The financial crisis seems so far away for many Filipinos. With reassuring headlines that say RP is “a sea of calm” in this turmoil, some might say that the Philippines wouldn’t be as affected as the other nations because we aren’t so exposed to those toxic securities that are dragging the big banks down. Unfortunately, the crisis has spread beyond those esoteric financial instruments and is posing a systemic risk for world economies.

Even if these big banks and institutions are oceans away from us, since they are so vital to the economy, they drag their clients, customers and investors down with them. These clients and investors may be your average Joe, you average small business, big businesses, titans of industries and even countries.

Because of this crisis, banks and businesses are hoarding cash ,and credit is hard to come by. What does this mean? Small businesses will not get the bank loan it needs to expand, big businesses may be forced to cut their spending, banks will not lend to other banks because they need cash to maintain their operations and pay their debt. This will mean lost confidence in the economy, dwindling pension funds, layoffs……..

Can the Philippines weather this storm?

This depends on how dependent we are on foreign injections of capital. This capital source may be from our OFW remittances and direct foreign investments. If a call center’s clients include foreign business hard hit by the credit crisis, that account may be in jeopardy. If an OFW’s contract will be terminated because his company has been laying off, then there will be no remittance. If another country is in recession, our exports to that country will decline.

The effect of this crisis will also depend on the strength of our domestic economy. Do we have enough goods and services produced and a big enough domestic market? For all our sakes, I hope our country’s balance sheet is strong enough to cushion us from this global economic blow.