Books on The Philippines
Update No: 047 - (03/12/07)
The numbers are starting to come in and the picture for the
year as a whole is coming into focus. On the economic front it looks like more
and more good news for the Philippines. Growth is up; the budget deficit is
down; the peso is going through the roof (at least when looked at in terms of
the US dollar); remittances are at another all-time high in spite of the dollar
and business confidence is improving.
Again we would have to say that in terms of the macro numbers, the Philippines
has to be given top marks. So often in the past we have commented that the
numbers look good only when the Philippines is benchmarked against its own past
performance. Now it has to be admitted that the numbers look good regardless.
Certainly, India and China are doing better but for Southeast Asia, the
Philippines is starting to look like a star performer.
Let us look a little more closely at how these numbers are shaping up.
Domestic growth in the first half year amounted to a healthy 7.3 percent.
Election-related spending contributed to that spurt to be sure but it has given
the economy the needed momentum to continue what is looking to be a stellar
performance for the year as a whole.
Institutions such as the IMF, the World Bank and the Asian Development Bank have
each upped their own forecasts for the Philippines as well as their growth
outlook for 2008. For 2007 the World Bank is now expecting GDP to grow by 6.7
percent. This would place the Philippines ahead of the rest of Southeast Asia.
This latest forecast is much higher than the Bank’s original forecast of 5.6
percent forecast. Similarly the ADB now sees the Philippines growing at 6.6
percent in 2007 from earlier growth forecasts of 5.4 percent.
Other numbers are looking good as well and, indeed, underpin the improving
growth outlook. Inflation remains manageable at 2.7 percent—well below the
Central Bank’s forecast of 4 to 5 percent for the year. Thanks to the heavy
and steady inflow of remittances from overseas workers as well as improving
receipts from tourism (yes, despite the bombings and threats of bombings, the
Philippines is actually a pretty safe place and tourism is entering a boom
cycle). Revenue from BPO activities has produced a balance of payments surplus
which by October had grown to a healthy US$7.85 billion. This is higher than the
government was predicting for the whole of 2007.
Remittances for the first nine months of the year hit US$10.5 billion and are
expected to hit a new peak (in US$ terms) of $14.7 billion this year. Of course,
in peso terms, the increase will look less spectacular.
The peso continues to climb and by mid-November had breached (temporarily) the
43:0 level to the US dollar. Three years ago—in November 2004— the peso
reached its nadir when it traded at below 56.0 to the US dollar. One year later
it had risen to the 54:0 level and this time last year was at 49.46. Now it is
expected to rise above the 40.0 level early in 2008. This makes it the best
performing currency in Asia.
Had it not been for intervention by the Central Bank, the rise of the peso may
well have been higher than it has been. In an effort to cushion the rise so as
to help exporters among others, the Central Bank has been scooping up excess
dollars. Nevertheless local exporters are finding it tough to cope. After a
growth of 14.6 percent in 2006, the Export Federation of the Philippines was
earlier forecasting a further ten percent growth in 2007. This will not happen.
Exports in the first nine months have grown by only 4.85 percent and electronics
exports—which in recent times have accounted for more than 60 percent of total
manufactured exports from the Philippines by only 4.2 percent. Bleak indeed for
a country that is in danger of having its manufacturing sector hollowed out as
firms shift their focus to lower cost centres such as Vietnam.
Indeed domestic production remains at best lethargic and is again showing signs
of decline in volume terms. Indeed the situation may be grimmer than is shown in
the official data. While it is difficult to get a handle on the exact numbers
there has been a suggestion that the statisticians are disguising the decline by
giving greater weight to grey-economy manufacturing that was the case
Indeed, the longer-term decline of manufacturing in the Philippines appears to
be borne out by the investment figures. Investment pledges registered with the
Board of Investments and with the Philippine Economic Zone Authority (PEZA)
reached Php188 billion in the first nine months and down from Php200 billion in
the same period last year. Again, given the appreciating peso, one has to be
careful as to how one interprets the results. In peso terms the figure this year
is 6 percent lower. But over the past twelve months the peso has risen by eight
percent against the dollar. All we can say is that there is no evidence that
foreign investors are beating a path to the Philippines—at least not so far as
manufacturing is concerned and what investment is being pledged appears to be
going into the services sector.
Inflation remains benign and currently at around 2.7 percent year-on-year. This
is well below the government’s own forecast of 4 percent for the year but oil
prices are worrisome and the rate is not expected to remain this low if oil
prices continue on their present path.
As a result of the good economic numbers, business confidence is increasing with
more companies claiming that they are implementing expansion plans and hiring
more staff. One concrete indicator is that the sales of new motor-vehicles,
often taken as a bell weather of economic growth and confidence have surged by
18.5 percent during the first ten months of the year. With fresh curbs being
placed on the importation of used vehicles into the freeports (a major source of
vehicle smuggling); these numbers could rise even further in coming months.
