP) of East Asian C ountries declined after
Asian crisis
40.0
45.0
50.0
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
1 99 0 1 99 1 1 99 2 1 99 3 1 99 4 1 99 5 1 99 6 1 99 7 1 99 8 1 99 9 2 00 0 2 00 1 2 00 2 2 00 3 2 00 4 2 00 5 2 00 6 2 00 7
Korea, Rep.
Malaysia
Singapore
Thailand
Indonesia
Philippines
-
8/14/2019 MSME Development and the Financial Crisis
25/76
6/26/200
Forum on Finding Alternatives to theImpacts of the Global Financial Crisis
May 28, 2009 Organized by FSSI
With lower investment rates (except in PRC),East Asian growth had been more export
dependent
Lower investment rates is compensated by
higher positive net exports. Trade and current
account deficits before the Asian crisis had
ecome pos ve ra e an curren accoun
surpluses. This is part of the intl reserves
accumulation of these countries, or the so-called
savings glut, which is really the big gap of
savings over investments because of the
investment decline (as % of GDP)
Asias high dependence on trade and
exports had been its most vulnerable
spot in the current global financial
crisis and economic recession.
-
8/14/2019 MSME Development and the Financial Crisis
26/76
-
8/14/2019 MSME Development and the Financial Crisis
27/76
6/26/200
Forum on Finding Alternatives to theImpacts of the Global Financial Crisis
May 28, 2009 Organized by FSSI
-
8/14/2019 MSME Development and the Financial Crisis
28/76
6/26/200
Forum on Finding Alternatives to theImpacts of the Global Financial Crisis
May 28, 2009 Organized by FSSI
Structure of Asias TradingPatterns and Extent of
Advancing intraregional trade integrationAdvancing intraregional trade integrationand opennessand openness
Evolution of ASEAN+3 exports by destination
Shares (%) on total exports of ASEAN+3
1987
JPN, 8.3
PRC+HKG, 10.6
Asia, 33.8 2007
PRC+HKG, 22.0
Asia, 50.4
ASEAN, 7.8
Other Asia, 7.0
US, 31.7
EU, 14.9
ROW, 19.6
JPN, 6.4
ASEAN, 13.1
Other Asia, 8.9
EU, 14.3
US, 16.2
ROW, 19.2
From Giovanni Capanellis presentation Asian Financial Cooperation and the Global Crisis inAEA Conference ACAES Session, Financial Integration in Asia: New Wine in Old W ineskins?San Francisco, 3 January 2009
-
8/14/2019 MSME Development and the Financial Crisis
29/76
6/26/200
Forum on Finding Alternatives to theImpacts of the Global Financial Crisis
May 28, 2009 Organized by FSSI
Final Demand Composition of Asian Exports inFinal Demand Composition of Asian Exports in2006:2006:
Still Dependent from the WorldStill Dependent from the World
From Giovanni Capanellis presentation Asian Financial Cooperation and the Global Crisis in
AEA Conference ACAES Session, Financial Integration in Asia: New Wine in Old W ineskins?San Francisco, 3 January 2009
Although there is more intra-regional
trade, more than 2/3 of the final demand of
Asias exports is still outside Asia, mostly
in the US and Europe. Thus Asian
economies are hard-hit by the deep slump
in the developed economies.
Already, exports and GDP growth of
Asian economies had been hard hit
and mass la offs in ex ort industries
are going on.
10
20
30
40
50
People's Rep. of China
NIES4
India
ASEAN5
Export Growth1: PRC, India, NIEs and ASEAN5 ($ value, y-o-y, %)
-7.3
-9.3
-23.6
-20.2
-30
-20
-10
0
Jan-03
May-03
Sep-03
Jan-04
May-04
Sep-04
Jan-05
May-05
Sep-05
Jan-06
May-06
Sep-06
Jan-07
May-07
Sep-07
Jan-08
May-08
Sep-08
Jan-09
13-month moving average.
ASEAN5 includes Indonesia; Malaysia; Philippines; Thailand; and Viet Nam.NIES4 includes Hong Kong, China; Korea, Rep. of; Singapore; and Taipei,China.Source: OREI staff calculations based on CEIC data.
-
8/14/2019 MSME Development and the Financial Crisis
30/76
6/26/200
Forum on Finding Alternatives to theImpacts of the Global Financial Crisis
May 28, 2009 Organized by FSSI
Exports industries affected and actual orpossible layoffs in these sectors
Japan, Korea, Taipei,China automobile, electronics, other
high-tech manufactured products
PRC electronics, garments, toys and handicrafts, processed
food (already affected by melamine scandal)
India garments, IT, others
Malaysia electronics, primary commodities
Philippines electronics, garments, coconut
Indonesia primary commodities, others
Thailand tourism, electronics, garments, etc
Cambodia tourism
Vietnam garments, electronics, coffee
Some countries are highly dependent on overseas
workers remittances for GDP growth, especially the
Philippines and South Asian economies like Pakistan,
Sri Lanka and India.
Inflows of remittances are also significant for Vietnam,
, ,
three largely unrecorded and coming from Thailand)
If the overseas workers lose their jobs (almost all
countries are contracting and laying off workers), the
economic slowdown may be significantly worsened in
these Asian economies.
Growth of OFW Remittances (y-o-y, in percent)
Indonesia Philippines
Dec-2007 22.3 8.9
Mar-2008 13.7 13.2
Jun-2008 16.0 21.1
Sep-2008 16.9 17.1
Dec-2008 6.3 4.6
Jan-2009 na -0.1
Feb-2009 na 4.9
Mar-2009 na 3.1
-
8/14/2019 MSME Development and the Financial Crisis
31/76
6/26/200
Forum on Finding Alternatives to theImpacts of the Global Financial Crisis
May 28, 2009 Organized by FSSI
Latest WB prediction is that OFW
remittances of RP to fall in 2009 by 4%.
