financial crisis A situation in which the supply of money is outpaced by the demand for money.

This means that liquidity is quickly evaporated because available money is withdrawn from banks, forcing banks either to sell other investments to make up for the shortfall or to collapse. The term financial crisis is applied broadly to a variety of situations in which some financial assets suddenly lose a large part of their nominal value. In the 19th and early 20th centuries, many financial crises were associated with banking panics, and many recessions coincided with these panics. Other situations that are often called financial crises include stock market crashes and the bursting of other financial bubbles, currency crises, and sovereign defaults. Financial crises directly result in a loss of paper wealth but do not necessarily result in changes in the real economy. Many economists have offered theories about how financial crises develop and how they could be prevented. There is no consensus, however, and financial crises continue to occur from time to time. The Global Economic Crisis pulled countries down from around the globe to a recession. Wideranging declines in many aspects of growth characterize the overall impact it had had on the global scale. Following the Asian economic crisis in 1997, the present global economic crisis imposes new challenges to the Philippines as a developing country. Following are expositions of the macroeconomic impacts of the crisis in the Philippine setting, its implications in the prevalent poverty scenario, and policies and programs undertaken by the government in response to the crisis. The Philippine Situation before the Crisis The Philippines has long been undermined with long-term structural problems such that sustainable economic development is yet to be a dream come true. According to the pages of Philippine economic history, the country has been dominated by a sequence of growth spurts, brief and mediocre, followed by shard to very-sharp, severe, and extended downturnsa cycle that came to be known as the boom-bust cycle. As such, economic growth record of the country has been disappointing in comparison with its East Asian counterparts in terms of per capita GDP. What makes matters worse is the seemingly perennial impoverished state of its inhabitants, that is, in 2007, an absolute poverty incidence of 13.2 percenthigher than Indonesias 7.7 and Vietnams 8.4 percenthas been recorded, and thus giving further testimony of the unequal distribution of wealth that keeps growth and development a far reach for the Philippines. Macroeconomic Impacts of the Crisis The Philippines, points Professor Diokno of the University of the Philippines, has been affected by the crisis in a decline in three aspects: exports, remittances from overseas Filipino workers, and foreign direct investments. Heavily dependent on electronic and semiconductor exports, the Philippines has seen a downward trend in its export earnings as countries in demand of these exports are now in recession. The recession has also put to risk the jobs in the developed countries which include those where migrant workers are employed. Consequently, OFW remittances decreased and grew a meager 3.3% in October 2008. Foreign direct investments (FDI) lowered because of investors losing confidence in the financial market. Lower FDIs mean slower economic growth.

Impacts of Asset Markets, Financial Sector, and Real Sector

The freeze in liquidity in US and European financial markets reversed capital flows to developing countries and induced a rise in the price of risk which entailed a drop in equity prices and exchange rate volatility. However, following the effects of an increase in the foreign currency government bond spread, the Philippine stock market was actually one of the least affected by the crisis with the main index of the stock market dropping only by 24 percent, a relatively low percentage change in comparison to those of other countries across Asia. Similarly, from the period between July 2008 and January 2009, the peso devaluated only by 3 percent which explains why the peso was one of the currencies least affected by the crisis. This minimal effect on the stock market and the Philippine peso can be attributed to the recovery of asset prices across the Asia-Pacific region recovered in early 2009 as foreign portfolio investments surged. Financially, the banking system in the Philippines has been relatively stable, because of reforms that were put in place since Asian financial crisis in 1997. Maintenance of high levels of loan to deposit ratios together with the decline of the ratio of nonperforming loans to total loans kept profitability of local banking generally high despite the crisis. To the countrys fortune, no meltdowns occurred as during the previous 1997 Asian crisis. Fall in the growth rate of personal consumption and expenditures and fixed investment assail 2008. Personal consumption expenditure, the largest contributor to GDP growth, behaved a downward trend from a sharp drop from 5.8 percent in 2007 to 4.7 percent in 2008, and 3.7 percent in 2009.[7] GDP growth during fourth quarter of 2008 and first quarter of 2009 fell to 1.7 percent, a staggering fall from 5.7 percent average for the three previous years. Furthermore, a contraction of 29.2 percent in the manufacturing sector involving electricity, gas, water, trade and finance services. The service sector also had its share of downturns as growth in the fourth quarter and first quarters of 2008 and 2009, respectively, suffered from a meager growth of 2.1 percent, a far contrast from the 6.7 percent average from the last three years. However, the Philippines has generally endured the least declines in comparison with other East Asian countries despite recorded declines. For instance, OFW remittances, though at a slower pace, still grew in the first half of 2009.

