Estrada kidnaps reality over fund-flows blame

PUBLISHED : Wednesday, 22 July, 1998, 12:00am
UPDATED : Wednesday, 22 July, 1998, 12:00am

I see that the Philippines Government is now blaming the kidnappers that plague Manila for an outflow of foreign currency deposits.

According to Presidential Executive Secretary Ronaldo Zamora, foreign and Filipino businessmen have pulled out US$3 billion in deposits this year, and this is one reason that President Joseph Estrada has given top priority to curbing crime, especially kidnapping.

I recognise the kidnapping problem. Several years ago, I was given the job of setting up a research office in Manila.

There were plenty of well-educated candidates for the analyst positions we had open.

I quickly made job offers to three of them and returned to Hong Kong, confident I would receive acceptances within a few days.

But the day after I flew out of Manila there was a particularly nasty kidnapping in the Chinese community and a child was murdered. Out of the three job offers I had made, I received only one acceptance, a native Filipino.

The other two were to Chinese, and I learned only months later that their families had shipped them out to San Francisco within hours of the news of the latest kidnapping breaking.

Kidnapping, however, strikes me as too convenient an excuse for Mr Estrada to use at the moment. I could understand it if he were referring to Indonesia, where violent assaults on ethnic Chinese and widespread looting of Chinese businesses have clearly driven ethnic Chinese money away. Indonesia is certainly paying for it at the moment. But I doubt that it is quite as obvious a feature of Philippine capital flows just now.

The figures show that foreign currency deposit units (FCDU) in the Philippines reached a peak of $16.9 billion in June last year, just before the peso gave way in the general regional currency attack last summer. The latest figures are for March this year and they show the FCDU liabilities at $14.2 billion.

The trend ties in very closely to the movements of the peso and is almost certainly more the result of the peso collapse than of a rash of kidnappings. It certainly makes sense when seen from this perspective.

The peso was unofficially fixed to the US dollar for two years before it cracked last summer, and, with Philippine interest rates much higher than their US equivalents, many Philippine companies borrowed US dollars for their domestic businesses under the illusion that they had currency protection.

When this was proved false, they lost heavily. They were forced to pay off their US dollar borrowings with the devalued peso, and they burned their fingers so badly that they understandably became reluctant to borrow more dollars.

This is why the FCDU liabilities have come down. It was not so much a case of people no longer wanting to bring foreign currency in as of people no longer wanting to gear themselves in foreign currencies. The decline was demand driven, not supply driven.

But it all goes to demonstrate a point I have made previously in this column. There is still too much of a head-in-the-sand mentality in Manila about the economic problems the Philippines faces. Although the country definitely has problems with kidnappers, it is not the only Asian country to suffer from this and the government would do better to look at its own record of currency mismanagement when pondering why foreign currency deposits are down.

Mr Estrada just can't seem to leave his movie days behind. It's easy to shoot the kidnappers in films but this isn't film and kidnappers are not the only villains.