Latest POEA data show 216,803 land-based
new OFWs in 2008 compared to 306,383 in
2007 (30% decline)
Latest Reuter poll survey revealed that
Philippine overseas remittances expected to
fall by 5%.
IMF Growth Forecasts getting worse andworse: Crisis worse than expected
Latest IMF Growth Rate Projections forDeveloping Asia
Note that countries with predicted positive
growth are those countries with high gross
capital formation (China, Vietnam), big
domestic demand due to large population
(China, India, Indonesia, Pakistan,
Bangladesh) and/or lower dependence on
exports (China, India, Indonesia,
Philippines).
-
8/14/2019 MSME Development and the Financial Crisis
32/76
6/26/200
Forum on Finding Alternatives to theImpacts of the Global Financial Crisis
May 28, 2009 Organized by FSSI
Unemployment Rates Increase!
2007 2008 2009 2007 2008 2009
1st Q 3.4 2.6 Jan 4.1 3.1 4.3
2nd Q 4.0 4.0 Feb 4.1 3.1 4.7
3rd Q 2.1 2.8 Oct 4.0 3.6
4th Q 2.3 3.5 Nov 3.5 3.7
Dec 3.2 3.8
2007 2008 2009
1st Q 3.4 3.6 2007 2008 2009
4
Countries With Monthly
Unemployment Rate
Hongkong, China
Korea, Rep. of
Countries With Quarterly
Unemployment Rate
China, People 's Rep. of
Malaysia
n .4 . Jan . . .
3rd Q 3.1 3.1 Feb 3.7 3.5 3.9
4th Q 3.0 3.1 Oct 3.0 3.0
Nov 3.0 3.1
2007 2008 2009 Dec 3.1 3.3
1st Q 7.8 7.4 7.7
2nd Q 7.4 8.0 2007 2008 2009
3rd Q 7.8 7.4 Jan 3.8 3.8 5.3
4th Q 6.3 6.8 Feb 3.8 3.9 5.8
Oct 3.9 4.4
2007 2008 2009 Nov 3.9 4.6
1st Q 3.4 2.6 Dec 3.8 5.0
2nd Q 4.0 4.0
3rd Q 2.1 2.8
4th Q 2.3 3.5
=data unavailable
Source: National sourc es acces sed through CEIC.
Singapore
Taipei,China
Philippines
Need more social insurance as more
people lose jobs and poverty will increase
Just like the Asian crisis, Asian countries
still not prepared for these social
Fiscal stimuli should include social
spending for the poor and vulnerable
sectors adversely affected by the crisis.
Fiscal Stimuli of countriesdepend on their tax
EconomyTotal
Revenue
Overall
Surplus/Deficit
Public
Sector Debt
Singapore 22.4 6.7 96.3
Hong Kong, China 21.8 7.2 171.2
Korea, Rep. of 27 3.8 32.1
Taipei,China 13.3 -0.2 30.7
China, People's Rep. of 20.6 0.7 17.3
Mala sia 21.8 -3.2 41.6
Government Finance (as % of nominal GDP for 2007)
. . .
Thailand 17.2 -1.7 37.5
Indonesia 17.9 -1.2 35
Philippines 17.1 -0.2 62.3
Viet Nam 24.9 -5.4 43.4
Cambodia 12.1 -1.2
Lao PDR 13.6 -2.7 69.3
=data unavailable
Source: Asian Economic Monitor, December 2008.
-
8/14/2019 MSME Development and the Financial Crisis
33/76
6/26/200
Forum on Finding Alternatives to theImpacts of the Global Financial Crisis
May 28, 2009 Organized by FSSI
Fiscal Capacity for Fiscal Stimulus Countries with limited tax effort (tax revenue less than 18%
of GDP): Cambodia, Taipei,China, Lao PDR, Philippines,
Thailand, and Indonesia
Countries with already significant fiscal deficit in 2007:
Vietnam, Malaysia, Lao PDR, Thailand, Cambodia, and
Indonesia
The Philippines just came out of severe fiscal crisis in 2002
to 2006.
There is also the question of government capacity,
transparency and honesty in channeling infrastructure
and social projects efficiently to the proper sectors and
without leakages (e.g. through corruption)
Cost of Fiscal Stimulus Package (as % of GDP)Total
announced
size
Size of
approved
budget
China, People's Rep. of 12.6 12.6
Malaysia 9.0 9.0
Singapore 8.2 8.2
Viet Nam 5.8 5.8
Philippines 4.1 2.0
Korea, Rep. of 3.8 3.8
Hong Kong, China 3.6 3.6
Thailand 1.6 1.6
Japan 2.0 2.4
Indonesia 1.4 1.4
Source:
The cost of fiscal s timulus package are draw n f rom OREI country
w rite up; new s releases; national budget documents; ADO 2009(Japan). Data on the fiscal balance are obtained from Asian
Development Outlook (various issues), Asian Development Bank;
International Monetary Fund Article IV, Internat ional Monetary
Fund; National sources; CEIC; and OECD Outlook estimate.
Second-Round Vulnerabilities
Economic slowdown or recession in Asian economies
will lower tax revenue collections and hamper fiscal
stimuli
Failure of export firms and other firms affected by
weaken financial sector
Reduction in household income due to layoffs,
diminished work hours, currency depreciation may
lead to bank defaults, especially in mortgage loansand credit card payments again weaken financial
sector and may lead to property bubble bursting
-
8/14/2019 MSME Development and the Financial Crisis
34/76
6/26/200
Forum on Finding Alternatives to theImpacts of the Global Financial Crisis
May 28, 2009 Organized by FSSI
Just like the Asian crisis lack of
adequate regional response to the
extremely grave crisis. Asian
Monetary Fund a long way off
Latest developments on the Chiang MaiInitiative Multilaterilization (CMIM)
ASEAN+3 Finance Ministers Meetings in 2008 and
Feb. 29 2009 recommended the multilateralization of
the CMI with a pool of originally $120 billion of
currency swaps. Pledges are:
$38.4 billion each from China and Japan (total of $76.8B)
$19.2 billion from South Korea
$24 billion from ASEAN (ASEAN countries squabbling about
how much to give)
But still no details on the mechanisms
Latest developments on the Chiang MaiInitiative Multilaterilization (CMIM)
But a country can avail 80% of funds only with IMF
conditionality!!
