This part of the world used to be known as the "Far East." The term was popularized during the time of the British Empire to describe the world beyond British India, the geographical point at which British hands-on knowledge seemed to end.
Australian Prime Minster Sir Robert G. Menzies said in 1939: "What Great Britain calls the Far East is to us the near north."
East Asia is still the Far East in some ways. It has been more than 10 years since the "Asian Economic Crisis." Many things have changed in Asia in the last decades. However, the one thing that has not changed is that many Western businesspeople, as well as their governments, still have little understanding about this region.
The 1997 Asian crisis caught the western experts with their financials pants down. For some reasons, they never saw the crisis coming. And that fact is ridiculous since it was the western banks that helped trigger the event by their lending practices in Thailand.
Foreign banks that entered Thailand in the early ’90s were limited to making dollar-denominated loans to Thais. Dollar-lending rates were much lower than baht rates, so, of course, Thai businesses lined up to take advantage of the low-priced cost of money.
It’s amazing that the Western banks, with all their economic and currency "experts," could not figure out that dollar-denominated lending would put immense downward pressure on the value of the Thai baht, and that the Thai central bank had an obligation to do whatever it had to protect their currency’s value. To repay these loans, Thai borrowers had to sell baht to buy dollars and, eventually, the baht collapsed.
For Korea, everyone knew that the government was actively supporting failing Korean businesses by encouraging cheap dollar borrowing to support these companies. The Korean won eventually collapsed.
The Western banks were astounded on how foolish these two governments were to let this happen. The foolish ones were the banks, which never saw it coming.
Ten years later, the Western experts are still way behind the reality curve and have little understanding of what happens is Asia.
The Vietnam situation that I spoke of last week is another example. Because of massive foreign investment into a very cheap labor market, there is a huge amount of new disposable income in that economy. Except that there is no place for the Vietnamese to spend their newly acquired wealth on. Construction cranes do not fill the horizon building condominiums. The workers for foreign firms are not picking out new cars on their day off. Workers are still not able to run on payday to buy the latest wide- screen TV at their local Shoemart.
Yet, foreign companies are now experiencing both a labor squeeze and demand for higher wages, making their Vietnam investments a little less attractive. And no one saw it coming.
The Philippines must also be high on the list of Asian countries that the West is ignorant about. Let me share an example.
From Saturday’s Gulf News: "Hard-earned savings from foreign workers and government spending boosted growth in the Philippines to a three-decade high last year, but the surge was lopsided and could be short-lived, analysts say."
Sin Beng Ong, an economist at JP-Morgan Chase, says: "What we have is growth that is lopsided, biased toward consumption and with not enough going to investment."
"It didn’t benefit the economy all that much," said Tom Byrne, senior vice president at Moody’s Investor Service, referring to the dominance of consumption.
Let me make some sense out of this. The "experts" are saying that Philippine growth is because of consumption, not investment. Consumption growth is not as desirable because if income goes down, consumption drops and, therefore, economic growth falters. And of course, look at the overseas Filipino remittances, which is so important to the economy; and those remittances go to consumer spending.
Yet, a recent report from the Bangko Sentral ng Pilipinas says that the number of Filipino households that rely in large measure on foreign remittances are saving more money. The families who are putting away funds for investment doubled to 48 percent from 22 percent in the first quarter. Families who are now saving money in the banks increased to 31 percent from 16 percent a year ago.
The analysis/conclusions from the Gulf News are correct and important, but are based on somewhat obsolete data. The West always seems to be reading last week’s, last year’s or even last century’s newspaper to gain their perceptions about the Philippines and chart their course of action.
Last week, global financial institution HSBC panicked out of emerging Asian stock markets, including the Philippines, by cutting its stock-investment level to zero percent. It reasoned that high fuel and food prices would raise inflation to levels that will negatively impact on corporate profits.
Fair enough, but it did not figure this out when oil had already more than doubled and the Philippine Stock Exchange composite index was trading at 3,500 instead of 2,500.
Remember the American congressman who said the US needed to stay in the Philippines after the Spanish-American War to bring Christianity to the Filipino people? Even after 100 years, Asia is still the "Far East."