Impact of fiscal deficit and external accounts

To counter adverse effects of the crisis, the Philippine government felt the need to increase its expenditures. Apart from government expenditure, of primary concern was the weak revenues generated by the government with fiscal deficit reaching P111.8 billion in the first quarter of 2009 as compared to P25.8 billion in the same period of the previous year. Despite suffering the least in terms of the stock exchange and financial markets among East Asian countries, the Philippines lagged in tax effort in comparison to other nations. Meanwhile, private sector flows in the external account declined and led to a net outflow of $708 million in 2009, a sharp turning away from a net inflow of $507 million in 2008. This eventually led to a fall in stock prices and depreciation or devaluation of the peso. Types of financial crisis Banking crisis When a bank suffers a sudden rush of withdrawals by depositors, this is called a bank run. Since banks lend out most of the cash they receive in deposits (see fractional-reserve banking), it is difficult for them to quickly pay back all deposits if these are suddenly demanded, so a run render the bank insolvent, causing customers to lose their deposits, to the extent that they are not

covered by deposit insurance. An event in which bank runs are widespread is called a systemic banking crisis or banking panic. Speculative bubbles and crashes A speculative bubble exists in the event of large, sustained overpricing of some class of assets.[5] One factor that frequently contributes to a bubble is the presence of buyers who purchase an asset based solely on the expectation that they can later resell it at a higher price, rather than calculating the income it will generate in the future. If there is a bubble, there is also a risk of a crash in asset prices: market participants will go on buying only as long as they expect others to buy, and when many decide to sell the price will fall. However, it is difficult to predict whether an asset's price actually equals its fundamental value, so it is hard to detect bubbles reliably. Some economists insist that bubbles never or almost never occur. International financial crises When a country that maintains a fixed exchange rate is suddenly forced to devalue its currency because of a speculative attack, this is called a currency crisis or balance of payments crisis. When a country fails to pay back its sovereign debt, this is called a sovereign default. While devaluation and default could both be voluntary decisions of the government, they are often perceived to be the involuntary results of a change in investor sentiment that leads to a sudden stop in capital inflows or a sudden increase in capital flight. Several currencies that formed part of the European Exchange Rate Mechanism suffered crises in 199293 and were forced to devalue or withdraw from the mechanism. Another round of currency crises took place in Asia in 199798. Many Latin American countries defaulted on their debt in the early 1980s. The 1998 Russian financial crisis resulted in a devaluation of the ruble Wider economic crisis Negative GDP growth lasting two or more quarters is called a recession. An especially prolonged or severe recession may be called a depression, while a long period of slow but not necessarily negative growth is sometimes called economic stagnation. Environment The Philippines is prone to natural disasters, particularly typhoons, floods, landslides, volcanic eruptions, earthquakes, and tsunamis, lying as it does astride the typhoon belt, in the active volcanic region known as the Pacific Ring of Fire, and in the geologically unstable region between the Pacific and Eurasian tectonic plates. The Philippines also suffers major humancaused environmental aggravated by a high annual population growth rate, including loss of agricultural lands, deforestation, soil erosion, air and water pollution, improper disposal of solid and toxic wastes, loss of coral reefs, mismanagement and abuse of coastal resources, and overfishing. According to Greenpeace South-east Asia, the Philippines major historical river, the Rivers is now biologically dead due to negligence and industrialization. Currently, the Philippines' Department of Environment and Natural Resources has been busy tracking down illegal loggers and been spearheading projects to preserve the quality of many remaining rivers that are not yet polluted.The Philippines is prone to natural disasters, particularly typhoons, floods, landslides, volcanic eruptions, earthquakes, and tsunamis, lying as it does astride the typhoon belt, in the active volcanic region known as the Pacific Ring of Fire, and in the geologically unstable region between the Pacific and Eurasian tectonic plates. The Philippines also suffers major human-caused environmental degradation aggravated by a high annual population growth rate, including loss of agricultural lands, deforestation, soil erosion, air and water pollution, improper disposal of solid and toxic wastes, loss of coral reefs, mismanagement and abuse of coastal resources, and overfishing. According to Greenpeace South-east Asia, the