.
a self-managed reserved pooling arrangement
governed by a single contract
Details still to be determined in the CMIM
how to conduct surveillance: which agency?
IMF conditionality to fight for: 20%, 50%, or zero?
expansion of membership?
scope -- only liquidity provision or other support?
bank rescue funds? Fiscal funds? Trade financing?
mechanisms of funds disbursement, repayment
schemes, escape clauses
first step to create an Asian Monetary Fund (AMF)?
MALAYO PA!
-
8/14/2019 MSME Development and the Financial Crisis
35/76
6/26/200
Forum on Finding Alternatives to theImpacts of the Global Financial Crisis
May 28, 2009 Organized by FSSI
Continuing Failure in the InternationalFinancial Architectures
In Oct 2008, US Fed gave Singapore, Korea, Brazil, Mexico,
Australia $30 billion currency swap credit line each and $15
billion to NZ
n ec. , orea, na, apan orge e o owng
currency swap agreements: China and Japan will provide
Korea bilateral currency swaps worth $26.5 billion and $ 20
billion, respectively, to help stem won depreciation
Continuing Failure in the InternationalFinancial Architectures
Only important countries are given special treatment and
early help (US giving money to Singapore??????). The
others have to run to the IMF: Pakistan, Iceland, Hungary,
Ukraine etc.
Developing countries badly affected only has IMF to run to
no new international financial and economic architecture in
place since 1997!! Especially since source of contagion is
US and international finances inability to do global financial
surveillance!
The latest and most serious global recession
(depression) since the 1930s is a result of a
combination of
Globalization of finance
Globalization of trade
,
capital flows and trade
For the sake of developing and emerging
economies, need a new paradigm and world
order that controls, monitor and regulate
Financial and capital flows
Trade flows
Need developing countries pool of
emergency funds controlled and
conditionality imposed by developing
countries themselves
-
8/14/2019 MSME Development and the Financial Crisis
36/76
The Global Economic Crisis: Assessment andResponse of the National Government
Dennis Arroyo
rroyoistheDirectoroftheNationalEconomicsandDevelopmentAuthorityNationalPlanningandPolicyStaff.Heispartof
eamthatpreparedtheEconomicResiliencyPlantocopewiththeglobalcrisis.ArroyoworkedwiththeWorldBankWashing
ndManilaOfficesasaconsultantfromMarch20012004.HewroteextensivelyoneconomicsforthePhilippineDailyInquir
rom1998to2004.HehasearnedhismasteraldegreeinEconomicsfromtheUniversityofthePhilippinesDilimanandiscur
entlyadoctoralcandidateinthesameuniversity.ArroyoalsoreceivedfurthertrainingintheUnitedNationsatGenevainHi
-
8/14/2019 MSME Development and the Financial Crisis
37/76
The Global Crisis and thehe Global Crisis and theEconomic Resiliency Planconomic Resiliency Plan
Dir. Dennis ArroyoDir. Dennis Arroyo
National Economic and Development AuthorityNational Economic and Development Authority
The lack of confidence is t otal consumers
Global CrisisGlobal Crisis
The world economy i s in a once-in-a-hundred years recession.
Japanese Prime Minister Taro Aso
are not consuming, businessmen are nott aking on workers, i nvest ors are notinvesti ng, and the banks are not l ending.
Governor Ordonez (Bank of Spain)
Grim signs of the recessionGrim signs of the recession
Suicide rate in Japan increased to 2,345 inJanuary 2009, or up by 15%
Two-thirds of the world is in recession
s o arc , e nanc a cr s s awiped out around 45 percent of globalwealth
US unemployment at a 26-year high
Philippine Economic GrowthPhilippine Economic Growth
5.9
8.0
6.1
6.97.2
6.47
8
9 G N P G D P
.
2.3
4.2
5.4 5.45.0
4.4
1.8
4.64.9
0
1
2
3
4
5
2 0 01 2 00 2 2 00 3 2 0 04 2 0 05 2 0 0 6 2 0 0 7 2 00 8
growthrate,
Source: NSCBSource: NSCB
-
8/14/2019 MSME Development and the Financial Crisis
38/76
2009 Macro2009 Macro--assumptionsassumptions2009 Feb 20 2009 April 16
Inflation 3.0 5.0 2.5 4.5
91-day T-bills 5.0 7.0 5.0 7.0
. . . .
Forex P 45 - 48 P 46 - 49
Dubai oil $ 45 - 60 $ 45 - 60
Merch exports -8% to -6% -15% to -13%
Merch imports -10% to -8% -14% to -12%
Export Grow thExport Grow th
0
10
8.84.4 6.6
1.1
-50
-40
-30
-20
-
June
'08
Jul Aug Sept Oct Nov Dec Jan
'09
-14.8-11.4
-40.3 -41.0
The most vulnerable sectorsThe most vulnerable sectors
OFWs vulnerable to displacement:OFWs vulnerable to displacement:
OFWs who work in the US under temporary workingvisas (129,000);
Seafarers in the cruise ships (130,000);
Factory workers in South Korea, Taiwan and Macau(268,000);
Household service workers in Singapore, Macau andHong Kong (48,000)
Commodity exports vulnerable jobs:Commodity exports vulnerable jobs:
Garments (121,000);
Electronics (111,000); Wiring and harness (2,000);
Coconut oil (2,000)
Shock absorbersShock absorbers
Oil prices trending down: from $ 140/ barrel to $ 50
Inflation is easing: from 9.3% in 2008 to 3.5% in2009
Share of US to total Philippine exports falling: from34.2% in 1998 to 20.1% in 2001 to 16.0% in Jan-Aug 2008
Ample supply of Gross International Reserves, at$ 39 B
Corporate income tax rate to fall from 35% in 2008
to 30% in 2009 Minimum wage earners exempt from income tax
-
8/14/2019 MSME Development and the Financial Crisis
39/76
Strong banking sectortrong banking sector Banks with exposure to Lehman Brothers and
Merrill Lynch: Banco de Oro Unibank, DBP,Metrobank, RCBC, Standard Chartered, Bank ofCommerce, UCPB, Security Bank
Banks exposure to Lehman Brothers: $ 386million, or only 0.3% of total banking assets
Capital adequacy ratio (banks capital in relationto their risks) is 15.49% (2008).
