THE PHILIPPINES:

A NATIONAL RESPONSE TO THE

GLOBAL CRISIS

A Briefing Presentation to PGMA

Governor Joey Salceda

12 November 2008
 WHAT’S THIS CRISIS
• It is a global crisis
• Complexed crises: Two distinct but related
1. Financial meltdown coinciding with
2. Cyclical recession in the real economy
• What lies ahead? Deep and long recession
– Sharp initial shocks and protracted slowdown with false
recoveries prompted by state interventions with short-
lived and mostly counterproductive impact
– L-shaped more like Japan post-Plaza Accord
• Some positive relief from fuel and food price spikes
having peaked
– correcting by 60% from peak
– now lower than their long-term inflation-adjusted average
Global Equities Markets Performance
2007 Current %Chg
US Markets Price High Price from Peak
Nasdaq 2,861.5 1,552.0 -45.8%
S&P 500 1,576.1 876.8 -44.4%
DJIA 14,198.1 8,379.0 -41.0%
Average -43.7%
Other Major Markets
Japan (Nikkei) 18,295.0 7,649.1 -58.2%
France (CAC) 6,168.2 3,193.8 -48.2%
Germany (DAX) 8,151.6 4,295.7 -47.3%
Australia (All Ordinaries) 6,873.2 3,869.4 -43.7%
U.K. (FTSE) 6,751.7 3,883.4 -42.5%
Average -48.0%
Asian Markets
China (Shanghai Comp) 6,124.0 1,932.4 -68.4%
Hong Kong (Hang Seng) 31,958.4 12,618.4 -60.5%
Singapore (STI) 3,906.2 1,600.3 -59.0%
India (BSE Sensex) 21,206.8 8,701.1 -59.0%
Indonesia (JCI) 2,838.5 1,244.9 -56.1%
Korea (Kospi) 2,049.6 938.8 -54.2%
Taiwan (Taiex) 9,859.7 4,579.6 -53.6%
Thailand (SET) 924.7 432.9 -53.2%
Philippines (PSEi) 3,896.7 1,953.5 -49.9%
Malaysia (KLCI) 1,524.7 859.1 -43.7%
Average -55.8%

Source: Bloomberg
RISKS TO PHILIPPINE REAL ECONOMY
• Exports – 36% of GDP (US$57bn) vs 47% ave. Asia
– 17% direct to the US but indirect adds 18% for 35%
– Export slowdown is global
– Aggregate exposure and product mix are more important
• OFWs- 12% of GDP (US$16bn)
– “Investment content” is most at-risk
• Tourism- 3% of GDP (US$4.5bn)
– Rising personal bankruptcies / bad mortgages
– 92% from non-Asean
• BPOs- 3% of GDP (US$4.5bn)
– Lost volumes from some big-ticket principals especially in the
financial sector
– Higher vacancy as office space completed 501,000sqm in 2008
from 330,000 in 2007
• Impact on overall business and consumer confidence
RP most exposed to non-Asean traffic
Tourist arrivals in ASEAN
as of 14 March 2007
in thousand arrivals
2001-2006 % to Total
Country Intra- Extra- Intra- Extra-
Total ASEAN ASEAN ASEAN ASEAN
The Philippines 13,394.6 892.9 12,501.7 7% 93%
Myanmar 2,966.3 304.8 2,661.4 10% 90%
Viet Nam 17,364.3 2,211.1 15,153.2 13% 87%
Cambodia 6,269.3 975.8 5,293.5 16% 84%
Thailand 68,019.3 17,080.2 50,939.0 25% 75%
Singapore 48,203.6 17,376.6 30,827.0 36% 64%
Indonesia 27,428.4 11,998.9 15,429.5 44% 56%
Lao PDR 4,791.2 3,483.8 1,307.4 73% 27%
Malaysia 81,681.6 62,561.7 19,119.9 77% 23%
Brunei Darussalam 2,921.1 2,571.5 349.6 88% 12%
ASEAN 273,039.6 119,457.4 153,582.3 44% 56%
Dim and dimmer

Global economy
generally slowing down
even before meltdown

Source: IMF
 Domestic Demand
Annual Growth in Real Terms Domestic economy
30 similarly slowing down
25

20

15

10

-5

-10

-15

-20

-25
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Government Spending Private Consumption Fixed Investment

