An Economic Prescription from Dr. Nouriel Roubini

Manila Bulletin, February 24, 2013 | Go to article overview

An Economic Prescription from Dr. Nouriel Roubini


The ballroom of Shangri-La Makati was packed to the rafters with the who's who in Philippine business when First Metro Investments invited Dr. Nouriel Roubini to speak. The Jewish-Iranian Roubini is a rock star in the economics world. He singlehandedly brought the "cool" back into the field, having been named 2009's GQ Man of the Year. Born in Istanbul and educated in Bocconi University in Milan where he graduated cum laude and Harvard University in Massachusetts, Roubini is respected the world over for his accurate prediction of economic trends. He was the man who foretold the Asian crisis of the late nineties when no one saw it coming. He also sounded the alarm on the looming sub-prime crisis of the U.S. when Allan Greenspan himself said there was nothing to worry about. Last year, he predicted deceleration of the BRIC economies and the rise of the Philippines and Indonesia as the new global engines of growth.

Roubini's Global Assessment

Roubini started his talk by giving us an assessment of the world economic order today. He believes the U.S.' economic recovery is a fragile one given the enormous debt load it has to grapple with. The federal government will be hard-pressed to cut spending and increase taxes, a double whammy bound to choke growth, he asserts.

The situation is no better in Europe. While new funds have been pumped into the banking system to arrest the possibility of a financial crisis, severe austerity measures coupled with an ageing and declining population are seen to drive the weaker E.U. economies into a recession.

China's remarkable growth of over 10 percent in the last three decades is seen to ease to about six to seven percent on the back of sagging consumption and sluggish exports. Roubini describes China's economic development as unbalanced, uncoordinated and unsustainable for its predilection to amass cash in lieu of investing strategically. Its territorial conflict with Japan, Korea and ASEAN is also seen to further choke the flow of foreign direct investments.

Structural problems are also beginning to show in the BRIC economies. Roubini sees Russia and India's growth decelerating to five percent and Brazil to two percent, from seven and five percent, respectively. He expressed worry that BRIC governments are veering away from a free capitalist market system to one more centrally controlled and protectionist. This trend is seen to crowd out private capital, which in turn could decrease economic activity.

The Philippines

Roubini's outlook turned bullish as he spoke about the Philippines. He described the country as a "remarkable economic success" on the back of P-Noy's strong leadership and a participative private sector.

He believes the country is deserving of investment grade status, given that our external debt to GDP ratio has gone down to just 25.6 percent of GDP, as compared to 36.3 percent for Thailand, 27.7 percent for Malaysia and 27.9 percent for Indonesia. Interest payments for our national debt has also declined from 37 percent of the national budget in 1997 to just 16.6 percent today. Our reserves have topped $85 billion, 11 times more than it was in 1997. Our external balance is on surplus territory, with net earnings exceeding net borrowings. Inflation is practically benign at three percent. Our budget deficit is minimal at 2.3 percent of GDP, and the banking sector is more than adequately capitalized. All these mean that the nation is in the pink of financial health-even healthier than some economies already rated as investment grade.

Roubini thinks that the reason why we haven't been elevated to investment grade yet is because credit rating agencies still question whether we can sustain our favorable economic trends. The Philippines has had a long history of boom and bust cycles, and this unfavorable reputation is now working against us. Another point of concern is that revenues generated from taxes remain dangerously low. …

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