Non-performing loans (NPL) ratio, once 18% in2001, down to less than 4%.
Bank lending continues to expand
GIR, Current account balance,
Remittances ($Mn)
10,940**
35,696*
12,000
16,000 40,000
C AB R em it ta nc es G IR
1,707***
-4,000
0
4,000
8,000
2000 2001 2002 2003 2004 2005 2006 2007 2008
0
10,000
20,000
30,000
Source: BSP; *As of Oct 2008, **Janource: BSP; *As of Oct 2008, **Jan-Aug2008, ***Janug2008, ***Jan-Jun2008un2008
2008 Q4 GDP of Selected Asian Countries2008 Q4 GDP of Selected Asian Countries
0.1
4.5
5.2
5.5
6.8China
Vietnam
Indonesia
Philippines
Malaysia
-8.4-4.3
-4.2
-3.4
-2.5
-10 - 8 -6 -4 -2 0 2 4 6 8
Hong Kong
S. Korea
Singapore
Thailand
Taiwan
Quote from Agost Bernard,Quote from Agost Bernard,
Associate Director at Standard and PoorsAssociate Director at Standard and Poors
Yes, the Philippines is 'lucky' because they have
made the necessary adjustments and reforms when
times were still good. So the are facing the global
market problems and economic slowdown from a
considerably improved position, compared to what
they were in 3-4 years ago
The Philippines is an 'island of calm' currently, while
there is turmoil in the higher rated and previouslystable countries
-
8/14/2019 MSME Development and the Financial Crisis
40/76
The Philippines is inherently strong, a potential
beneficiary of these financial woes, Bank of New
York Mellons chairman for Asia Pacific, Christopher
Sturdy, said in an interview (Philippine Daily Inquirer)
weather the global downturn with the economy driven
by private consumption and services, which are less
vulnerable to external shocks, JP Morgan said in a
report titled ASEAN Year Ahead 2009: Philippines
Well-Positioned to Withstand the Downturn.
Economic Resiliency Plan: ObjectivesEconomic Resiliency Plan: Objectives
1. To ensure sustainable growth, attaining the
higher end of the growth targets.
2. To save and create as many jobs as possible.
3. To rotect the most vulnerable sectors: the
poorest of the poor, returning OFWs, and
workers in export industries.
4. To ensure low and stable prices to support
consumer spending.
5. To enhance competitiveness in preparation for
the global rebound.
Breakdown of the P 330 B PackageBreakdown of the P 330 B Package
PhP 160 B addition to the budget
PhP 40 B corporate and
PhP 100 B GOCCs, GFIs, private
sector
PhP 30 B temporary additional
benefits to GSIS/SSS/PhilHealth members
Two waves of infrastructureTwo waves of infrastructure
2009 P 160 billion budget increment funds this
4,000 5,000 small projects in the BESF
Stress s eed in ob creation
2010 P 100 billion off-budget funding
Big-ticket items for PPP
-
8/14/2019 MSME Development and the Financial Crisis
41/76
P 160 billion incrementP 160 billion increment
Award contracts quickly. Take advantage of
window of opportunity (i.e., good weather)
Reali n bud et from ro ects that ma be difficult to
implement (i.e., right of way issues, no detailed
engineering plans) to fast projects
Downscale/defer implementation of new projects
without ICC/NEDA Board approval and/or
difficult to implement immediately
Scale up quick-disbursing high impact projects (i.e.,labor intensive, high local value added) such asConstruction, Repair, or Rehabilitation ofIrrigation Systems, other local infra like roads,asphalt overlay, etc.,
P 160 billion incrementP 160 billion increment
Spend 60-80% of the productive portion of theImplementing Agencies budget in the S1 of 2009
Work with LGUs on infrastructure projects
Periodic review of agency performance by theEconomic Managers
Labor DisplacementLabor Displacement
as of April 15, 2009as of April 15, 2009
Laid-off OFWs
(6,695) Under flexible workinghours 5 2 4 98
Laid-off domesticworkers (58,379)
Source: Philippine Overseas Employment Administration
Asian Crisis LayAsian Crisis Lay--offs vs. Global Crisisoffs vs. Global Crisis
84,500
58,379
Lay-offs fromAsian Crisis
Lay-offs fromGlobal Crisis*
As of April 15, 2009
Source: Philippine Overseas Employment Administration
-
8/14/2019 MSME Development and the Financial Crisis
42/76
Comprehensive Livelihood and EmergencyComprehensive Livelihood and Emergency
Employment Programs (CLEEP)Employment Programs (CLEEP)
Objectives:
To hire for emergency employment
To fund and supervise livelihood projects
Activities are aligned to:
Super Region priorities
Needs of the 12 poorest provinces
Needs of the 12 most food-poor, provinces, and
the food-poor in NCR
CLEEP job targetsCLEEP job targets
Generate 456,595 jobs
Upland forest work, farm to market roads,
irrigation, fertilizer production, roadside
maintenance, classroom construction, other public
works projects
Total cost: P 10.45 billion
Protecting the most vulnerableProtecting the most vulnerable
Overseas Filipino Workers
24 x 7 monitoring of overseas labor-marketdisplacements
Contract monitoring of job orders
Identification and development of new market niches Redeployment to emerging foreign labor markets
Repatriation assistance Expansion of livelihood /business formation programs
Business counseling, strengthening reintegration services Massive skills upgrading and retooling services
OFW LayoffsOFW Layoffs
Others 7.1%
Brunei 2.3%
Macau 2.9%
Taiwan 78.7%
Canada 3.4%
UAE 5.6%
-
8/14/2019 MSME Development and the Financial Crisis
43/76
Protecting the most vulnerableProtecting the most vulnerable
Workers in the export sector
Quick Response Teams (QRTs) in DOLE regionaloffices; maintain early warning system to trackstrugg ng rms
Job placement facilitation
Livelihood formation/enhancement Assistance in claiming unpaid salaries
Advocacy for companies to adopt alternatives to lay-offs Promotion of non-wage benefits
Emergency employment
Top Areas AffectedTop Areas Affectedby the Global Crisisby the Global Crisis
49,613
10,225
Region 4A, mainlyLaguna and Cavite
Caraga, mainlySurigao Norte and Sur
8,529
6,212
3,906
Region 7, mainlyMactan and Mandaue
Region 3, mainlySubic and Clark
National CapitalRegion
*as of February 16, 2009
Protecting the most vulnerableProtecting the most vulnerable
Expand social protection programs
A. Double budget for conditional cash transfers
B. Accelerated Hunger-Mitigation Program
.
