Credibility, not capital or forex controls

An academic who has made it his life’s mission to picket the WTO and oppose anything that hints of accommodation with the trend towards globalization, wrote an article in another daily over the weekend calling for forex and capital controls. He used the warning, supposedly issued by a foreign bank that our country’s condition is fast approximating what happened in Argentina not too long ago, to justify his proposal.

As expected, the academic tried to use the Malaysian experience as proof that capital and forex controls works, contrary to conventional wisdom espoused by the IMF. Well, as far as I know, the Malaysian experience simply does not apply to our case. When the Malaysians imposed capital and forex controls, they used it as an emergency measure in the midst of the Asian financial crisis. They got rid of most of its most stringent rules as soon as the situation normalized.

The only thing that remains in Malaysia today is the currency peg to the dollar and the barest of controls in the movement of currency designed to catch money laundering and speculation. I recall that in our interview with an assistant governor of Bank Negara, Malaysia’s Central Bank, it was emphasized that they allow free flow of money in and out of Malaysia necessary for the normal course of business. Dependent as they are on international trade, they couldn’t do otherwise. There is also strong domestic pressure to revalue or get rid of the dollar peg completely.

But the most important thing that our academic failed to account for in the case of Malaysia is that their economy has a large reservoir of international credibility. As such, even draconian measures such as forex and capital controls did not have the kind of serious backlash that would likely happen if we even hinted at it.

When Malaysia resorted to controls, their economy was basically sound, they had little foreign debt, their growth rate was consistently high over a number of years, high domestic savings rate and inflation was low. They were also politically stable and despite the past racial tensions, there was social harmony in the country.

In our case today, our political situation sucks. We have a worrisome fiscal deficit, our economy’s growth rate is at best stagnant against a high population growth rate, our attractiveness to investors is one of the lowest in the region. Our currency has low credibility even among Filipinos.

It is no secret that those who have money to spare have converted to dollars or euros. Look at newspaper advertising and see insurance policies, trust funds, savings accounts being offered in dollars. Who buys all those dollar denominated T-bills offered regularly by the National Treasury? Pinoys, of course. Who keeps money in FCDUs? Pinoys.

Try imposing controls or even start hinting that it is possible and you will see a mad influx of money out of the country. By the time the controls are in place, it would be too late. The electronic herd would have run roughshod over us by then.

Besides, there is the thing called the black market. Forex and capital controls will only make the black market hyperactive. In the end, the market will find a way to sidestep the official rules even as official corruption will blossom as it did during the late 50s when such rules were in place.

For so long as our national credibility is low among investors and among those in the financial community, we will have serious problems that controls will only worsen. China and Malaysia can get away with some form of controls now because they are credible. We are woefully not.

There is no shortcut for us to regain credibility. We have to sort out our political mess, get our economic priorities right, address the fiscal deficit problem and buckle down to work. Stopgap measures like controls may look good to some academics, but these are worse than useless in the real world.

Pinoy docs

One of the doctors who helped us try to understand what is going on with today’s Pinoy doctors e-mailed us his reaction to all the reactions we have received on that particular column. Here is an excerpt from his e-mail.

One statement by Dr. A. Austria caught my attention, "that Philippine medical education is not geared for practice in the US and that is why a lot find it hard to pass....". Even as he seems to agree with our theory, one has to wonder about the significance of the statement.

Is it possible, that there is, in fact, two-tiered levels of education, one for global standards and one for local consumption? Being a student of your Dad, l can assure you that he and his colleagues would consider this as preposterous. (My late father, Dr. Pedro P. Chanco Jr., a UP graduate, was a long time Professor of Medicine at the UST College of Medicine. – Boo Chanco)

Still Dr. Austria may be quite accurate within the context of the realities in our country today. To wit: A doctor-writer (believe his name was Elicano) once wrote, that radical mastectomy is a dated procedure for breast cancer but it is still done in the country because many patients cannot pursue good postoperative care due to lack of money and/or education.

This is a valid point. But I fail to understand why this procedure is still done in the most prestigious hospitals on educated patients, who can afford any post-operative care. Another example is exploratory laparatomy as against electronic exploration. The latter, l am told is STILL the most performed surgical procedure even in the best (read – richer patients) hospitals. There are many other examples of course. (You do remember Tommy O’s case and if Mayor Giuliani lived here, he will be without a prostate now).

The operative questions then would be, is third-world level (and that is the implication in the statement) of medical education adequate for the country’s needs and shouldn’t the general public know? WARNING! If you write this, the local medical establishment will be livid. But if you do, please quote Dr. Austria!

Incidentally, another doctor who was also a former student of my father, told me that the responsibility for assuring quality medical education in this country falls on the Board of Medical Education. The problem, he said, is that this Board had of late, been too political for our own good. It is reporting directly to Malacañang and if anyone who wants to put up a medical school has more political clout than adequate facilities to teach medicine, it is simple enough to get the nod of the Board.

I think there should be a system that evaluates medical schools according to how their graduates perform in the Board examinations. Those showing consistently high failure rates should be sanctioned or even closed down. There should also be minimum standards for teaching facilities and qualification of faculty. We are assuming the medical board exams are, well, above board.

Produce a bad lawyer, and there is always the Supreme Court to save the client from lethal injection. Produce a bad doctor and the only appeal is on Judgment Day.

Da best ang Pinoy

Dr. Ernie E sent in an old joke with a new twist.

An American doctor says "Medicine in my country is so advanced that we can take a kidney out of one man and put it in another and have him looking for work in six weeks."

A German doctor says, "That’s nothing, we can take a lung out of one person put it in another and have him looking for work in four weeks."

A Russian doctor says, "In my country medicine is so advanced that we can take half a heart out of one person put it in another and have them both looking for work in two weeks."

The Filipino doctor, not to be outdone, says, "You guys are way behind. In the Philippines, we took a former movie actor with no brains out of San Juan, put him in Malacañang Palace, and in no time at all, half the country was looking for work. And just to prove it was no fluke, we are going to do it again!"

Boo Chanco’s e-mail address is [email protected]