Philippine industry facing output cutbacks, layoffs
By Michael Barker
MANILA, July 6 (Reuters) - Faced with the double whammy of declining exports as the global economy slows and higher input costs as the peso slumps, some Philippine manufacturers have quietly begun cutting back output and laying off staff.
The Semiconductors and Electronics Industry Association of the Philippines said its members have begun taking a number of cost cutting steps recently as demand has slowed.
"Some are laying off people, some are shortening their work weeks," association executive director Ernesto Santiago said, adding inventory levels have also been sharply reduced.
The economy is highly dependent on exports, especially electronics, which account for 50-60 percent of total export income but have seen demand fall sharply this year.
The peso's slide against the dollar - it touched a five and a half month low of 53.10 on Wednesday - is providing another headache. While a weaker currency should help export competitiveness, this is being offset by the overall demand slump and declines in other regional currencies.
Many exports, including electronic items, also require imported components that have to be paid for in dollars -- a cost that increases as the pesos falls.
In addition, the country must import nearly all of its oil requirements and an uptick in crude oil costs along with the peso's slide has seen two price hikes in the past two months.
Federation of Philippine Industries secretary general Joseph Francia said the currency's decline was ratcheting up costs to painful levels for import-dependent firms.
"The mood is certainly not one of exuberance... the mood of CEO's I speak to is pessimistic," he said.
The association represents a range of heavy and intermediate industries including chemicals, steel, appliances and garments.
OUTLOOK NOT BRIGHT
Francia said he had anecdotal evidence that some companies his association represented were scaling back production or letting workers go, but was loathe to predict mass job cuts.
"I am really very hesitant to make any conclusion on how large (layoffs might be), but the outlook is not very bright at this point in time," he said.
Employers Confederation of the Philippines president, Donald Dee, said the exchange rate has got to a point where manufacturers are now under heavy pressure to raise their prices.
Many firms had anticipated a steadier rate after President Joseph Estrada was forced from office in January -- the climax of the crisis that first sent the peso to over 53 to the dollar.
"When President Gloria Macapagal Arroyo came in the peso went back below the 50 pesos (to the dollar) level... I think manufacturers were anticipating that the exchange rate would be in the vicinity of 48 to one and pricing was set at that level."
With demand for manufactured goods down, companies were now having to take a close look at their staffing needs, Dee said, although they were trying to avoid wholesale job cuts.
"I do not see massive layoffs or closures of factories... yes there is going to be some slowdowns especially in domestic industry and so what we are trying to tell members to do is to rotate their workers rather than laying them off."
He added that an improvement in manufacturing activity for the domestic market was likely once the country's law and order situation improved and confidence was lifted.
"The rebound will come very quickly if purchasing power, buyers' confidence, comes back and the confidence will come back if the peace and order situation is restored."
The central bank has acknowledged that the Abu Sayyaf hostage crisis in the south of the country was a contributing factor to the peso's weakness, along with poor investor sentiment.
source: Philippine Daily, July 6, 2001