Source: BSP Q32008 Inflation Report

7
 POSITIVE SECULAR TRENDS:
SIDELINED OR OVERWRITTEN
• Demographic transition still well on its way
– Non-traditional labor markets (eg EU) for OFWs are rising
enabling +27% deployment in the first seven months
– Adjustment to resource depletion but too slow process to
achieve stabilization and a more sustainable equilibrium
being overwritten by BRICS
• Wage convergence still at play
– Impact is suspended or sidelined as it is being overwritten
by the expediencies of the global crisis
Source: ww.worldbank.http://www.worldbank.org/depweb/beyond/global/chapter8.html
 IMPACTS ON POVERTY
• First direct impact: jobs losses and stagnant
incomes
• Welfare = Jobs x Incomes less Costs
– Jobs- 1% or 310,000 jobs losses with 50,000 OFW and
260,000 domestic
– Incomes- likely to be stagnant with weaker business
formation and expansion and 1.5m new entrants yearly
– Costs- WTI now at US$70/barrel from US$147 and Rice at
below US$600/MT from US$1,272
• Increase in Welfare = Cost relief > Jobs losses
and Stagnant Incomes but:
• Pockets of “concentrated severity”
 INFLATION: Peaked in August

2008 LowerCPIcommodity
MoM Infprices 2009 CPI MoM Inf

January but peso

146.8 weakness
1.70 4.9putsJanuary 160.2 0.83 9.1
February 147.3 0.50
new pressure 5.4 February 161.0 0.83 9.3
March 148.6 1.30 6.4 March 161.8 0.83 8.9
April 151.6 3.00 8.3 April 162.7 0.83 7.3
May 153.8 2.20 9.5 May 163.5 0.83 6.3
June 157.4 3.60 11.4 June 164.3 0.83 4.4
July 159.8 2.37 12.2 July 165.2 0.83 3.4
August 160.4 0.60 12.5 August 166.0 0.83 3.5
September 159.8 -0.60 11.9 September 166.8 0.83 4.4
October 159.2 -0.60 11.2 October 167.6 0.83 5.3
November 159.2 0.00 10.5 November 168.5 0.83 5.8
December 159.2 0.00 9.7 December 169.3 0.83 6.4
Average 155.2 1.17 9.5 Average 164.7 0.83 6.2
P/$ Rate Monthly Chart (1998 to present)

58.00

55.00

52.00

49.00 PESO is key risk

46.00 to inflation
43.00

40.00

37.00

34.00

31.00

28.00

25.00

Source: Reference Exchange Rate Bulletin, Treasury Dept., BSP

 IMPACTS ON POVERTY
• Second major impact: reduced fiscal capacity to
pursue poverty-relieving social programs and
jobs-creating infrastructure
– Fiscal incidence of Philippine budget mostly progressive
• States’ revenues already in the US by 6%
inflation-adjusted
• Window for countercyclical deficit spending has
significantly narrowed
– Economic stimulus funded by deficit comes with elevated risk of
triggering higher interest rates that could deter private capital
outlay thus negating positive impact of public spending
 IMPACTS ON POVERTY
• Adverse fiscal impact of financial meltdown:
– (1) Tighter credit: Bond markets are likely to be tighter
and more expensive
• Foreign borrowings in first nine months of P51bn versus
P103bn in 2007
• Credit spreads on emerging sovereign bonds have widened
to 630 bps partly due to lower US Tnote
• Reflow of gross repayments to multilaterals (currently, RP is
net payer) is most reliable source
• Adverse impact of global economic slowdown:
– (2) Revenue weakness: Revenues will be hurt by lower
GDP growth even customs feeling the brunt of curtailed
trade finance
• Revenue weakness will coincide in 2009 with structural
constraints
– Minimum wage relief- P36bn
– Lower corporate income tax- P18bn
 GLOBAL OUTLOOK
• “Excessive hopes” pinned on global summit building on
consensus emerging from EU and Asia summits and
Obama election
– New architecture, new norms and new oversight
– Will only allow governments to print money and incur debt
– Still no mention of resource depletion
– One-party administration in the US tending to be
dysfunctionally inward-looking/domestic-oriented viz auto
bailout
• Rapid reconcentration of financial resources into reserve
currency countries – US, EU, Japan (sudden flight)
– Depositors/investors flocking to US / UK Treasuries
– Treasury owning banks and banks foreclosing on industries
– Emerging economies starting to need bailing out
• Being pushed out by global credit markets
• 7 countries – including Hungary, Ukraine, Iceland, Romania
Pakistan even Brazil
Chart 1: Assets Under Management