D.Add P 5.66 billion for Training for Work scholarships
E.Hike DOH allocation for primary and secondary hospitals
F.Deploy nurses to underserved areas (NARS program)
G.More student loans
H.Matching grants to LGUs
P 100 billion for large infra projectsP 100 billion for large infra projects
Large infrastructure projects, some mentioned in
the 2007 SONA
Longer time frame: after 2009
Drawn from the master list of the Comprehensive
and Integrated Infrastructure Program (CIIP)
More time for public scrutiny; important to stress
transparency
-
8/14/2019 MSME Development and the Financial Crisis
44/76
Comprehensive and IntegratedInfrastructure Program (CII P)
Relending
Programs
36.69
Support to ARCs
31.88
2%
Social
Infrastructure
167.91
8%Communications
2008-2010 and beyondTotal investments = PhP 2,006.26 bil l ion
Water Resources
347.53
17%
Power and
Electrification
611.0730%
Transportation
754.69
38%
2%56.49
3%
P 30 billion for additional benefitsP 30 billion for additional benefits
To increase purchasing power
Provide additional benefits for PhilHealth, GSIS and SSSmembers for at least 18 months
un s ta en rom t e erence etween contr ut ons an
claims and benefits.
PhilHealth Board of Directors approved on Feb 12 the
revised Inpatient Benefit Package
Results in a 35% increase in annual benefit payments
SOME RECENT UPDATESSOME RECENT UPDATES
Government Spending:Government Spending:
Largest Projects in HistoryLargest Projects in History
700
800
900
1000
USD
sted)
NASA
Source: Intel
0
100
200
300
400
500
600
1803 1933 1947 1958 1969 1986
inbillionsof
(inflation-adju
LouisianaPurchase
The New Deal
Marshall Plan
Race tothe
Moon
S&LCrisis
-
8/14/2019 MSME Development and the Financial Crisis
45/76
Government Spending:Government Spending:
Largest Projects in HistoryLargest Projects in History
2500
3000
3500
USD
sted)
09 RescueFunds
Source: Intel
0
500
1000
1500
2000
1803 1933 1947 1958 1969 1986 2009
inbillionsof
(inflation-adj
LouisianaPurchase
TheNewDeal
MarshallPlan
NASA
Race tothe
Moon
S&LCrisis
We have agreed t o make avail able anaddit ional $850 bn of resources thr u t he
IMF and MDBswe wi ll ensure avail abil i t yof at least $250 billi on over t he next t wo
years to support t rade fi nance
G20 Communique
"This could well be a t urning pointbecause t he aut hori t ies got t ogether and
t hey have t aken t he st eps.
George Soros
AllAll--Time Low Global Interest RatesTime Low Global Interest Rates
4
5
6
0
1
2
3
2003 2004 2005 2006 2007 2008 2009
Fed Funds Rate ECB Key Interest Rate
US Fed Chief Bernanke tells Congress:US Fed Chief Bernanke tells Congress:recession over by endrecession over by end--20092009
Economy to bottom out, then turn up later in 2009
US GDP contracts by 6.1% in Q1, but largely due
to depletion of inventories.
As inventories are worked down, then firms will
be able to increase their production to meet what
looks to be some stabilization in final demand.
