Aftermath of the war

War in Iraq, for sure, could bring a fallout of skyrocketing oil prices and down-spiraling exports and stocks for now, but in the Philippines, the way I see it, it’s a preparation for something big and positive. Recently, Ayala Land, Inc. has set aside PhP 7.9 billion for its capital expenditures this year, mainly to buy majority stakes in Bonifacio Land Corporation and build new shopping centers in the area, also in the Makati Greenbelt area and Angeles City in Pampanga. Other players in the industry are snapping up bargain-priced real estate properties, including prime lands in the plush and exclusive areas in Makati, Metro Manila and adjacent provinces. This was similar to what had happened in 1973, 1983, and 1992 when people started buying properties, the costs of which had gone up to almost 2000 percent. In fact, the joke is that these same businessmen are already eyeing prime properties in Baghdad.

This could be an indication that key real estate industry players are already positioning themselves to make positive gains once the war in Iraq is over. The only caveat is: who will be the leader among all the major real estate industry players? Economists agree that growth in real estate is directly proportional to growth in the economy. Could the International Monetary Fund’s prediction that 2003 would be Asia’s "breakout economic-recovery year" – with an anticipated 3.7 to 6-percent rise in global economy – be a reality?

We can take our cue from history, particularly, the 1991 Gulf War. Approximately 63 days after the first bombs were unleashed on Iraq in 1991, the S&P Index 500 went up almost 24 percent while the Dow Jones Industrial Average rose up to 14 percent. The price of oil surprisingly went down while the war was going on, with crude oil costs dropping 25 percent just one day after the conflict kicked off. About 22 days later, world oil prices plummeted even more – to about 55 percent. The US dollar also weakened, making US businesses and products more attractive to overseas buyers and consumers. All in all, although the 1991 Gulf War tilted the US economy towards a slight recession, the end of the war also ushered in one of the longest periods of economic recovery and expansion Americans have ever known. Data shows the same scene was played out during the Cuban Missile Crisis, the Korean War and the US invasion of Grenada up to the Gulf War. In fact, initial reaction to the 9-11 tragedy sent stocks whirling down to 14.26 percent. One month later, it rose slowly to 5.5 percent, only to end with a considerable 19 percent increase six months later.

Back in 1991, as the world anticipated the worst during Operation Desert Storm, the Philippines was experiencing a very serious recession. There was economic recovery three years earlier, which was led initially by deficit financing for rural public works, and gradually, by foreign direct investments. GDP growth in this period was 5.8 percent. However, the 1989 coup suddenly tipped the economy and sent investors away, bringing the growth rate to a bare minimum of three-percent in 1990.

But right after Desert Storm had ended, and credible elections in the country was held in 1992, the Philippine economy experienced an unprecedented boom, with the real estate and construction industries leading the way. In fact, the year practically ended the recession. According to records from the Bangko Sentral, foreign direct investments started to pick up substantially after 1992, pegging a 91-percent increase by 1994. Portfolio investments skyrocketed in 1993, breaking the 100-precent barrier, from a meager rate in the beginning of 1992. Exports gained in 1994 with 19.84 percent growth rate from 6.22 percent in 1993. The average annual GDP growth rate leapt from a marginal rate of 0.93 percent to 4.4 percent in 1993-1994. The government at this time managed a consistent and steady budget surplus. For the next four to five years, the words "bullish" and "sustainable development" were in every Tom, Dick and Johnny dela Cruz’s vocabulary.

The impact on the global economy of this present war would depend largely on how long the US would fulfill its goal of getting Saddam Hussein out of Iraq and establishing a regime change. It took the 1991 Gulf War 46 days to accomplish its mission, stopping short of Baghdad. This present war could take a little longer. There is a good chance the US would be able to oust the Iraqi leader in the next 60 days, and as such, the prospects for businessmen and investors look bright. According to a prominent economist, consumer confidence would most likely soar on a global scale right after the conflict. This is good for the Philippines considering the United States is the prime market for 30 percent of our exports. Oil prices could drop significantly to about US$20 a barrel or even less.

But more than anything else, it’s the similarities between the conditions of 1992 and 2004 that leads me to believe that history is about to repeat itself. Both administrations had women presidents who were swept into power by EDSA I and II. Both went through grueling experiences because of an economic slump brought about by acute peace and order problems. The 1992 elections, however, created a strong shift from recession to recovery because democratic processes were acknowledged and implemented. If, by 2004, the country would again have credible elections, and the person we would choose would be that strong leader – a man with political will, of vision, and with an astute business sense – it is very likely that we would have that sustainable economic boom we have been waiting for. I have said in the past that 2004 is a make-or-break year for this country. I am certain, this time, we’re going to make it.

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Last Friday, I attended the unveiling of the Don Benito Soliven statue and grand opening of the Soliven Memorabilia in Plaza Burgos, Vigan, Ilocos Sur. Don Benito Soliven, a war-hero during the Japanese Occupation and three-term assemblyman, was the father of our friend and publisher Max Soliven. I have always believed that Ilocoslovakia is indeed the land of the brave. Now I know from whom Max got his mettle for daring.

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