Asset Managers, FX Reserves & SWFsFund Managers

$80trn
80

60
USD Trn

40 Central Banks
$6trn
Middle East
20 $2trn

0
2001 2002 2003 2004 2005 2006 2007 2008

Source: UBS FX Strategy

Chart 2: Financial Sector Assets

Financial Sector Asset Holdings

40 90

30
60

20

30

) l(U
SD
rn G
o
0
1
T
ta
10
)s(U
SD oivu
lC
trea d
In

0 0
2001 2002 2003 2004 2005 2006 2007 2008

US Euro Canada UK Japan Swiss G10 Total (RHS)

Source: UBS FX Strategy

 Chart 1: Cumulative financial account flows into ASEAN economies since Q1 1999
es since Q1 1999
20
USD bn
Rising cumulative inflow
0

-20

-40

Rising cumulative outflow

-60
-9
9

-0
0

-0
1

-0
2

-0
3

-0
4

-0
5

-0
6

-0
7
-9
9

-0
0

-0
1

-0
2

-0
3

-0
4

-0
5

-0
6

-0
7

-0
8
M

M
a

a
p
e

p
e

p
e

p
e

p
e

p
e

p
e

p
e

p
e
r

r
Philippines Thailand Malaysia Indonesia
Source: CEIC, Haver, UBS
Table 1: Indicators of pressures on ASEAN currencies
Singapore Thailand Malaysia Indonesia Philippines
Change in exchange rate
(currency per US dollar) from 4.7% 3.5% 8.2% 17.0% 19.7%
31 Dec 2007 to 28 Oct 2008
Change in FX reserves +
forward reserves since
+ 14.9bn + 10.5bn + 13.1bn + 0.2bn* - 4.2bn
December (assuming forward
reserves unchanged in Sept)
Change in FX reserves +
forward reserves from peak - 34.8bn - 23.6bn - 32.4bn - 3.5bn* - 9.1bn
(assuming forward reserves (Apr-08 peak) (Mar-08 peak) (Apr-08 peak) (Jul-08 peak) (Feb-08 peak)
unchanged in Sept)
Decline in FX reserves as a %
-13.0% -17.8% -22.4% -5.7% -18.6%
of peak reserves
Current account balance,
15.4% 3.8% 13.6% 1.9% 2.2%
Q1 2008 (% of GDP)
Current account balance,
13.5% -1.4% 19.6% -1.1% 2.0%
Q2 2008 (% of GDP)
*Note: data on forward reserve position is unavailable
Source: UBS
Chart 3: US Asset Managers

US Asset Managers, FX Reserves & SWFs

30.0

25.0

20.0

15.0
D
U
S

10.0
n
rilo
s T

5.0

0.0
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

US Asset Managers Central Bank FX Reserves Middle East

Source: UBS FX Strategy

 Chart 4: Foreign Assets As Share Of Total Assets, Mutual Funds

Foreign Assets As Share Of Total Assets

70% 70%

60% 60%

50% 50%

40% 40%

30% 30%
Percntag

Percntag
20% 20%

10% 10%

0% 0%
2000 2001 2002 2003 2004 2005 2006 2007 2008

Swiss Unit Trusts Sweden Mutual Funds UK Unit & Investment Trusts
Canada Mutual Funds Japan Investment Trusts US Mutual Funds
Euro Money & Financial Funds

Source: UBS FX Strategy

Table 2: International investment position (2007)
% GDP Singapore Malaysia Philippines Indonesia Thailand
Total assets 521.5 115.7 46.3 21.8 59.6
FDI assets 100.7 30.0 3.8 0.1 3.3
Portfolio assets 116.6 7.9 4.6 0.7 6.0
Portfolio assets: equities 71.5 6.5 0.1 0.1 1.3
Portfolio assets: bonds 45.1 1.4 4.4 0.6 4.7
Other assets (bank loans/trade credit etc.) 207.8 25.3 14.6 7.8 14.1
Official reserve assets 96.5 52.3 23.3 13.2 35.6
Memo: Assets net of FDI 420.8 85.7 42.5 21.7 56.3