Firms may still be cautious about hiring
-
8/14/2019 MSME Development and the Financial Crisis
46/761
Stock market up 47% in April from trough inOctober 2008
Car sales hit monthly record in March
Cement sales of biggest manufacturer up by
Chinas Stimulus Package is WorkingChinas Stimulus Package is Working
New loans of $670 B in Q1 almost as much asfor whole 2008
Index of entrepreneurs confidence up in Q1,after plunging in Q4
Overseas employment holds upOverseas employment holds up
15,000 to 20,000 jobs offered in Guam, 60,000 in
Saudi Arabia, 20,000 in Qatar
Saudi Arabia building 5 mega cities; Filipino
wor ers avore
Deployment to the Middle East will push
remittances higher in the second semester
Only 6,695 OFW layoffs so far, compared to
3,000 OFWs deployed per day
Inflation rapidly falling,Inflation rapidly falling,
will boost personal consumptionwill boost personal consumption
6.4
8.3
9.5
11.412.3 12.4
11.811.2
9.9
87.1 7.3
6.48
10
12
14
ate(in%)
4.95.4
4.8
0
2
4
6
Jan Feb M ar Apr M ay Jun Jul Aug Sep Oct Nov Dec Jan Feb M ar Apr
2008 2009
InflationR
Source: National Statistics Office
Stock markets still on the uptrendStock markets still on the uptrend
Market Lowest Latest % Change
DJIA 6,547.05
8574.65
30.979 Marc 8 May
Nikkei 225 7,054.98(10 March)
9432.83(8 May)
33.70
FTSE 100 3,512.10(3 March)
4462.10(8 May)
27.05
PSEi 1,769.67(16 March)
2265.55(8 May)
28.02
-
8/14/2019 MSME Development and the Financial Crisis
47/761
Exports start to grow againExports start to grow again
Growth of Merchandise Exports (%)
Year-on-YearMonth-on-
Month
Oct-08 -14.8 -10.5
Nov-08 -11.4 -11.5
Dec-08 -40.3 -23.9
Jan-09 -40.6 -6.1
Feb-09 -39.0 -0.2
Mar-09-30.9
15.9
Job losses here now tapering offJob losses here now tapering off
SEIPI: Electronics industry starting to recover
We are seeing month-on-monthimprovements it looks like the market has
. ,
Sec. Roque OF DOLE: 14,000 employeesdisplaced by the crisis got their jobs back ascompanies started to rehire
Sec. Panganiban of NAPC: 75,000 have beenaccepted into the CLEEP
NLEX Phase 2 C5 to create 100,000 jobs
Layoffs bottom outLayoffs bottom out
- Smoking gun ofimpending recovery:layoffs sharply drop
October 08 4,454
November 08 11,116
Workers Displaced by the Crisis
in AprilDecember 08 11,961
January 09 10,333
February 09 10,228
March 09 14,512
April 1-15 09 1,026Total 63,630
Leave no one behind.
Walang iwanan.
-
8/14/2019 MSME Development and the Financial Crisis
48/76
The Global Economic Crisis: A Persepectivefrom the Civil Society
Rosario Bella Guzman
uzmanistheExecutiveEditorofIBONFoundationInc.,anindependentdevelopmentinstitutionestablishedin1978thatpr
desresearch,education,publications,informationworkandadvocacysupportonsocioeconomicissues.Herauthoredbook
TheGlobalFoodCrisis:HypeandReality"isoneofhermanywritingsonsocioeconomics.Shehasgivenmanylecturesacros
hecountryandroundtheglobeinsupportofpeoplescampaignsandstruggles.
-
8/14/2019 MSME Development and the Financial Crisis
49/76
6/26/200
The Global Economic Crisis: APerspective from Civil Society
IBON Foundation
May 28, 2009
From crisis to crisis
Subprime mortgage crisis 2007-08
Fuel and food price crisis early 2008
Global financial crisis late 2008 to today
Given systemic imbalance between production &consump on, cap a soug pro s rom:
1. Cheap labor & raw materials
2. Capturing markets for goods
3. Capturing markets for services
+
1. Debt-driven consumption
2. Speculation in finance & commodities
End of globalization?
1. Stalling global trade World exports 4Q-08 decreased by 20% (Q-o-Q) or 11% (Y-o-
Y) (c/o WTO)
2. Stalling capital flows (investment/debt) Worldwide FDI inflows shrank 21% in 2008 to $1.4 trillion (c/o
UNCTAD) Note: FDI flows to 3W still rowin in 2008 albeit b onl 4%
from a rise of 21% in 2007
Net private debt and equity flows to 3W will fall from $1 trillionin 2007 (7.7% of GDP) to $530 billion in 2009 (3%) (c/o WB)
Net private-capital inflows into 3W: $929 billion (2007) halvingto $466 billion (2008) est. $165 billion 2009 (c/o IIF) 3W bond market transactions $50 billion in 2Q-08 down to $5
billion in 4Q-08
ODA flat in 2005-07 falling by $20 billion in 2009 (c/o ODI)
3. Stalling migration Remittance flows: $281 billion (2007), $305 billion (2008)
est. $290 billion (2009) (c/o WB)
Since 1980s: globalizing thePhilippine economy
Tr ade & i nves tm en t now mu ch l a r ge r sha r e o f domes t i c economy ( as % o f GD P )
Trade doubled:52% (1980) 95-105% (2005-2007)
Foreign investment quadrupled:
Record joblessness in last 8 years; 4.1 millionjobless+ 6.6 million underemployed in 2008
Deep poverty:
approx 70 million Filipinos live off P110 or less/day
P18/day in poorest 10% of families+ then for succeeding deciles P28, P36, P44, P54,P68
-
8/14/2019 MSME Development and the Financial Crisis
50/76
6/26/200
Since 1980s: globalizing thePhilippine economy
Growing inequality
Top 20% (3.5 M families) account for 53% oftotal family income poorest 80% (13.9 Mfamilies) divide remaining 47%
Record economic refugees
9-10 million OFWs
Manufacturing smallest share of economysince 1950s, agriculture smallest in countryshistory
Since 2008: globalized sectors atgreatest risk
Internal weaknesses + greaterexternal vulnerability
Unprecedented dependence on lowvalue-added exports, one-sided foreigninvestment & overseas remittances
84% of exports to just 10 countries
77% of FDI from just US, EU & Japan
88% of remittances from only 10 countries
Source count r ies a l l see ing drast ica l ly Source count r ies a l l see ing drast ica l ly s low ing o r even nega t i ve g rowt h s low ing o r even nega t i ve g rowt h
Deepening Philippine crisis
1. Drastically slowing economic growth
2008: growth slowed in 60% of economy
2 0 0 9 : W i l l f a l l t o l e ss t h a n 3 % w h i ch i s l ess 2 0 0 9 : W i l l f a l l t o l e ss t h a n 3 % w h i ch i s l ess t h a n h a l f g ro w t h i n 2 0 0 7 t h a n h a l f g ro w t h i n 2 0 0 7
2. Worst joblessness in countrys history is risingeven ur er
2008: 10.7 million unemployed + underemployed
2009: Cou ld r i se t o some 12 2009: Cou ld r i se t o some 12- - 1 3 m i l l io n 1 3 m i l l io n
Of which at least 5 million outright jobless (increase of900,000)
Retrenchments, less job creation, deteriorating qualityof jobs
Deepening Philippine crisis
3. Falling real incomes & worseningpoverty
2006, at approx P110 or less per person perday:
. .