Philippines major historical river, the Pasig River is now biologically dead due to negligence and industrialization. Currently, the Philippines' Department of Environment and Natural Resources has been busy tracking down illegal loggers and been spearheading projects to preserve the quality of many remaining rivers that are not yet polluted. Economic cost of terrorism The world is currently confronting terrorism in different manifestations. After the 9/11 terrorist events, the phenomenon of terrorism has abruptly changed the socioeconomic and geopolitical situation of the world. Terrorist groups have linkages with each other and are utilizing each others areas for recruitment and training, exchanging illegal weapons, engaging in joint planning and ventures, and also providing administrative and other logistic support. Philippines is also facing the menace of terrorism which is eroding the countrys social structure, economic development and political system. The acts of terrorism are threatening Philippines law and order situation, violating human rights of the citizens, damaging basic infrastructure and economic opportunities. The immediate costs of terrorist acts are loss of human lives, destruction of property and infrastructure and curtailment of short-term economic activity. Additionally, terrorism creates uncertainty, reduces confidence and increases risk perceptions; leading to lower rates of investment and lower economic growth. In fact, Philippines has not only lost precious lives and infrastructure; according to official estimates, it has also suffered a loss of around 35-40 billion since 2001-2002. Philippiness economic growth came to a near halt at around 2.00 per cent in fiscal year 2009, not only as a result of the global financial crisis, but also because of internal issues. The South China Sea territorial dispute between China and the Philippines is beginning to take a toll on the Philippine economy, which is dependent on a steady Chinese demand for its products. The two countries have been locked in a tense standoff since April 10, when a Philippine naval ship attempted to arrest Chinese fishermen working off what is known internationally as the Scarborough Shoal. The Philippines claims the territory is within its exclusive economic zone, but China claims sovereignty over it, and Chinese ships blocked the arrest, ordering the Philippine ship to leave. Beijing calls the cluster of land, which is more than 500 miles from China and about 150 miles from the Philippines, Huangyan Island. Manila calls it Panatag. China Daily reports that China is the Philippines' third largest trade partner and that the Philippines is China's six largest in the Association of Southeast Asian Nations (ASEAN). The two countries agreed to expand their trade to $60 billion by 2016, up from $30 billion in 2011, making China the biggest export market for the Philippines and leaving the island nation economically vulnerable in this dispute. In what the Philippines calls an attempt to pressure Manila to give in, China has refused to allow 150 containers of bananas to enter its markets, saying that the bananas are "crawling with insects," The Manila Bulletin reports. Many of the bananas have already been destroyed, costing Filipino exporters $760,000 so far. The Philippines rejects the claims that the bananas are infested, saying the insect China has cited as the problem attacks coconuts. President Benigno Aquino also invited a Chinese trade delegation to the country to inspect the bananas prior to export. He said that the Philippines would begin exploring alternative markets for its bananas so that it would not be "tied to just one country, where problems could immediately affect our banana industry," according to the Manila Bulletin.

Zhao Jianglin, an economic expert at the China Academy of Social Sciences' Institute of AsiaPacific Studies, implied to China Daily that China would use economic measures, such as ratcheting up regulations on bananas, to punish the Philippines for not conceding the Scarborough Shoal. The world is currently confronting terrorism in different manifestations. After the 9/11 terrorist events, the phenomenon of terrorism has abruptly changed the socioeconomic and geopolitical situation of the world. Terrorist groups have linkages with each other and are utilizing each others areas for recruitment and training, exchanging illegal weapons, engaging in joint planning and ventures, and also providing administrative and other logistic support. Pakistan is also facing the menace of terrorism which is eroding the countries social structure, economic development and political system Recommendation: I recommend that we need to work as one not only the public officials that they work hard for our economy but as a citizens of the country we need work too to our own good and to have a better standard living ad the most important is be initiative for all the time and proper allocation of money to avoid financial crisis as early as now because we cannot say that when and what time will occur the financial crisis in our economy furthermore, we need to take care of our environment because is the one who provide our resources everyday as soon as possible no illegal logging ,more planting trees to avoid flash flood, landslide in urban that affect our economy development and also every checkpoint the military needs double effort to inspects every car pass in the checkpoint in order to avoid exchanging of illegal weapons and every road need to put an CCTV Camera to monitoring the cars and the civilian every they pass.

Bibliography Internet http://en.wikipedia.org/wiki/Department_of_Environment_and_Natural_Resources http://iamhash.blogspot.com/2011/06/economic-crisis-peoples-greatest.html http://terrorism.about.com/od/causes/tp/Cost_of_Terrorism.htm\ www.manilabulliten.com.ph Books Economics:financial crisis sixth edition, colander Achilles c. Costales,Amelia l. Bello, Ma.Angeles O, Catilo, Agham L. etc, Economics:Principles and Application,Philippines copyright 2000, by JMC press Inc/

FINAL REQUIREMENTS IN ECONOMICS

Submitted by: Sittie Hapsah I. Rinibatan

Submitted to: Mrs. Ariel Gloria C. Punzalan, MBM