Total liabilities 429.8 118.5 65.2 56.4 83.1

FDI liabilities 138.0 39.5 13.8 13.7 38.6
Portfolio liabilities 102.6 53.1 23.2 16.4 25.9
Portfolio liabilities: equities 91.2 35.0 7.0 9.6 23.0
Portfolio liabilities: bonds 11.4 18.1 16.2 6.8 6.3
Other liabilities (bank loans/trade credit etc.) 189.2 25.6 28.2 26.4 18.3
Memo: Assets net of FDI 291.8 79.0 51.4 42.8 44.5

Net assets 91.7 -2.8 -18.9 -34.7 -23.5

Memo: Net assets ex-FDI 129.0 6.7 -9.0 -21.1 11.8

Net forex equity

Non-FDI assets against non-FDI liabilities:
Non-FDI liabilities/(assets ex FDI)
liabilities (excluding 69.3% 92.1% 121.1% 197.3% 79.3%
Non-FDI liabilities/(assets ex FDI and reserves) 90.0% 237.4% 268.3% 501.6% 219.7%
foreign
1% change in portfolio assets as a % of daily FX
debt)
0.9% 4.5% 2.9% 1.1% 2.4%
market turnover
1% change in portfolio liabilities as a % of daily
0.8% 30.2% 14.5% 25.5% 10.3%
FX market turnover
Source: UBS, Haver, IMF
2007-2008 (Jan-June) Balance of Payments
January - June Grow th
Item
2007 /r TRADE
2008 /p ACCOUNTS?
Rate (%)

SignsCAPITAL
of economic involution-
& FINANCIAL ACCOUNT 144 Regime
1,197 of 731.3
less exports,
less imports
back Capital
toCredit:
our cave
Account
Receipts
(6)
57
30
57
600.0
0.0
Debit: Disbursements 63 27 (57.1)

Financial Account 150 1,167 To FDI,

678.0
Direct Investment (1,415) 742 152.4
Debit: As s ets , Res idents ' Inves tm ent Abroad 3,348 71
AIG US$1.5b
(97.9)
sale
Credit: Liabilities , Non-Res idents Inves tm ents 1,933 813 of Philamlife
(57.9)

Portfolio Investment 2,347 (191) (108.1)

Debit: As s ets , Res idents ' Inves tm ent Abroad 516 (2,101) (507.2)
Credit: Liabilities , Non-Res idents Inves tm ents 2,863 (2,292) (180.1)

Financial Derivatives (150) (27) Reverse capital

82.0 flow
A new WTO deal would do more
Debit: As s ets , Res idents ' Inves tm ent Abroad
Credit: Liabilities , Non-Res idents Inves tm ents
(41)
(191)
(191)
(218)
from portfolio
(365.9)
(14.1)
than allOther
the bailouts in helping
Investment (632) 643 201.7
the real economy as ' Inves
Debit: As s ets , Res idents it optimizes
tm ent Abroad 3,332 (1,663) (149.9)
Credit: Liabilities , Non-Res idents Inves tm ents 2,700 (1,020) (137.8)
the positive impacts of stimulus
Change in Commercial Banks' NFA (537) (970) (80.6)
packages
NET UNCLASSIFIED ITEMS (537) (970) (80.6)

OVERALL BOP POSITION 3,187 1,934 (39.3)

Source: BSP
2007-2008 (Jan-June) Balance of Payments
January - June Growth
Item
2007 /r 2008 /p Rate (%)

CURRENT ACCOUNT 3,580 1,707 (52.3)

Goods and Services (2,859) (5,751) (101.2)

Exports 28,043 30,160 7.5
Imports 30,902 35,911 16.2

Goods (3,167) (6,404) (102.2)

Credit: Exports 24,169 25,156 4.1
Debit: Imports 27,336 31,560 15.5
Services 308 653 112.0
Credit: Exports 3,874 5,004 29.2
Debit: Imports 3,566 4,351 22.0

Income (407) (68) 83.3

Credit: Receipts 2,468 3,256 31.9
Debit: Disbursements 2,875 3,324 15.6

Current Transfers 6,846 7,526 9.9

Credit: Receipts 7,034 7,727 9.9
Debit: Disbursement 188 201 6.9
Source: BSP
 Total Balance of Payments (1999-2007)
1 PHILIPPINES: BALANCE OF PAYMENTS (in US$m)
2007 r/ Total (1999-2007)
CAPITAL AND FINANCIAL ACCOUNT 2889 13749

Capital Account 24 663

Cre dit: Re ce ipts Inflows at risk to 108 1049
De bit: Paym e nts
outflows via dividends 84 386

Financial Account
and capital repatriation 2865
Dire ct Inve s tm e nt -514 9307
Debit: Assets, Residents' Investments Abroad 3442 4799
Credit: Liabilities, Non-Residents' 2928 14106
Investments in the Phil.