Poor Filipinos 70 million (official: 27.6 M)
2009 : Worsen ing pove r t y due to 2009 : Worsen ing pove r t y due to job lessness and fa l l ing incom esjob lessness and fa l l ing incom es
More poor
Deeper poverty for already poor
-
8/14/2019 MSME Development and the Financial Crisis
51/76
6/26/200
Government response
Pseudo-stimulus/ mitigation measuresfor now Reported plan/package: P330 billion
P160 B increase in 2009 natl govt (NG) budget P40 B corporate/individual tax breaks P100 B off-bud et infrastructure fund GOCCs GFI private, ,
sector) P30 B additional benefits to GSIS/SSS/PhilHealth members + Alternative livelihood programs, jobs placement services &
loans
befo re re tu r n ing to bus iness as usua l and g loba l i za t ion po l i c ies w h i c h h a v e s u p p os ed l y b u i l t s o u n d f u n d a m e n t a l s
Urgent relief: Give people more of socialservices & economic share long deniedthem
1. Restore real per capita social services spendingto at least 1997 levels
Additional P205 B (education), P36 B (health) and P5B (housing)
2. Su ort consum tion:
P125 ATB nationwide wage hike, P3,000 increase ingovernment salaries
Protection against formal/concealed cuts in wages,salaries & benefits
3. Remove VAT on food & oil products
increase taxes on wealth, luxury goods & services,unproductive assets & transactions
Urgent relief: Give people more of socialservices & economic share long deniedthem
4. Shift public spending to labor-intensive & basicrural infrastructure projects that directlyimprove peoples livelihoods
Ex. P100 billion not for a few big projects but smallirrigation systems, farm-to-market roads and post-
arvest ac t es
5. Free up public resources:
Stop debt payments and cancel odious/illegitimatedebt
Crackdown on corruption
Reducing spending on military and war which just
feeds human rights violations
Radical economic reforms: back tobasics
1 . A g ra r i an r e f o rm & a g r i cu l t u ra l d e ve l o p m e n t
Land to the tillers, extension & support services
Cooperativization & modernization
2 . Bu i ld ing na t iona l i ndust ry
Filipino industry is possible
.. and essential for jobs, incomes, capital accumulation,technology & sustainable growth
3 . Ensure ga ins f rom fo re ign t rade and investment
Protect the Philippine economy
Support Filipino agricultural & industrial producers
4 . Bank ing , f i nance and f i sca l po l i cy
Resources towards national agricultural, industrial & socialdevelopment
Crackdown on wasteful spending & corruption
Oppose financial services liberalization
-
8/14/2019 MSME Development and the Financial Crisis
52/76
-
8/14/2019 MSME Development and the Financial Crisis
53/76
Recovery and
Reconstruction
Finding Alternatives to the Impact of theGlobal Financial Crisis
FSSI Public Forum28 May 2009
Clarence G Pascual
Some key issues facing the
Phili ine econom and the
impact of the global crisis
Labor left behind in last growth cycle
Inability of the economy to create enoughjobs, let alone quality jobs, liesbehind the slow progress intackling mass poverty and hunger
Growth and unemployment in
past crises and recovery
11.010.6
10.1
11.0
Unemployment during crisis and recovery, % of labor force
8.4 8.6
1985/1990 1991/1996 1998/2006
-
8/14/2019 MSME Development and the Financial Crisis
54/76
Unemployment and hunger rates
Unemployment and Hunger Rates, SWS
30
35
40
Unemployment
0
5
10
15
20
25
Jul-9
8
Jan-99
Jul-9
9
Jan-00
Jul-0
0
Jan-01
Jul-0
1
Jan-02
Jul-0
2
Jan-03
Jul-0
3
Jan-04
Jul-0
4
Jan-05
Jul-0
5
Jan-06
Jul-0
6
Jan-07
Jul-0
7
Jan-08
Jul-0
8
Jan-09
Hunger
Net job losses in last 2 crises
-250
-200
-150
-100
-50
0
Thousands
Jan-08 May-08 Sep-08 Jan-09
Global Crisis, 2008
-250
-200
-150
-100
-50
0
Jul-98 Nov-98 Mar-99
Asian Crisis, 1997/98
Mfg
Mfg Construction
Mfg employment down to 2.8 M in Jan 2009from 3 M in Oct 2007 or net job loss of 280,000
Net losses of 40,000 in construction and
30,000 in finance in Jan 2009
Source: NSO, LFS various quarters
Dismantling of manufacturing
Long-term decline in manufacturing,a key driver of growth in high performingAsian economies
Weak job creation before crisis
150
200
Net Job Creation, mfg
-150
-100
-50
0
50
Thousand
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
Source: NSO, LFS various quarters
-
8/14/2019 MSME Development and the Financial Crisis
55/76
-
8/14/2019 MSME Development and the Financial Crisis
56/76
Social services, % of GDP
4
5
6
t
0
1
2
3
perce
2000 2001 2002 2003 2004 2005
Cumulative gap: 7 % GDP
Lessons
Short term impacts must be attended to Welfare impact of job loss can be dramatic
for the displaced worker and family
Deep scars that will take time to heal Lost productive capacity cannot be
re lacedoverni ht
Investor confidence takes time to recover Labor market lags in terms of recovery
Crisis shook confidence on many cherishedbeliefs (and silly thoughts) about the economy Globally, a rethinking of major planks of growth
strategies and economic policy (e.g. export-ledgrowth, finance, regulation, deficits)
Need for a bold program of
short-term recover and
long-term reconstruction
Two principles
Long-term elements (reconstruction)embedded in short-term programs (recovery)to achieve impact and sustainability
Fundamental reversal of direction andstrategy: we must reject the free-marketpolicies, esp in their extremeforms
-
8/14/2019 MSME Development and the Financial Crisis
57/76
Some elements
A more realistic fiscal policythat promotes growth and job creation
Industrial policy that pays attention tothe linkage between industry and
,
Full employment as the central goal ofdevelopment (poverty reduction follows)
-
8/14/2019 MSME Development and the Financial Crisis
58/76
Community Experienes:Sailing Through Rough Times
Jerry Pacturan
acturan.JingistheExecutiveDirectorofthePhilippineDevelopmentAssistanceProgramandChairpersonoftheOrganicCe
cationCouncilofthePhilippines(OCCP).Hehasbeenattheforefrontofruralenterprisedevelopmentandpeaceanddeve
mentforalmosttwentyyears.HeinitiatedandmanagedaGTZfundedcountryentrepreneurshipprojectoftheDepartment
radeandIndustry,aswellastheWorldBankfundedcommunitybasedtrainingenterprisedevelopment.
