Are Filipinos Prepared For an Economic Collapse by 2014?Read this distressing article

[cyberdoc95]

[SIZE=3]Piling debt could cause economic collapse[/SIZE]
By Beting Dolor, PHILNEWS.COM(CLICK HERE!!)
Mar 16, 2005


MANILA — Is the Philippine economy, like the U.S. Social Security, headed for a serious crisis, if not outright collapse, by the middle of the next decade?
Two separate and seemingly unrelated studies indicate so, with both likening the Philippine economy and U.S. Social Security to a Ponzi scheme, where loans are used to pay loans.

The former conclusion comes from a group of economists from the Asian Development Bank, while the latter is from the Fairfax, Va.-based Future of Freedom Foundation (FFF).

The Ponzi scheme, a variation of the ages-old pyramiding scam, takes its name from Carlo “Charles” Ponzi, an Italian immigrant to the U.S. at the turn of the last century who in 1920 swindled some 40,000 investors mostly in the New England of about $15 million, or $140 million in today’s money.

Five economists and consultants from the ADB – Duo Qin, Marie Anne Cagas, Geoffrey Ducanes, Nedelyn Magtibay Ramos and Pilipinas Quising – assessed the feasibility of the Philippine government’s debts and concluded that a crisis would strike the country by 2014. The principal cause would be the public sector debt, which has already deteriorated from sustainable to unsustainable levels at the present time.

On the other hand, Sheldon Richman of the FFF estimates that in a dozen years, or by 2017, Social Security would have reached breaking point.

The ADB economists point out that a government is said to be playing a Ponzi game “when it just keeps paying old debt by issuing new ones.” These are usually in the form of debt papers such as bonds.

A government cannot continuously engage in a Ponzi scheme. Its debt cannot grow indefinitely, they add.

FFF’s Richman says U.S. Social Security is in fact a Ponzi scheme because “It taxes workers and promises to provide retirement income to them later.”

Then it hands the money to current retirees as it plans to tax the next working generation to keep the promises it made to the current one. “No money is invested, so there is no new production and no true return.”

Yet while there are similarities, there are also differences.

According to Richman, Social Security is headed for a crash since “government produces nothing, it was a mistake to think it could provide retirement income constructively.”

In the case of the Philippines, or any other country for that matter, “production” is based on gross national product, or the sum total of all goods and services produced by a country, including remittances from its overseas workers.

Governments have been likened to private companies that operate from revenues generated. When revenues are not enough, governments and private firms resort to borrowings. But while companies in the red have the option of closing down, governments do not have this escape route.

What worries the ADB economists is the fact that the percentage of government income used to pay the country’s debts has grown to about 24 percent as of 2003.

“From an average of 4.6 percent in 1975-79, it went up to seven percent in 1980-83, ballooned to almost 25 percent in 1984-89” and stayed at its present level. In simple terms, for every peso collected from taxes, 25 centavos goes to the payment of loans.

What’s worse is that the payments are for interest alone. The principal remains untouched.

An unbelievable worst-case scenario will see the Philippines not even earning enough per year to pay the interest on its loans.

The Philippines’ total outstanding debt was pegged at P3.36 trillion, or 78 percent of GDP circa 2003. Including contingent liabilities, this grows to P4.1 trillion, or 94.5 percent of GDP. The consolidated public sector debt is at P5.9 trillion, or “a whopping 137 percent of GDP.”

Could it get any worse? Unfortunately for the Philippines, the answer is yes. All three “are on an upward trend,” said the ADB economists. There is also another pattern they find disturbing, and rightly so.

In the ‘70s and ‘80s, they said, “large debt inflows were used to stimulate the economy and to provide a cushion against external shocks that had often plagued the economy.”

By the ‘90s, the debt inflows “had become a means to service the liabilities of ailing government agencies.”

Debts were being used to pay debts, the classic Ponzi scheme.

Philippine President Gloria Macapagal Arroyo has recently warned that the country could face a scenario similar to Argentina, where the mismatch in public debt composition led to a crisis, triggering a currency devaluation shock.

With the value of the Argentine currency sinking like a rock, hyperinflation became the order of the day.

Although the Philippines has had periods of double digit inflation, it has never experienced anything remotely resembling the Argentina scenario.

Arroyo is proposing draconian measures, some of which have met fierce resistance from various quarters, including within her own administration.

While there are many long-term solutions to the country’s desperate economic problems, she has concentrated on short-term ones. Taxation is the key on which she pins her hopes for a reversal of the negative economic indicators. The only way that loans will not be paid with loans is to increase tax revenue for the short term, then raise productivity. With that, government revenues would increase even if tax rates remain the same.

