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The Stars
of Asia
By Michael Alan Hamlin
June 10, 2003
BusinessWeek's much-anticipated "Stars
of Asia" edition, dated June 9, appeared on Asia's newsstands
last week. Subtitled "25 Leaders at the Forefront of Change,"
the special report profiles key government policymakers, entrepreneurs,
managers, financiers, and opinion shapers. Not surprisingly, the
list is dominated by China and Japan. But the Philippines has one
star, too.
And he is Rafael B. Buenaventura,
Central Bank governor. The report says Buenaventura "has kept
economic discipline intact" during "a rough ride in recent
years." And he's credited with holding inflation "down
to the lowest levels since the mid-1980s and has spurred bank lending
to healthy borrowers by trimming interest rates." If you know
anything about the Philippines and its economy, you have to wonder
who the reporter responsible for this blurb was interviewing, and
why.
Now while I've been a fairly consistent
critic of Buenaventura, I have on occasion argued for keeping him
in place. Actually, he can't be fired anyway, but executive pressure
could force a central banker out of office. When former president
Joseph Estrada was elected, I said switching governors, given the
concern of foreign investors over an Estrada administration anyway,
would pump up the uncertainly barometer to a critical level. After
all, the Citibank-trained Buenaventura is well-liked - and yes,
respected - by his banking and analyst peers. My voice no doubt
mattered little, but Buenaventura was allowed to hang around.
As confidence in the Estrada administration
began to tumble, foreign investment to falter, and the peso to nosedive,
Buenaventura reacted predictably - and disastrously - by raising
interest rates. As a result, inflation jumped and the peso's decline
accelerated. The net result of course was a significant acceleration
in the erosion of confidence in the economy, and the very real choking
of local enterprise.
Only after a sustained public drumming
did Buenaventura reverse his tight money policy, which accelerated
appreciably after the ascension to power of President Gloria Macapagal-Arroyo.
As a result, bank lending to large corporations did pick up - although
SMEs are still starved for credit - and prices began to fall for
locally produced products. Continuing political uncertainty and
lingering doubts about the economy have failed to resuscitate investor
interest or the peso.
Is the apparent reformation of Buenaventura
real, and does it matter in the context of an apparently growing,
but very small, economy? My take is that Buenaventura's thinking
with respect to monetary policy - such that it is - has in fact
evolved. It doesn't take a rocket scientist to see why: No healthy
economy gets that way as a result of high interest rates. But it's
a real stretch to suggest that Buenaventura has done much in the
way of controlling inflation.
In fact, the real danger for the
Philippines is deflation as a result of waning demand. Although
the population is growing, there are far too few jobs being created
to substantially increase demand. As I've said elsewhere recently,
this reality is visible especially in Buenaventura's beloved financial
sector. In a country with 38 million registered voters, there are
just 14 million ATM cards, generally held by upper middle class
professionals and the wealthy who maintain more than one ATM account.
There are only three million credit cards in circulation.
The effect of the credit squeeze
on SMEs is also glaring. Although SMEs account for 99 percent of
all enterprises and 65 percent of employment, they are responsible
for just 25 percent of purchase spend. One percent of corporations
- the big guys who do have access to credit - generate the other
75 percent. Ironically, SMEs are banks most profitable customers.
Big ones are just safe.
Which leads to another assumption:
The Philippines' financial sector - and the central banker who regulates
it - aren't comfortable with risk. Well, what banker is? Yet what
the Philippines needs is not an account manager, but an enlightened
investment banker-type that is willing to take qualified risks in
order to stimulate entrepreneurial enterprise activity. A job-generating
SME sector is the only way the Philippine economy is going to grow
faster than its population, and give the average family a real chance
at prosperity.
I suppose it's nice, all that said,
that the Philippines has at least one star according to BusinessWeek.
At the same time, I have my doubts about the relative impact of
Buenaventura's monetary policy on the fostering of economic growth
in this country, especially since that policy chokes off credit
to the principal employment-generating sector. I can't help thinking
how nice it would be to have a star who leveraged that potential.
Well, maybe next year.
(Michael Alan Hamlin is the managing
director of consultancy TeamAsia and the author of three books on
Asian economies and companies. His latest book is Marketing Asian
Places, of which he is a co-author (Wiley, 2001), and he is currently
at work on High Visibility: The Making and Marketing of Asian Professionals
into Celebrities. Write him at mahamlin@teamasia.com.).
Copyright © 2003 Michael Alan
Hamlin. All Rights Reserved.
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