Portfolio Inve s tm e nt 4382 14284

Debit: Assets, Residents' Investments Abroad -813 4728
Credit: Liabilities, Non-Residents' 3569 19012

Portfolio
Investments in theflows
Phil. remain
Financial De rivative s
most significant risk -288 -544
Debit: Assets, Residents' Investments Abroad -170 -924
Credit: Liabilities, Non-Residents' -458 -1468
Investments in the Phil.

Othe r Inve s tm e nt -715 -9961

Debit: Assets, Residents' Investments Abroad 4852 11362
Credit: Liabilities, Non-Residents' 4137 1401
Investments in the Phil.
Source: BSP
 Gross International Reserves

Healthy
Reserves
for now

Source: BSP
 GIR to GDP Ratio
(since 1997 devaluation)
Year GIR GDP P/$ Rate GDP GIR/GDP
(US $m ) (current, Pm ) (end of period) (US $m )

1999 15,147.31 2,976,905 Relatively 73,845

40.3130stable 20.51%
2000 15,062.82 3,354,727 49.9980 67,097 22.45%
2001 15,692.23 3,631,474 51.4040 70,646 22.21%
2002 16,364.76 3,963,873 53.0960 74,655 21.92%
2003 17,063.06 US$14bn
4,316,402increase in GIR 77,676
55.5690 21.97%
2004 16,227.91 4,871,555 56.2670 86,579 18.74%
2005 18,494.36 5,444,039 53.0670 102,588 18.03%
2006 22,966.72 6,032,835 49.1320 122,788 18.70%
2007 33,751.05 6,648,245 41.4010 160,582 21.02%
Mar-08 36,624.01 7,446,034 41.8680 177,845 20.59%
Jun-08 36,712.28 7,446,034 44.7560 166,370 22.07%
P
Sep-08 36,691.68 7,446,034 46.9170 158,707 23.12%
0.0019%
Source: BSP for GIR & P-$ Exchange Rate
NSCB for GDP current
 Broad Money Liabilities (M3)
Oct-06 Nov-06 Dec-06 Jan-07 Feb-07 Mar-07 Apr-07 May-07 Jun-07 Jul-07
30.0
16.7 19.3 22.7 21.9 22.0 24.7 26.1 20.5 19.4 18.7

25.0

20.0

15.0

10.0
Entry of virus?:
Pesos created by new forex
inflows must now be
5.0
proportionally contained
with forex outflows!
-
Jan-05
Mar-05
May-05
Jul-05
Sep-05
Nov-05
Jan-06
Mar-06
May-06
Jul-06
Sep-06
Nov-06
Jan-07
Mar-07
May-07
Jul-07
Sep-07
Nov-07
Jan-08
Mar-08
May-08

Source: BSP
 NG Foreign Bonds

Change
1995 2000 2001 2002 2003 2004 2005 2006 2007 2008 1995-2008

TOTAL 1,158,622 2,166,710 2,384,917 2,815,468 3,355,108 3,811,954 3,888,231 3,851,506 3,712,487 3,966,069 2,807,447

Domestic Debt 718,395 1,068,200 1,247,683 1,471,202 1,703,781 2,001,220 2,164,293 2,154,078 2,201,167 2,338,569 1,620,174
NG Direct 678,007 1,049,083 1,233,825 1,462,950 1,701,484 Foreign bonds-
1,998,926 2,161,999 73%2,198,873
2,151,784 of 2,336,275 1,658,268
Assumed 40,388 19,117 13,858 8,252 incremental 2,297 2,294 external2,294 2,294financing2,294 2,294 -38,094
for public sector
Foreign Debt 440,227 1,098,510 1,137,234 1,344,266 1,651,327 1,810,734 1,723,938 1,697,428 1,511,320 1,627,500 1,187,273
NG Direct 342,751 647,468 626,958 705,414 815,942 841,096 703,590 674,454 613,595 679,531 336,780
NG Foreign Bonds 76,144 437,570 498,645 629,037 827,400 963,846 1,017,082 1,021,916 897,653 947,906 871,762
Assumed 21,332 13,472 11,631 9,815 7,985 5,792 3,266 1,058 72 63 -21,269