“There is a light at the end of the tunnel,” she promises her countrymen, and these will be borne of “strong macroeconomic fundamentals, including fiscal responsibility, aggressive market initiatives and a positive climate for investment.” Under her vision, the Philippines’ Medium Term Development Plan provides the formulas by which the negative view of the ADB economists will not come to pass.

World Bank Country Director for the Philippines Joachim von Amsbert, for one, believes Arroyo is in the position “to address long-standing issues and move the country out of fiscal vulnerability and into a virtuous cycle.”

[BlueBimmer]

no pagasa

[cyberdoc95]

How can it ever get out of such situation??!! :question:

Sana tigilan na itong mga gulo para pumasok na ang maraming investors at kumita ang Pilipinas para mapiligilan naman ito!

[Altis6453]

Then again, the Argentine experience did this:

1. They were able to dictate the terms of repayment, freeing up cash for government development projects;

2. The Argentinian currency devaluated but made their exports more competitive;
3. The Argentinians were still given development aid by the industrialized countries who realized that the only way Argentina is ever going to repay its debts is to help it economically.

[mantoy]

increase revenue? ok, then chase those big time tax evaders!! eh baka mangyari mag-introduce ng new taxes eh patay tayo dyan..heheh.

[theveed]

distressing? It should be renamed "expected"

Nothing is a shock or distressing here, it's been going on for too long...

[66bunny]

Not suprised at all. It's a given.

[cyberdoc95]

[SIZE=3]Argentina pays a high price for economic collapse[/SIZE]
SOURCE:SCOTSMAN.COM(CLICK HERE)

SOPHIE ARIE IN BUENOS AIRES

TIMES are tough in Argentina but Jimena Rei is getting fit. This week she had to walk for hours all over Buenos Aires, in search of work and without a peso in her pocket.

In the last four months, since Argentina defaulted on its colossal public debts and devalued the peso, the 28-year-old physical education teacher and her family, like so many of Argentina’s once thriving middle class, have had to tighten their belts like never before.

"We don’t buy anything that’s not an absolutely essential now. We eat soup for most meals and we’ve had to start rationing basic things like milk and bread, because they’ve become so expensive," said Jimena.

"Life has been reduced to basic survival."

Jimena has two degrees but she has only found a part-time, temporary job teaching tango. Her brother Gonzalo, 30, is not so lucky. He lost his job in advertising last year and decided to try opening a small business. But his life savings of $20,000 - meant to help him get his business started - have been trapped in the bank since December. Now, he is told, his savings have been converted into pesos, currently worth a third of a dollar, and he cannot touch them until next year.

"I was always told the safest thing was to keep your money in the bank. Now I don’t know when I’ll get my savings back. I don’t think I’ll ever trust a bank again," said Gonzalo .

Rei’s parents, Beatriz and Jose, both teach in state schools and have not been paid since mid-February. In previous months, they received their salaries in dribs and drabs on random dates and partly in government bonds, as the local authorities ran out of cash.

"I’ve worked all my life, always paid my taxes and never run up debts. And now I find I’m having to ration how much bread my family can eat. It is a disgrace," said Beatriz, 57 .

For a decade, under Carlos Menem’s free market reforms in the 1990s, Argentina opened to the world in what were known as the ‘pizza and champagne’ years and the country was awash with cheap foreign imports from palm pilots to nappies. Now a decent pair of trainers costs more than half of Jimena’s monthly income.

Unemployment has soared to around 22% and a million people have fallen under the poverty line since December, according to independent analysts Equis.

This week, Argentina drifted in a financial twilight zone with banks shut indefinitely after the resignation of the fifth economic minister in a year and president Eduardo Duhalde scrambled to hold his government together.

Argentines have had their share of economic rollercoaster crises and are notoriously attached to the safer US currency. . On the streets, multiple new currencies - bonds issued by cash-strapped regional governments - are now circulating alongside the peso.

"The worst thing about all this, is not knowing what’s going to happen tomorrow," said Jimena. "All we know is that it’s going to get worse."

[ILuvDetailing]

mmm... interesting. another word for this... Inevitable

[boydapa]

matagal ko na alam yan---it is just a matter of time. sana wala nako sa pilipinas by dat time.

sa tingin ko kaya naman bayaran lahat ng utang natin eh kulang lang sa diskarte.
hukayin lang lahat ng mineral deposits ng pinas ok na eh sobra pa! kahit walang bayad tutulong ako ganun lang yun. ang nagpapahirap lang ay pulitika...