With US downgrade, traders urged to focus on local market

Invest in the domestic market. Strategize as an industry  and not as individual pla yers.

Put in place  measures that will help cushion the effects of the recent credit downgrading of the United States of America.

These are some suggestions of Cebu business leaders to deal with the unprecedented  downgrading  of the US economy from an AAA category to AA by Standard and Poor’s.

Eric Ng Mendoza, president of the Mandaue Chamber of Commerce and Industry,  said  the downgrading of the US Credit Rate was a wake up call for all  economic and finance  managers to balance their investments in other lower risk, high liquidity instruments.

“One must admit, however, that the AA rating is still a favorable investment in the grade category and still better than Europe’s debt problems,” Mendoza said.

While the US is  still seen as the single largest market in the world for exporters, Mendoza  said  local exporters should also redirect  trade to emerging countries like China,  Russia, India, and Brazil and our domestic market, which is a potentially large one.

“It is best to invest in our own country. Now that there is strong renewed business confidence  here,  you can see our economy steadily  growing fast. It’s time we look for opportunities in our country. We should develop and maintain a strong domestic market,” Mendoza said.

Gordon Alan Joseph, Cebu Business Club president, said he believed the downgrading would not have a big impact on Cebu’s economy.

However, Joseph said the downgrading could trigger a double-dip recession in the United States, which Cebu should be cautious about and should prepare for.

A double dip recession refers to a recession followed by a short-lived recovery  followed by another recession.

“What will impact Cebu is a double-dip recession in the USA. It is possible but we must not underestimate the power of the US economy. Recovery is just a matter of time. A credit downgrade may just spur the USA to make tough decisions. They need to move forward. They are mired in seriously partisan policies,” Joseph said.

Despite this, Joseph encourages the local exporters to strategize.

“It is common to be complacent and I believe the exporters should see how they can work together to create a strategy to strengthen Cebu’s competitive advantage to create better economies of scale  as an industry and not as individual players,” he said.

Philexport Cebu executive director Fred Escalona said the US credit downgrade could cause US interest rates to increase which could also  lead the Philippines to increase its own interest rates to close the difference.

“The BSP (Banko Sentral ng Pilipinas) has been evident in the inflation targeting policy and this could lead to a further appreciation of the peso which is bad for the export sector, BPO (business process outsourcing) and OFW (overseas Filipino workers) remittances,” he said.

Importers, however will benefit from the strengthening of the peso as well as  Philippine debt servicing, fuel prices, and power rates.

“To cushion it’s effects, there is not much that the government can do. Some sectors in the government feel that a strong peso is good for the economy. What they can probably try is to use half of our US dollar reserves to accelerate payment of our foreign debts and openly buy the US dollars to replenish our reserves,” Escalona said.