Is it as bad as it’s going to get?
No, I’m not asking rhetorically if the latest in a long string of corruption scandals allegedly involving First Gentleman Mike Arroyo – the latest centered on collusion to corner and siphon off funds from World Bank-funded infrastructure projects – is as bad as it’s going to get. There’s still plenty of time until national elections in 2010 for worse scandals to emerge in Asia’s second-most corrupt country after Laos (The Philippines is 141 of 180 countries ranked in Transparency International’s 2008 Corruption Perceptions Index, with 1 being the least corrupt.).
Nor am I referring to Eduardo Cojuangco, Jr.-controlled San Miguel Corporation’s (SMC) penchant for snapping up government shares of blue chip companies such as Petron and Meralco and entering other strategic industries such as telecommunications and mining. And while we’re on the subject of transparency and good governance, you have to wonder what minority shareholders thought about SMC selling the San Miguel Beer brands and real estate assets to its new, almost wholly-owned beer subsidiary for US$826 million to help fund the newly diversified holding company’s expansion.
No, I’m referring instead to the latest economic snapshot survey of global executives undertaken by McKinsey Global. The survey’s findings suggest that unlike earlier surveys in recent months, respondents don’t see their economies “getting much worse. Executives’ economic expectations, though gloomy, don’t appear to have worsened notably over the past six weeks,” the survey report concludes. The survey took place January 27, 2009 to February 2, 2009.
If you think that’s good news, it’s not. More respondents than in the previous survey conducted in November believe their nations’ GDP will fall in 2009. Overall, 75% of all respondents said GDP will fall, and a staggering 90% of respondents in the eurozone said their economies will decline this year. In November, less than 60% forecast a fall in GDP. Asian respondents’ were not broken out in the report, but as The Economist reported late last month, although Asia “had hoped that it was somehow ‘decoupled’ from the economic trauma of the West,” they have been “hit as hard as anywhere in the world – and in some cases harder.”
Japan provides the perfect illustration, which like the Philippines, believed banking reforms undertaken in the aftermath of the 1997 Asian financial crisis left it relatively immune from today’s global economic fallout. Japan was wrong, and so is the Philippines (That includes, of course, the discredited rating agencies that continue to suggest otherwise.).
On Monday, Japan admitted that its economy shrunk at the fastest pace in 35 years, falling an inflation-adjusted 3.3% in October to December. That’s an annualized 12.7% drop. The Wall Street Journalreported that, “The double-digit drop marked the third straight quarter that Japan’s economy became smaller, and was the fastest contraction since an annualized 13.1% GDP drop in January-March 1974, when an oil crisis pushed up inflation and weighed on demand.”
The McKinsey survey results weren’t all bad. “Some 40 percent of respondents expect an upturn to begin by the end of the year,” and about a quarter of respondents think the upturn will “start in several regions at once,” although their reasons weren’t clear. Notably, North American respondents were “slightly more positive about their country’s near-term economic chances,” as was the case in previous surveys.
Despite intense criticism in the United States over the government’s handling of the financial crisis, especially its murky Troubled Assets Relief Program, and elsewhere, 43% of all respondents said their “governments’ actions have made the situation better than it would have been had they not acted.” Almost 30% said that the good government has done has been undermined by mistakes that have hurt respondents’ economies, and 20% said governments’ actions have had no impact good or bad.
When asked what governments should be doing to help troubled companies, responses were mixed, revealing considerable uncertainty. About 30% said provide financial support somehow short-term, something the cash-strapped Philippine government certainly can’t do anyway, or tax credits, which it won’t do (The P330 billion Philippine Economic Resiliency Plan is mostly illusory; and, the reduction in the corporate income tax to 30% from 35% was approved in 2005.). However, respondents for the most part, 72%, felt that their governments should invest in infrastructure to support their economies overall, and more than half said their governments should make it easier to invest in their countries.
While their governments are figuring that out, executives themselves are working to reduce costs (74%), increase productivity (45%), reduce capital investment (38%), restructure (37%), and introduce new products or services to gain market share from weakened competitors (36%). Whatever executives are doing, the results show these respondents have acknowledged the crisis and are trying to deal with it.
That’s much better than pretending it doesn’t exist.