Cielito Habito
Philippine Daily Inquirer

THE THIRD QUARTER GDP growth figures are out, and the numbers are as everyone expected. The economy has slowed down in the face of the shocks from abroad, and what kept it from slowing down as much as most of our neighbors did was the deliberate pumping up of government spending to prop up demand.

The government fiscal data say it all: October spending was up 20 percent even as revenue was up by only 11 percent from last year. Thus, rather than move closer to the originally targeted balanced budget this year, the year-to-date government deficit is 56 percent over what it was last year, now standing at P62 billion. What this means is that the government has had to borrow more again this year, and while this buys us better growth than otherwise for now, it will catch up with us as a heavier debt service burden down the line, with all its attendant adverse implications that we have all seen and felt before.

Triple shocks
The external shocks we face come in three forms. First is the financial turmoil which has led to tighter access to credit by governments and firms, depressed the equity markets and led to adverse exchange rate movements in terms of both levels and greater volatility. Second is the recession in major economies led by the United States, Japan and Germany, and the economic slowdown almost everywhere else. This translates directly into reduced exports, tourism, foreign direct investments and remittance flows, along with tighter government fiscal pressures, as already manifested in our own government’s finances seen above.

Third, and not directly the offshoot of the financial meltdown but coincident with it, is the adverse relative price movements, particularly in traded goods. Many countries are now facing higher prices for their imports (particularly oil and food) but lower prices for their commodity exports–what economists call worsening terms of trade, which directly translates to lower real income, and ultimately, lower general welfare.

Prior practice
As implied above, with governments going into fire-fighting mode to cope with the external shocks, it is well worth considering what longer-term implications this crisis and the responses to it will have for people in both the present and future. In particular, what are the human and environmental costs of the financial meltdown to countries like ours caught in the contagion?

We in East Asia are no strangers to this situation; we had “practice” in 1997-98 with our own financial crisis. And from that experience, one may expect at least six manifestations of the human and environmental costs of the current difficulties. These are increased poverty, reduced social investment, damaged social capital, relaxed environmental standards, reduced environmental investments, and adverse migration movements.

Impacts and responses
Poverty rose region-wide with the Asian financial crisis, and it will again with the current one. This is because the economic slowdown or even recession in some economies (as in Singapore) directly translates into more joblessness. This has, in turn, led before and will lead again to higher school drop-outs as parents keep children out of school, either because they can no longer afford the cost, or because they need them to help earn the family living. It has and will again lead to higher incidence of malnutrition and illness.

We are also likely to again see substantial public spending cuts on social services and human development, meaning education, health and social welfare. Private provision of the same will likewise suffer due to higher costs. And a decline in social capital will be manifested in rising incidence of crime, domestic violence, child abuse and street children, along with breakdown in community cohesion and cooperation. Experience tells us that in difficult times, individuals and families become more self-centered and less altruistic.

Grow now, clean up later
Experience likewise shows that when times are hard, governments, firms and people become more short-sighted. Governments tend to relax environmental policies and standards and become lax in enforcing them, as their concern shifts to keeping businesses alive. In the need to cut costs, firms shelve or abandon planned investments in environmentally sound technologies, and even stop operating environment control facilities already in place. There is also heightened pressure on environmentally sensitive exports (like logs and minerals) in the concern to sustain foreign exchange earnings. And for the most vulnerable members of society, for whom the environment is their only “social security system,” there is a rush to the uplands and coastal areas, where already fragile ecosystems face even greater population pressures.

The risk we face now is the same risk we faced in 1997-98: What we do now for the sake of short-term stabilization may be at the expense of our longer term welfare–including that of our children and grandchildren, here and yet to come. We would all do well to take a longer view of things as we deal with our current economic challenges. What worries me is that too many of our current political leaders have not exactly shown the capacity to see beyond the short term.

Comments welcome at chabito@ateneo.edu