November 27, 2013

Philippines Growth: Not a Bubble


Some critics are arguing that Philippines economic growth is a bubble, but looking into the credit side, this might not be the case. There are many sources of funds in the Philippines, if you are planning to build business in the country. Banks are willing to lend, but only for those who are financially stable. History would tell, and even local businesses, that Philippines have stable and strict banks.

Bailout is not a word of mouth in the business – banks and organizations fail if they failed. This assures that only the most competent and stable banks are operating in the industry. In fact, there are few big names in the local bank industry (BDO, BPI, Metro Bank, and the likes). Stability in the banking industry is achieved by consolidation of small unstable banks and bank giants. Moreover, bank interest rate is a reflection of high liquidity.

On the other side, even thou the exchange rate of the Philippines is downward sloping; which means that Peso heading stronger against Dollar. There might be other factors affecting the exchange rate of the Philippines aside from hot money, like the continues inflow of fixed investments, exports, and overseas workers' remittances.  The strong peso could not only be the basis for a bubble economy.

Real estate can be a source of bubble – if the debtor fails to pay his obligation then this could negatively affect the creditor bank and could have a chain effect. In line with this, banks in the Philippines have limited their exposure to real estate to prevent bubble. On the other hand, a study shows that majority of the buyers of real estate properties are overseas workers and retirees who wants to invest their money. Moreover, housing demand in the Philippines is higher than housing supply.

Philippines has already learned from its past experience from Asian Financial Crisis – banks are very careful now.

The seven percent growth of the Philippines is true, yet, its beneficiary is centered to the wealthy. The government has to create more jobs, by encouraging fixed investments, if it wants prove its critics are wrong.

The growth of the Philippines, a developing country, is projected to be in the high levels in the succeeding years; the growth will slowly decline once it reaches its developed stage.


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