First published on Blogwatch.ph
The Philippines may have been spared from aftershocks or tsunamis from Japan’s most powerful quake last March 11, or from any trace of radioactive fallout from the troubled nuclear plants in Fukushima. On the economic side though, the country may actually be experiencing tremors in the days or months ahead.
The World Bank itself said in its most recent East Asia Pacific Economic Update that the Philippines, aside from China, is “more connected to developments in Japan than the rest of East Asia.” Of course, this is still an understatement. The country is more vulnerable to Japan economy’s woes than what official projections say.
How will the Philippine economy be affected by Japan’s devastation? Perhaps a look first at the damage wrought on the world’s third largest economy will help us arrive at some plausible inferences.
Government and private estimates have put the damage on Japan’s economy up to US$235 billion (P10.12 trillion at P43 = $1), or roughly 4 percent of Japan’s gross domestic product (GDP). While this estimate is still tentative, analysts agree that the damage would be higher than that wrought by the 1995 Kobe earthquake, which was around $100 billion.
Power supply disruptions due to damaged nuclear power plants have resulted to shutdown or reduced operations of manufacturing plants across the nation. Three of Japan’s biggest brands – Toyota, Sony and Honda – announced that they wil further delay normal operations due to power shortages and lack of parts. Overall, the quake and tsunami have caused a significant decline in the nation’s manufacturing activity.
Following the disaster, Japan’s government and private institutions are expected to heavily spend on reconstruction efforts, which the World Bank estimated to last up to five years. This will reasonably put pressure on the amount of foreign investments and aid being extended by Japan to other countries including the Philippines.
Local think-tank IBON Foundation said that “Japanese investments and official development assistance to the Philippines will drop or at least slow down as Japan tries to reconstruct itself.”
Japan accounts for the second biggest source of foreign direct investment (FDI) flows to the country next to US. From 1995 to 2005, Japan’s cumulative FDI to the Philippines reached US$3.16 billion, bigger than the combined total investments from Europe, ASEAN and China during the same period. Traditionally, Japan is also our largest country donor of official development assistance (ODA).
As Japan prioritizes spending at home, President Benigno “Noynoy” Aquino III’s investment mantra for supposed local economic growth would not hold at this point. It would be grossly insensitive. President Aquino and the neoliberal crusaders in his Cabinet should realize by now that aggressively wooing Japanese capital in the face of the disaster smacks of desperation and insensitivity. They should know by now that pursuing such line will only further expose the mendicant character of the Philippine economy. Continue reading