Weakness is a virtue in geoeconomics

In human lore, a weak person is ignored at best or disparaged at worst. He has to cow down because he does not have the wherewithal to stand against the norms of the society or the powers that be. But in the case of a state weak one becomes a darling.

There are several countries in the world that have weak economy yet are considered going well. Why? These countries ‘weak outside but strong inside’ a feature that endears them to countries that have strong export led growth marking them as big time players in geoeconomics arena. A good example is the relationship between Philippines and China.

Firstly, Philippines receive lot of foreign remittance from citizens working abroad. In 2024, she received USD 39 Billion and ranked fourth in the forex remittance recipients globally. This works out about ten percent of the 2024 GDP of USD 404 Billion. Besides this adds required liquidity into the economy.

Resultant from this phenomenon, there appears to be an increased demand for goods and services spread across the nation but much pronounced in the case of beneficiaries of forex remittance. Consequently, we have two classes in the Philippines: one rich in liquidity and the other poor in liquidity. In essence, there are Millions of families who have someone in the family working abroad. Incidentally around ten percent of the population estimated to be around 11 out of 120 Million are working abroad.

Higher demand overall acts as an incentive to either produce goods internally or import mainly from China. Imports from China amounted to USD 54 Billion in 2023 growing at an annualized growth of 12%. Even though this promotes market activity within Philippines the sad point is the export-import ratio overall works out 36: 64 in favour of China- Philippines trade.

Then comes the bombshell figuratively and in real terms. During the presidency of Duterte, China agreed to provide USD 9 Billion in soft loans that includes a $3 Billion credit line from the Bank of China. In addition, a further USD 15 Billion worth of direct investments from Chinese firms channelled into Philippines in infra-structure projects, chiefly  railway, port, energy and mining areas. The current President Marcos Junior wishes to re-negotiate the infra-structure side of the loans as he perceives a debt trap. Accordingly he was trying to bring in Japan in place of China. 

Later Marcos Junior wised up as there is no one-off project but a series of engagements covering exports, imports and the servicing of the past debt. The bottom line is Philippines owe USD 9 Billion debt to China. As far as Philippines remain weak and China strong it would be better to go along with China rather than honeymooning with Japan or for that matter any other geoeconomics powers!

  

Cheers!

 

Muthu Ashraff Rajulu

Business Strategist

Mobile: + 94 777 265677

E-mail: cosmicgems@gmail.com

Blog:   Business Strategist