Bonds/Foreign Debt 17.3% 39.8% 43.8% 46.8% 50.1% 53.2% 59.0% 60.2% 59.4% 58.2% 73.4%
Bonds/Debt 1.8% 20.2% 20.9% 22.3% 24.7% 25.3% 26.2% 26.5% 24.2% 23.9% 31.1%
Source: Bureau of Treasury
29
 NG Debt Service 1999-2008
(in Pm)
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008*

TOTAL DEBT SERVICE 205,396 227,843 274,439 357,959 469,990 601,672 678,951 854,374 614,069 610,300

Interest Payments 106,290 140,894 174,834 185,861 226,408 260,901 299,807 310,108 267,800 299,500
Domestic 74,980 93,575 112,592 119,985 147,565 169,997 190,352 197,263 157,220
Foreign 31,310 47,319 62,242 65,876 78,843 90,904 109,455 112,845 110,580

Principal Payments 99,106 86,949 99,605 172,098 243,582 340,771 379,144 544,266 346,269 310,800
Domestic 61,552 45,429 54,038 80,944 147,322 222,405 253,492 380,939 284,017
Foreign 37,554 41,520 45,567 91,154 96,260 118,366 125,652 163,327 62,252

As % of GDP 6.90% 6.79% 7.56% 9.03% 10.89% 12.35% 12.47% 14.16% 9.24%

* Preliminary estimates

Source: Bureau of Treasury

External Debt 1990-2008 (in $m)
YEAR External Debt External Debt
(end of period; in $m) to GDP Ratio

1990 28,322 63.91%

1991 29,933 65.91%
1992 30,771 58.09%
Less susceptible
1993 to global34,687 63.80%
1994 37,351 58.28%
interest spikes
1995
and less 37,697 50.86%
requirement for refinancing
1996 39,883 48.14%
1997 for growth42,972
but little space 52.19%
1998 46,146 70.81%
1999 50,997 66.96%
2000 51,206 67.46%
2001 51,900 72.88%
2002 53,645 69.84%
2003 57,395 72.07%
2004 54,846 63.09%
2005 54,186 54.83%
2006 53,367 45.39%
2007 54,938 38.13%
May-08 54,611 35.57%
Note: 2007 & 2008 data are prelim inary

Source: Bangko Sentral ng Pilipinas

 NG debt reduced to 41%
of GDP in 2010
% of GDP

Scope for counter

cyclical deficit spending
– if markets allow

32
NG Contingent Debt 1990-2008
Domestic Foreign TOTAL Total
YEAR Debt (Pm) Debt (Pm) (Pm) to GDP Ratio

1990 4,422 96,502 100,924 9.37%

1991 4,669 91,012 95,681 7.67%
1992 5,023 100,550 105,573 7.81%
1993 5,207 137,668 142,875 9.69%
1994 5,585 140,732 146,317 8.64%
1995 6,218 160,699 166,917 8.76%
1996 Scope
6,229 for counter 176,611
170,382 8.13%
1997 7,646 265,780 273,426 11.27%
1998
cyclical
8,677
deficit spending
295,515 304,192 11.41%
1999 via GOCC,
8,320 BOT 366,864
358,544 12.32%
2000 12,451 469,647 482,098 14.37%
2001 23,167 472,610 495,777 13.65%
2002 21,065 570,673 591,738 14.93%
2003 22,635 685,904 708,539 16.42%
2004 33,135 800,573 833,708 17.11%
2005 48,183 538,167 586,350 10.77%
2006 72,113 497,814 569,927 9.45%
2007 64,968 419,216 484,184 7.28%
Source: Bureau of Treasury
 NPL to Total Loans Ratio
20.00
18.00
16.00
14.00
July 2008 NPL ratio
12.00 has dropped to 3.98%
10.00
8.00
6.00
4.00
2.00
0.00
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Mar- Jul-08
08

Source: BSP
 Loans to Deposit Ratio of Philippine Banking System

100.0%

95.0%

90.0%

L/D ratio has increased

85.0% slightly to 71% from 65%

80.0%

75.0%

70.0%

65.0%

60.0%
Ma Je Se De Ma Je Se De Ma Je Se De Ma Je Se De Ma Je Se De Ma Je Se De Ma Je Se De Ma Je Se De Ma Je Se De

