A Second Look at Credit Crunch: The Philippine Case

The paper tries to verify the claim that there has been a credit crunch in Philippines since the onset of Asian financial crisis in July 1997. In order to support his view, the author presents:

• Theoretical framework for detecting credit crunch: The difference between credit crunch and credit slowdown and the different theories of credit crunch;
• Necessary conditions for existence of credit crunch: The various prevailing conditions do not satisfy the necessary and sufficient conditions that define credit crunch;
• Empirical analysis using macro and firm-level data: The data cited does not support the conditions required for credit crunch but merely reflect a cyclical phenomenon.

The author:

• Uses data from 1980s as a guide to future and predicts a repetition of economic conditions;
• Suggests monetary policy take a neutral stance;
• Suggests fiscal policies be expansionary to support aggregate demand.

Based on the data used, the author concludes that the claim that Philippines has been facing credit crunch is not real and the country is expected to recover once economic activity picks up.