Finally there is the budget deficit. The good macroeconomic result has helped
the government keep on track in bringing down the deficit. The target deficit
for the year is Php63 billion which represents 0.9 percent of GDP. This looks
likely to be achieved but only by some careful juggling of the numbers. Revenue
collections by government agencies, while showing signs of improvement they are
not improving fast enough and continue to be below collection targets. The
deficit target will only be met by folding in asset sales—most notably the
sale of energy assets and most recently the disposal of the government holding
in the geothermal company of the Philippine National Oil Company ,PNOC-Energy
Development Corporation (EDC). (PNOC while originally created to maintain a
stable oil supply in the country has overtime had its mandate expanded to
include energy exploration and development.)
PNOC-EDC generates power from volcanic hot springs and is the latest asset sale
of government which is privatizing the energy generation and transmission
sectors. Philippine power producer, First Gen Corporation in association with
Iceland's Reykjavik Energy, won the recent auction for the government majority
shareholding with an offer of $1.35 billion (or around Php58 billion).
There is a downside. As a number of the ratings agencies as well as financial
institutions such as the ADB and the World Bank have pointed out, until such
time as the government is able to balance its books through matching revenue
collections with expenditures rather than relying on one-off asset sales,
question marks will continue to hover over the government’s claims that the
Philippines has turned the corner.
This is not to belie the achievements made so far but rather to put them in
perspective. Again as the agencies point out, there can be no let-up in the
effort at meaningful structural reform as well as the need for rapid improvement
in development of the country’s infrastructure.
Sadly many of recent efforts to fast-track such developments have become
embroiled in controversy and allegations of over-pricing. Many of these
allegations have at times threatened to engulf some of the country’s top
political leaders who continue to lead charmed lives.
And sadly it is the issues surrounding corruption that continue to white ant
attempts to propel the country to a prosperous future. As former Socio Economic
Planning Secretary, Romulo Neri is reported to have said earlier this year
before his consignment to oblivion at the helm of the Commissioner on Higher
Education, it is not corruption per se that is the problem but the fact that
even with corruption infrastructure still does not get built. This being Asia,
“facilitation” payments are part of the way of life and if the cost of
getting a project completed to a reasonable standard is (say) a ten percent
surcharge on the basic cost then so be it. But when a full hundred percent is
siphoned off, obviously there is a major issue to confront.
This may well loom to be the major issue confronting the country next year. The
country’s political leaders need to set the example and there is a massive
failure of will in this department. Politicians are keen to claim that the
country—through investments into such areas as tourism and mining—is on the
cusp of a major breakthrough in investment that will propel the country to
first-world status within 10 years, but we have been on the cusp before.
Impossible? Yes, but it makes a good sound bite. And the fact is that this
country could do so much better if only…
But that is for next month
29th November 2007: In a reprise of the 2003 Oakwood mutiny that paralyzed the
Makati business district for one whole day and which briefly put the Philippines
on the front page of world newspapers and TV news reports, the same group of
soldiers walked out of their Court Martial today and together with their armed
guards walked the streets of Makati, took over another major hotel and—for
several hours—again called for the resignation of President Arroyo for
bringing about mass poverty in the country. (She hasn’t produced mass poverty.
It was there before. But she has not done anything about it either.)
Led by the same Lt. Trillanes who—now Senator Trillanes, in spite of being
retained in military custody since 2003—and with former Marine Commander
Brigadier General Danilo Lim, who was relieved of his command and arrested last
year after calling for the ouster of the President, the group claimed that they
were not mounting a coup but rather taking “necessary action” to bring about
change in the country. The renegade group which numbered around 30, urged
President Arroyo to resign and called on the military to turn against her.
“Dissent when not accompanied by action, is consent” Lim said.
Clearly there was no mass support for the group’s action despite some sympathy
for their cause. The streets of Makati were quickly cleared and the hotel was
surrounded by 1500 crack troops and military SWAT teams. A 3pm surrender
deadline passed and the hotel was stormed by troops at around 5pm. Armoured
personnel carriers rammed through the doors and into the main lobby. Tear gas
was extensively used and, eventually, those responsible were arrested and taken
into custody. Charges of rebellion (which carries a lifetime jail term) or
incitement to rebellion (12 years imprisonment) are likely to be laid.
Unlike in 2003, this time around there was no attempt to negotiate. It was a
brutal and full frontal attack and already many have questioned the rationale.
Carried live on television, the military used their APVs to smash the hotel façade
when they could have just as easily walked through the open doors. The rebel
group, which was ensconced in a function room on the mezzanine level had already
indicated that they would surrender in order to resist any bloodshed.
Even more chilling is the manner in which the military took many of the
journalists covering the event into custody. Journalists were handcuffed; their
cameras and equipment confiscated and they were taken away in buses for
questioning. A presidential spokesperson was quick to go onto national
television to explain that the journalists would be released once it had been
determined that they were not part of the military group but to many the
assurance sounded hollow. The arrests were almost certainly illegal and
intimidation appeared to be the name of the game. Press freedom in this country
took another step backwards.
The dark side of the Philippines was meant to be covered in the next report and
so it will be. But events of today have shown starkly that beneath the surface
of the good economic numbers there is widespread dissatisfaction at the means by
which economic growth is being achieved. For many, it is all too calculating and
ruthless. And the sad thing is that despite the good numbers, the poor are still
growing in number.