1999 2000 2001 2002 2003 2004 2005 2006 2007

Source: BSP
 Loans versus Deposits
Loans now outpacing deposits
30.0

20.0

10.0

0.0

(10.0)

(20.0)

(30.0)

(40.0)

TOTAL LOANS M3 NPL

Source: BSP
PHILIPPINE POLICY RESPONSES
• Largely bracing for a US slowdown, not a global
economic downturn cum financial meltdown
• P75bn economic stimulus package approved by
PGMA in Jan 2008, incremental spending for:
– Social welfare for the poor
– Food production
– Tax relief for the middle class
– 1% NG deficit to GDP vs balanced budget
• With escalating deterioration, government must
proportionally step up national effort
 STRATEGIC FRAMEWORK
1. Real economy first.
2. Preemptive than reactive
3. If to assist financial economy,
bias for the depositor, not the
banker
PHILIPPINE STIMULUS PACKAGE 1
1. Rice self-sufficiency policy: DA budget
augmented by P11bn in 2008
2. Cheap food strategy: NFA losses ballooned
to P32bn from P8bn
3. Tax relief to middle class: minimum wage tax
would increase take home pay by P36bn
annually
4. Conditional cash transfer: budget increased
form P298m to P5bn in 2008 and elevated as
main tool for poverty reduction.
5. Katas ng VAT: various cash grants
amounting to P7.5bn
 STEPPING UP
• Settle for modest economic growth from 6-8% to
3-4%
– Needs less capital
– Establish credibility
– Reduce revenue program to more reasonable targets
• Prioritize the real economy:
– Retain spending aggregates at P1.4trn
– Keep NG deficit at 1.5% of GDP
• Deficit-driven interest spikes could just be offset by adverse
impact on private capital outlays
– redirect discretionary budget to human capital
formation
• From growth inducing infra to poverty-relieving social
services
 STEPPING UP
• Recasting 2009 budget immediately doable
response of the Philippines to the escalation
in global crisis:
– reduce revenue targets by P53bn
– redirect discretionary budget to human capital
formation
• From growth-inducing infrastructure (capital outlay) to
poverty-relieving social programs (MOOE for social
welfare)
• From expansion of productive capacity (new
construction) to productivity enhancing measures
[rehab/maintenance]
• More human capital formation (health and education)
than physical capital formation. 
PHILIPPINE STIMULUS PACKAGE 2
1. CCT- Increase from P5bn to P15bn
2. Scholarship – Increase from P3bn to
P15bn
3. Food production –
1. aggressive palay procurement by NFA- 10% of
harvest, off-budget at P17bn,
2. retain P18.25/kg and do away with the access
cards
3. JPEPA agri measures at P2bn
4. Universal Philhealth – Increase by P5bn to
P17bn
 CRITICAL MEASURES
1. Secure access to external financial resources
1. $84bn per ASEM at Beijing
2. US, EU, Japan to contribute to IMF
3. US, EU, Japan to create trust fund with WB or ADB which may be
accessed by developing economies
4. Another Obuchi initiative led by Japan
5. Maximize multilateral funding for ADB/WB- reflow of net repayments via
new program/project loans eg WB interest to lend $400m for CCT
6. Fortify JBIC pipeline
7. Redevelop bilateral funding outside of JBIC
2. Strengthen financial sector
1. Increase maximum deposit insurance coverage four-fold from P250T
to P1M
2. Inject new equity into PDIC (P10bn) with additional P30bn callable
from NG
3. Inspection power and bridge bank authority for PDIC
4. Inject new equity into BSP (P40bn) via MYOA to contain impact on NG
deficit
5. Unified / integrated financial supervision
– Financial Services Authority
 STEPPING UP
• Settle for modest economic growth from 6-8% to
3-4%
– Needs less capital
– Establish credibility
• Prioritize the real economy:
– Retain spending aggregates at P1.4trn but adjust
revenue targets downward by P53bn
– Keep NG deficit at 1.5% of GDP
• Deficit-driven interest spikes could just be offset by adverse
impact on private capital outlays
– redirect discretionary budget to human capital
formation
• From growth inducing infra to poverty-relieving social
services
 SCHOLARSHIP
• Newest priority
• Currently at P1bn at CHED and P2bn at TESDA
• Increase by P12bn to P15bn
– CHED to P11bn
– TESDA to P4bn
• 51% of unemployed between 15-24! Keep them in
school
– Expensive to create long term jobs PEZA/BOI at P2.5m/job
– Capital getting scarce
– Business prospects are not good, capital could be wasted
• College and techvoc training are public goods, i.e.
socially desirable economic activity, and should be
carriers of public subsidy
– If they get jobs, it is a bonus
 JOBS: July BLES + 1.3 million
INDICATOR JUL 2005 JUL 2006 JUL 2007 JUL 2008 p

