THE Philippine government started its midyear economic road show on Wednesday at the worst possible time. The briefing by President Gloria Macapagal-Arroyo and her economic management team sailed head-on into the full fury of the “Black Monday” financial upheaval on Wall Street that saw the collapse of two of the leading US investment houses: Lehman Brothers and Merrill Lynch.

The financial turmoil rendered irrelevant the elaborate briefing papers prepared by the team, and the President herself seemed lost as she parroted a prepared speech. All she could say was: “There is no doubt that the global economy has hit the Philippines hard. The upheaval in the global economy this past year has clearly had a significant and painful impact on every Filipino through higher prices of food, fuel and rice. This has led to unfortunate levels of inflation and even greater pressures.”

She added: “While no one can predict the future during these uncertain times, it seems that our measures at home are seeing us through the toughest times as we prepare for a day with lower global fuel and food prices.” Although she conceded that the global economy has erased last year’s gains in the economy, she said the Philippines “is better prepared to face these global challenges through the implementation of tough economic reforms that would result in increased revenues.” She might as well have described the state of the world economy a generation ago.

The President went on to say: “We hope the worst is behind and we have weathered the worst of the global storm.” Then, she offered brave words. “The global economy may have knocked us down, but we got up off the mat and dusted ourselves off. Filipinos are fighters, naturally optimistic, and we don’t quit.”

These words of optimism sounded hollow. They failed to dispel the spreading gloom over the global repercussions of the US financial bloodbath. The speech grossly understated the gravity of the financial crisis that has led many Filipinos to start worrying that their bank savings might be wiped out by the domino-like collapse of overseas financial houses, in which Philippine banks have exposures.

The President’s speech set the tone for the members of her economic team, but in the end the administration was like an ostrich burying its head in the sand during a sandstorm. The chorus of escapism was led by Governor Amando Tetangco Jr. of the central bank, Bangko Sentral ng Pilipinas, who said Philippine banks were “adequately capitalized” and did not face any threat of a liquidity crunch. “The country’s banking industry implemented several reforms in the past years, including in the areas of risk management,” he said at the briefing. “Our banks have enough resources to absorb whatever shocks there are in the external environment.” He said the exposure of Philippine banks in the collapsed Lehman Brothers was “minimal”—only 0.3 to 0.4 percent of total assets of the banking sector.

In an effort to allay fears among policy holders of insurance companies, following the US government’s $85-billion bailout of American International Group—the world’s biggest insurer—Insurance Commissioner Eduardo Malinis said that investments of insurance companies in the Philippines were placed mostly in Philippine government securities. He said only a small portion of their investments were in risky investments overseas.

The reassurances ran into the nosedive on Wednesday of the US stock market, as the American banking system appeared even shakier and investors worried that the financial crisis was spinning so far out of control that even a government rescue couldn’t stop it. An Associated Press report said the Dow Jones industrial average, which only two days earlier had suffered its steepest drop since the Sept. 11, 2001 attacks, lost another 450 points. About $700 billion in investments vanished.

The government’s comfort words were stood on the head as the Asian Development Bank warned that the turmoil rocking the big banks in the West could hit Asian lenders and the region’s central banks. “Even if subprime-related losses have to date been lower than elsewhere, this is no guarantee recent events will not affect major Asian financial institutions,” ADB president Haruhiko Kuroda said in a meeting in Manila. “We will need to assess the spillover from this week’s events on our financial institution.”

The Wall Street Journal has joined the broadening ranks of doomsayers. In an article last Sept. 17, the Journal said:

“The financial crisis that began 13 months ago has entered a new, far more serious phase. Lingering hopes that damage could be contained to a handful of financial institutions that made bad bets on mortgages have evaporated. New fault lines are emerging beyond the original problem—troubled subprime mortgages—in areas like credit-default swaps, the credit insurance contracts sold by American International Group Inc. and other firms. There’s also a growing sense of weariness about the health of trading partners. Expectations for a quick end to the crisis are fading fast.”

The Journal quoted Anne Mulcahy, chief executive of Xerox Corp., as saying, “I think it’s going to last a lot longer than perhaps we would have anticipated.”

Mark Gertler, a New York University economist, said, “This has been the worst financial crisis since the Great Depression. There is no question about it… But at the same time we have the policy mechanisms in place fighting it, which is something we didn’t have during the Great Depression.”

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