Books on The Philippines
Philippine peso (PHP)
Update No: 033 - (02/10/06)
It was the most severe typhoon to hit the Philippines in more
than a decade and it struck on the morning of 28th September. AT its height, the
wind was gusting at more than 200 km/hour. It was all over in a matter of hours
but the damage will take days-maybe weeks-to clean up. The whole of the Northern
Philippines, embracing the island of Luzon lost its electrical supply and Manila
was in a state of brownout for days. At the time of writing, much of Southern
Luzon is still without power and may be so until the end of the first week of
The death toll from typhoon "Milenyo" (international name: Xangsane)
initially has been put at 61 but this may go considerably higher once reports
from outlying provinces are to hand. Many people have been reported as missing.
Damage to the economy has yet to be reckoned but will be severe, especially to
agriculture. Already, those tasked with crunching the numbers are saying that
the typhoon damage will certainly require a reassessment of the growth target
for the remainder of 2006.
A middle-income country?
The latest outlook of the International Monetary Fund (IMF) paints an optimistic
picture of the local economy. The MF sees the Philippines growing by 5.4 percent
in 2007, faster than the projected 5.0 percent growth for 2006. It said strong
remittances and continuous fiscal consolidation in the country would support
such growth levels this year and next.
Per capita GDP of the Philippines is now estimated to be around the US$1400
level-a disclosure that prompted Philippine President Gloria Macapagal-Arroyo to
pronounce that the Philippines has now left the ranks of the "Third
World" and should be regarded as a "Second World" country.
Diehard Marxists would turn in their grave. Traditionally the "Second
World" has referred to that group of countries (now a remnant) that follow
a Marxist-style agenda. The term has actually fallen into disrepute in recent
years and is now rarely used. President Arroyo, of course, took the term to mean
that the Philippines should now be regarded as a "middle income"
It made for an interesting sound-byte but really, in a country where more than
30 percent are still living below the official poverty line (and twice that
number would consider themselves "poor" it shows the extent the
government will go to put any positive spin on the numbers. (Neighbouring Taiwan
has the equivalent figure of US$12,670 per head).
The IMF said that remittances, which account for more than 10 percent of GDP in
the Philippines, have proved much more stable over time than private capital
flows and they do not create obligations in the future. Nevertheless,
over-reliance on remittance earnings breeds complacency and only underscores the
failure of government to produce sufficient jobs to grow the domestic economy.
The IMF attributed its growth forecast for Asia to the ability of member
economies to contain inflation despite oil price hikes. The slowdown in
inflation is attributed to monetary action and foreign exchange appreciation.
Inflation rate in the Philippines is seen to ease to 5 percent in 2007 from 6.7
percent in 2006.
Government eyes even higher growth
Despite the optimistic forecast by the International Monetary Fund (IMF) for
the Philippine economy in 2007, the government is apparently not satisfied with
this outlook. The National Economic and Development Authority (NEDA) insists
that gross domestic product (GDP) growth will pick up to a range of 5.7 to 6.5
percent next year from around 5.5 to 6.2 percent this year. The IMF forecasts a
5.4 percent growth for the Philippines in 2007, slightly lower than its original
estimate of 5.6 percent, in line with its prediction that regional growth would
slow due to persisting high oil prices.
Socioeconomic Planning Secretary and NEDA director general Romulo Neri, however,
said the government is sticking to its GDP growth targets because it had already
factored in the expected high oil prices. "The current average for 2006 so
far is US$63.27 per barrel for Dubai Crude. This is lower than our forecast of
US$63.42 per barrel. We project higher prices for 2007, at US$67.05 per barrel.
With this assumption, and examining our growth trends in agriculture, industry
and services, we project 2007 GDP growth to be 5.7 to 6.5 percent,"
Secretary Neri said.
NEDA also claimed that IMF growth projections were typically lower than the
actual GDP growth rates in the country. For example, the IMF growth forecast for
the Philippines was 4.0 percent for 2002, 2003 and 2004. However, the actual GDP
growth rates achieved during those periods were 4.4 percent, 4.9 percent and 6.2
Of course, all of this was before the calamity of last week. It remains to be
seen what revisions to the short-term forecast may be necessary but a shaving of
a quarter of a percentage point from this year's target may be necessary,
Hoping for the best and preparing for the worst
Could the Philippines go the same way as Thailand and face the prospects of
a real military coup (as distinct from rumours of coup)?
Following the Thai military coup, the local stock and currency markets in the
Philippines flickered but recovered quickly leading the Philippine government to
dismiss the brief drop in the value of the peso and of stocks on September 20 as
a "knee-jerk" reaction. Socioeconomic Planning Secretary Romulo Neri
noted that since the coup, the local currency and stock markets have recovered,
"proving that the Philippine economy will not be hit hard by political
trouble in other Southeast Asian countries."
"The images of tanks [on the streets of Bangkok and shown] on CNN were
dramatic, but for the Philippine economy, it was just another day at the
office," Secretary Neri said. "Uncertainty has vanished now that the
revered King of Thailand has endorsed the new leadership. And the putsch is
nothing really new to Thailand - the nation has had 17 coups since the end of
World War II," he added.
He may well be right in the short-term but it gives the government very little
long-term comfort since the only way it is holding to government is to reward
senior military leaders with lucrative government positions upon their
retirement. This has led to a noticeable turn to the right in the manner in
which policy is decided and implemented in the Philippines. The process is being
driven from the top down and the consultative process, vibrant in a mature or
maturing democracy has gone out the window.
The President, who was in Europe during the month, appears to have taken a
severe tongue lashing from several European leaders regarding the turn her
government is taking and especially the extra judicial killings that have
increased on her watch-600 plus and counting. "There will be no
whitewash" said the President upon her return and in establishing a
commission to investigate the killings. We hope not.