Household Population 15 y.o. and Over (000) 54,583 55,475 56,857 58,119
Labor Force (000) 35,237 35,837 36,161 37,371
Employed (000) 32,522 32,926 33,318 34,597
Less than 40 Hours (part-time) (000) 11,887 11,722 11,062+ 1.2 million
11,694
40 hours and Over (full time) (000) 20,240 20,809 22,023 22,557
Fulltime as % of Total Employed 62.2% 63.2% 66.1% 65.2%
Did not work during the Past Week (000) 394 428 233 346
Mean Weekly Hours Worked Increase in population
41.3 (1541.9
y.o. & over)
42.6 42.5
Underemployed (000) is equal to6,660
labor force increase, 7,327
7,718 7,275
therefore no increase in college enrollment
Unemployed (000) 2,715 2,918 2,824 2,750
Labor Force Partcipation Rate (%) 64.6 64.6 63.6 64.3
Employment Rate (%) 92.3 91.9 92.2 92.6
Underemployment Rate (as % of Employed) 20.5 23.4 22.0 21.0
Unemployment Rate (%) 7.7 8.1 7.8 7.4
Note:
Details may not add-up to totals due to rounding.
p -- Preliminary
Source : NSO and Labor Force Survey
 Unemployment by Age Group:
(as of October 2007)

6% 3%1% 15-24
10%
25-34
35-44
51% 45-54
29% 55-64
65 and over
Total Unemployed: 2,248,000
 CHEAP AND ABUNDANT FOOD
• DA budget already robust at P45bn plus
P32bn losses at NFA
• Additional P2bn for JPEPA measures to
optimize market openings
• Aggressive palay procurement- 10% of
output at P17/kg needs P17bn increase in
COB ceiling
 CHEAP AND ABUNDANT FOOD
• P32bn annual loss for NFA versus its normal annual loss
of P8bn or an incremental loss of P24bn arising from the
policy.
– P8.5bn goes to farmers
– P14.5bn goes to consumers.
• Initially, if added to the additional DA budget of P20bn
(subsidy to producers), of which P10bn is for FIELDS,
food production would the biggest intervention of the
government in response to the global economic crisis at
P44bn.
• Differentially, this would mean an economic stimulus of
P28.5bn to the rural and agricultural sector.  
 UNIVERSAL PHILHEALTH
• 2009 budget should be landmark for
making Philhealth universal
• Additional P5bn to make it universal
coverage
RENEWABLES DEVELOPMENT: P5bn

• RP targets 61% energy self-sufficiency by

2010
• Direct state expenditures for development
of wind, solar, hydro and jatropha
• Should complement the approval of the
renewables law and implementation of the
biofuels law
• Possible concessional credit lines or
guarantee system may be set up
 REFORESTATION: P5bn
• The country’s forests capture 120m MT of
carbon versus its 148m MT emissions
• To further mitigate, the national
government should reinvigorate its
reforestation program with a P5bn initiative
in 2009
 CLIMATE ADAPTATION
• NG only has P2bn in the GAA for calamity
fund versus P12bn by LGU’s at 5% of their
IRA
• RP is most vulnerable to the increasing
climate impacts
• Thus, the national budget for calamity fund
should be increased to at least P10bn.
 SUMMARY
From To Intervention Impact Source
Food Production 77 96 19 2 Realignment
Palay Procurement 0 17 17 NFA-CPSD
JPEPA Measure 0 2 2 2
NFA subsidy 32 32 0 NFA-CPSD
DA budget 45 45 0
Conditional Cash Trans 5 15 10 10 Realignment
Scholarship 3 15 12 12 Realignment
CHED 1 11 10
TESDA 2 4 2
Renewables 0 5 5 5 Realignment
Reforestation 0 5 5 5 Realignment
Calamity Fund 2 10 8 8 Realignment
Universal Philhealth 12 17 5 5 Realignment
BSP Addl Equity 0 40 40 Direct to debt stock
PDIC Addl Equity 0 10 10 Direct to debt stock

TOTAL 114 47 Via realignment

to keep deficit
THANK YOU