-
8/14/2019 MSME Development and the Financial Crisis
59/76
SSocialocial EEnterprises innterprises in
OOrganicrganic AAgriculture:griculture:
SSmallmall FFarmersarmers
SSocialocial EEnterprises innterprises in
OOrganicrganic AAgriculture:griculture:
SSmallmall FFarmersarmers
EEconomicconomic CCrisisrisis
J.E.PacturanJ.E.Pacturan
EEconomicconomic CCrisisrisis
J.E.PacturanJ.E.Pacturan
Changing Agricultural ContextChanging Agricultural ContextChanging Agricultural ContextChanging Agricultural Context
Agriculture, a key issue in tradeAgriculture, a key issue in tradenegotiationsnegotiationsOpportunity to put SA/OA in the development debate, agendaOpportunity to put SA/OA in the development debate, agenda
& priorities of governments & multilaterals; food crisis& priorities of governments & multilaterals; food crisis
Rise of supermarketsRise of supermarkets
New markets, new approachesNew markets, new approaches
Preference for healthy foods & organicPreference for healthy foods & organicproductsproducts
US$40B organic market; 31 million has. of certified organicUS$40B organic market; 31 million has. of certified organic
farms; Philippine market of about US$20Mfarms; Philippine market of about US$20M
Food security & hunger reductionFood security & hunger reduction
Per FAO halving hunger by 50% in 2015 cant be met; need toPer FAO halving hunger by 50% in 2015 cant be met; need toseek new solutions to address FS & hunger (SA/OA & VC)seek new solutions to address FS & hunger (SA/OA & VC)
DISTRIBUTORS
FIs/CPs Financing fortrading, equipment,working capital;
production
CONSUMERS
NGAs, LGUs, Academe, NGOs,Donors, Private Sector Policy support; Information;Technology; Communication
PRIME Value Chain & StakeholdersPRIME Value Chain & StakeholdersPRIME Value Chain & StakeholdersPRIME Value Chain & Stakeholders
2 Industry Associations +2 Industry Associations +1 Marketing Corporation1 Marketing Corporation2 Industry Associations +2 Industry Associations +1 Marketing Corporation1 Marketing Corporation
TradesTradesTradesTrades
SellsSellsSellsSells
MEs
LMCs
BDS (NGOs)Capacity bldg fortechnology,organizational &
enterprise devt
FarmersFarmersFarmersFarmers
TradesTradesTradesTrades
TradesTradesTradesTrades
Examples of communityExamples of communityefforts in mainstreamefforts in mainstreammarketsmarkets
Don Bosco Foundation in North &South Cotabato Organic & Conventional Rice
Sultan Kudarat MuscovadoFarmers & Millers Corporation Muscovado Sugar
Pecuaria DevelopmentCooperative in Camarines Sur Organic Rice
-
8/14/2019 MSME Development and the Financial Crisis
60/76
Don Bosco - BiosDynamis Coop
Sales composition: 60% OR, 40% CR
Increasing annual sales from P27M in2007 (8mths); P54M in 2008; projectedP64M in 2009
2.2 % net income in 2007 & 3.8% in2008
OR production cost per hectareaverages P17k compared to P35k forCR
OR retail price is higher at P34-40/kg.compared to P31-35/kg. for CR
OR gross profit margin of 10%compared to CR 1%
Distribution channel through localshops ensures faster sales turn-over
Pecuaria Coop Snapshot (6years growth)Indicators Year 2002 Year 2008
Area Planted to OrganicRice (in hectares)
55.5 262
No. of farmers involved inOR
37 100
Productivity or yield perhectare
60 sacks 90 sacks
Total production cost perhectare* P 20,000 P24,978Farmgate price per kilo P 20 P 35UMFI buying price per kilo P 25 P 35No. out outlets/buyers inMetro Manila
Selected SM Supermarkets,Shopwise,
All SM SupermarketAll Rustans SupermarketAll Ever Supermarket
opwse upermar eAll Robinson SupermarketAll South SupermarketAll Puregold SupermarketAll ROB SupermarketAll CVC SupermarketAll Tropical Convenience
StoreAll Walter Mart
Local market Selected outlets ofRobertson Supermarket;Liberty Commercial Center;other institutional buyers
All RobertsonSupermarkets; LibertyCommercial Center; otherinstitutional buyers
Farmers income (per ha.) P 16,000.00 P 26,718.00Coop Sales from OR P 1.7 M P 14.7 MCoop Net Income from OR ( P .533 M ) P 1M*Bulkof the costsare landpreparation, transplanting, post-harvest (harvesting, threshing) andirrigation
Pecuaria Cooperative P7M sales in 2007; P14M in 2008 due to
expansion outside of estate
Jan-March 09 sales is 40% only of salesof same period last year; temporary slumpin demand in Metro Manila market
Manila market in