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Why the Philippine economy is not a bubble

agapanthus · 8 · 3293


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on: Nov 27, 2013, 08:23 PM
Click here for the complete article:

1. The Philippines has enough guarantees (learning even prior to 1998 Asian Crisis) on RE (real estate) bubbles.  Banks are not allowed to lend beyond 25% of their portfolios to real estate.  The RE market is clearly differentiated into segments and the large bulk affordable to people is not necessarily facing a bubble.

2. Debt to GDP ratio is now low.  Majority of the current debts are long term in nature.

3. Stock market already corrected more or less mirroring GDP growth valuation.

4. Our consumer spending has been growing for years – this is financed largely by OFW remittances.

5. OFW remittances are not coming mostly from the US. Our workers are spread all over the world – this is the reason why the 2009 crisis barely affected remittance growth.  Besides, BPOs also has a significant contributing factor and also spreading beyond call centers to higher value added outsourced work.  The current account position or the short-term foreign exchange payables are in surplus – a far cry from our situation in the 80s and 90s.  Are reserves are now in record high!

6. Car sales are increasing not only due to low interest rates, but also because car prices have become lower relative to total income.

7. We are not having a credit bubble when loans to GDP is only 51% one of the lowest in Asia.  Non-Performing Loans (NPL) as % of total loans is at all time low of only 2.7% – suggesting the better quality of loans.


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Reply #1 on: Nov 27, 2013, 10:17 PM
Wala ngang bubble. . . ang meron market panic. . .  :cool:
« Last Edit: Nov 27, 2013, 10:19 PM by Wills »


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Reply #2 on: Nov 27, 2013, 10:21 PM
Another article debunking the bubble, this time from John Mangun, click here for the complete article:

The Philippines has gone from one political crisis to another. Every year natural calamities suck billions of pesos from the country’s economy. Every few years, a disaster destroys a billion dollars’ worth of economic production.

However, the last 10 years saw the Philippine economy starting to move ahead, thanks to some fiscal reforms of the government and a private sector that has learned how to be more efficient and competitive, as well as a lot of hard work from Filipinos here and abroad.

Then, suddenly, we are told: No, forget all that. The Philippines’s economic improvement is an unintended side effect of the US Federal Reserve blowing bubbles. Read an article by Jesse Colombo on that said the Philippine economy is only a bubble.

An engine that uses gasoline for fuel must be optimized to make sure that not too much gasoline enters the combustion chamber. If the fuel or air mixture becomes too rich at some point, the engine will not perform properly, resulting in the loss of power and gas being wasted. The same is true for an economy, with money as the fuel.

A great concern—and it is a legitimate concern—for the “bubblers” is seeing a rapid and overly large increase in the money supply by the central bank. This can cause artificial economic growth that disappears when the money supply is eventually reduced. Colombo noted that the Philippines’s domestic liquidity (M3) money supply has doubled since 2008. But is that increase artificially creating economic activity? Or is it simply a necessary component of the Philippine economy, as it has come back to life over the last 25 years?

The M3 doubled from 1988 to 1992. It doubled again from 1992 to 1996, and again from 1996 to 2000. From 2000 to 2008 the M3 increased only by an average of 60 percent, as some fundamental systemic changes occurred both in the private and public financial sectors. Then the M3 doubled from 2008 to 2013.

A virtually dead Philippine economy in 1988 needed nearly two decades of additional “fuel” to finally start moving forward. Further, Singapore—a developed country—also doubled their M3 from 2008 to 2013. The decline of Singapore’s interest rates to historic lows has tracked the Philippines. At present, both the Philippines and Singapore have the same low interbank interest rate.

With several economic factors in common, why is Singapore not in a gross domestic product growth bubble, as the Philippines supposedly is?

You cannot take five years of data to make accurate conclusions about an economy. The US did not suddenly
have a housing and credit bubble in 2008. That bubble started in the 1980s, when the US went from being a creditor nation to a debtor nation and went through several asset price bubbles, with the most severe of these occurring in 2008.

All that increase in the Philippine money supply helped create growth, not a bubble. In 1988 the island-resort of Boracay was powered by candles and had one swimming pool. Twenty-five years later, there is electricity and countless swimming pools. Is that a bubble or is that economic growth?

The same story applies to the whole country.

Credit used wisely is a critical tool for economic growth. Certainly the government and banks are encouraging the use of credit. But it is a responsible credit growth. Otherwise, how could the Philippine banking system be one of the planet’s most stable and financially solid, with a very low percentage of nonperforming loans?


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Reply #3 on: Feb 27, 2014, 09:19 PM
The real estate bubble might have already burst, at least for 8990 Holdings Inc.  Its very delinquent (over 90 days past due) Installment Contract Receivables (receivables for housing units sold) has jumped 500% in the nine months since December 30, 2012.  If delinquencies continue to increase at an alarming pace, the company may have to recognize significant losses on its Installment Contract Receivables portfolio.  Of course, this may just be one datapoint that may or may not be indicative of a trend.  But it may also indicate that the "dike" has sprung a hole that is about to get even wider.


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Reply #4 on: Feb 27, 2014, 11:54 PM
The real estate bubble might have already burst, at least for 8990 Holdings Inc.  Its very delinquent (over 90 days past due) Installment Contract Receivables (receivables for housing units sold) has jumped 500% in the nine months since December 30, 2012.  If delinquencies continue to increase at an alarming pace, the company may have to recognize significant losses on its Installment Contract Receivables portfolio.  Of course, this may just be one datapoint that may or may not be indicative of a trend.  But it may also indicate that the "dike" has sprung a hole that is about to get even wider.

Since you are quoting from a blog, how reliable is it? I can't find a reference to the identity of the author. Nice read tho. Thanks


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Reply #5 on: Feb 28, 2014, 12:17 AM
I find it understandable since DECA Homes cater to C and D crowd plus many of their projects are in Visayas and Mindanao -- areas which were devastated recently by calamities.

Now, the REAL question would be: If the company folds, will it impose systemic risk? I have my doubts.


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Reply #6 on: Feb 28, 2014, 11:38 AM
Isn't it disturbing to find a number of big names among the latest list of "Top Distressed Banks" (e.g., Standard & Chartered, Deutsche, UCPB, PNB)?

Very valuable info, davidcarlgrimes. Keep up your good work...


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Reply #7 on: Feb 28, 2014, 08:58 PM
8990 Holdings, by itself, is not systemic. But it, collectively with other developers that finance their buyers, can pose a systemic risk.  The Philippines' very own shadow bankers as BDO Capital Eduardo Francisco warned about.  You can verify the figures yourself at or at  Both UCPB and PNB have had problems for some time and had billions in unbooked losses that were propping up the banks.  PNB got rid of those unbooked losses but remains weak.  UCPB still has them.  Check out its Published Statement of Condition on for "Deferred Charges" or "Unbooked Losses".

The list of Top Distressed Banks has been fairly accurate in identifying weak banks.  Three of the last three bank failures (other than rural and cooperative banks of which no information on individual banks is available on the BSP website) were flagged by this list: LBC Development Bank, Export and Industry Bank, and lastly, Silangan Savings and Loan.  Check out:  Silangan Savings, which closed last January 9, 2014 was on the endangered list since June 30, 2012. 


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