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Key Economic Data 
  2003 2002 2001 Ranking(2003)
Millions of US $ 80,574 77,076 71,400 43
GNI per capita
 US $ 1,080 1,020 1,050 135
Ranking is given out of 208 nations - (data from the World Bank)

Books on The Philippines



Update No: 040 - (26/04/07)

With national and local elections now less than a month away (the country goes to the polls on May 14) politicians of all persuasions are shrill in their claims that either the country has never had it so good or that the Philippines is on the brink of collapse and that only removal of President Arroyo can save it (whose job is not up for grabs until 2010). As the May election date draws closer, the campaign period is heating up, with the opposition and administration parties exchanging tirades and resorting to paid advertisements to capture the electorate. Some are even resorting to the time-worn local tradition of using bullets in attempts to silence their opponents.

While results of popularity surveys show that the Genuine Opposition party has a slight edge over the administration’s Unity Ticket, particularly in the senate race, analysts are convinced that the real battle will take place in the week of the election itself. Cynics say that the real battle will actually take place AFTER the election with the need of candidates to protect the ballot boxes and prevent tampering with the vote.

Certainly as far as the “free vote” is concerned, most analysts concede that the Opposition does have the edge. But it is the “command vote” that will really make the difference. The administration controls 70 percent of the local government units where local officials can direct people to vote a particular way. This involves calling in past favours (money given out previously for weddings and wakes for example), putting on parties to those who vote the way the local mayor directs (who says it is a secret ballot?) or simply paying voters to vote the slate commanded.

The game plan of the administration appears to be to control the lower house at any cost and by a margin that will ensure the president does not face the spectre of further impeachment proceedings. Gaining control of the upper house is probably a lost cause in which case President Arroyo will do all she can to make it irrelevant—unless of course she can make it do her bidding.

It appears that despite the shenanigans of the ruling class, most people are ignoring the politicians and going about their business. It is hard to generate any spark of enthusiasm. Even the taxi drivers—usually bellwethers during any campaign—are unusually silent on the subject of politics. The reason is not hard to fathom: just about everyone in the country believes that the whole process is a charade and that nothing is going to change. At least, not to the point where it could make a significant difference to their lives.

Generally speaking the business community is reasonably optimistic and upbeat about prospects for the country. Those in retailing, real estate, finance, education or other areas of the economy that absorb the proceeds of overseas remittances have particular reason to shout. “Don’t rock the boat” appears to be the attitude of most business people. It may not be the best of all possible worlds but it is not the worst either.

And in fact the economy is not doing too badly. Remittances sent home by overseas Filipinos, which now represent more than a tenth of the country’s gross domestic product, surged 25.4 percent year-on-year to US$1.1 billion in February, despite a 12.1 percent decline in the recent deployment of workers abroad. This brought total remittances for the first two months of the year to US$2.2 billion, up 22.6 percent in dollar terms from a year ago. Remittances are expected to grow by at least 10 percent in dollar terms to US$14 billion in 2007. 

But the pleasing news on the remittance front masks the sorry plight of the domestic employment figures. The number of workers in the formal employment sector is barely growing and not keeping pace with the numbers entering the labour force. Far too many in the workforce are employed as drivers or domestic helpers and President Arroyo has yet to truly revitalise the country’s manufacturing sector. 

The IMF continues to be upbeat on the prospects for Philippines growth. In its latest (April 2007) World Economic Outlook, the IMF said the gross domestic product (GDP) of the Philippines is set to expand faster for the third straight year this year after growing 5 percent in 2005 and 5.4 percent last year. “The economy’s underlying momentum remains strong,” it said. It projected that the Philippines will also grow at 5.8 percent in 2008. However, the IMF’s growth forecast for the Philippines is well below than the government’s official GDP growth projection of between 6.1 percent and 6.7 percent for 2007.

But not everyone is happy with the way the country is moving. Recent surveys by reputable polling agencies again point to the slow pace at which the war against poverty is being won and hunger appears to have increased again in recent times. Not unexpectedly, the government is challenging these numbers but the fact remains that despite the good macroeconomic numbers, the benefits of recent growth have yet to be seen by the majority of the people.

Economic developments
In March, the country posted its lowest headline inflation rate since April 1987—at 2.2 percent, Data from the National Statistics Office shows that the record-breaking low inflation rate was due to an ample supply of basic food items such as meat, fruits and vegetables, and fish, all contributing to the downtrend in prices.

“The abundant supply of fruits and vegetables during summer pulled its prices down by 2.6 percent. Meanwhile, the peak fishing season of tuna brought about by the prevalence of good weather conditions pulled the prices of fresh fish in the wet markets down by 0.40 percent while an abundant supply of chicken and pork brought about the downtrend in the meat index by 0.10 percent,” Mr. Neri, who is also the National Economic and Development Authority director-general, said in the statement.

With this latest development, the inflation rate for the first quarter of 2007 came in at only 2.9 percent, significantly lower than the 7.3 percent recorded in the same period last year and the Development Budget Coordination Committee target of 4 percent-5 percent for 2007 as a whole.

However, the NSO also reported that milk and dairy products, corn, eggs and miscellaneous food items were reported to have higher prices in March compared to the previous month.

The government continues to make much of the fact that the peso is “soaring” having risen around 14 percent against the US dollar at its nadir, two years ago. The government has ascribed the improvement of the currency to the improved macro-economic performance, conveniently overlooking the fact that the peso has actually weakened against most other major trading currencies.

The strengthening peso is actually a mixed bag. On the one hand, it eases the loan repayments of government but on the other it changes the terms of trade especially vis-à-vis the important US market. Of course over the longer term it should encourage exporters to make savings through productivity gains as well as exploring new export markets particularly Europe, but until those things occur, the export sector is hurting. So too for those remitting to the Philippines, OFWs are now getting few pesos per dollar when they send to the Philippines.

Investments on an upward trend
Another pleasing sign is that net inflows of foreign portfolio investments, which are invested in local stocks, government securities and other money instruments, soared by 71 percent year-on-year in the first quarter of 2007, manifesting increased confidence in the country’s economic prospects. According to the Bangko Sentral ng Pilipinas (Central Bank), net inflows of foreign portfolio investments amounted to US$838 million in the January-March this year, up from US$490 million recorded during the same period in 2006. 

Foreign direct investments (FDIs) have also started the year well although so far only the January figures are available. The Central Bank recorded net inflows of US$357 million, or a year-on-year growth of almost 51 percent in January 2007. The growth in FDI for the month was boosted mainly by the net inflows from the reinvested earnings account which amounted to US$220 million, from only US$2 million last year, as foreign banks opted to retain their earnings in their local branches given the continued positive economic prospects.

Net equity capital inflows also rose by almost 70 percent in January to US$70 million compared to the year-ago level, with fresh capital infusion in long-term investments reaching US$129 million. In particular, the industries which benefited most from these inflows included: manufacturing (chemical products, electronics), services (international courier), real estate, financial intermediation, and construction. Loans extended by head offices to their subsidiaries in the Philippines - comprising bulk of the other capital account - also registered a net inflow of US$67 million.

According to the Central bank FDI flows are expected to remain positive in 2007 with investors taking advantage of the country’s improving investment climate. The major sources of FDI flows in January were the U.S. and Japan. 

Similarly, combined investment approvals by the Board of Investments (BOI) and the Philippine Economic Zone Authority (PEZA) doubled to PhP40.65 billion (US$847 million; £428 million) in the first quarter of 2007 from PhP20.12 billion during the same quarter last year. The figures do not include the investments registered with the Clark Development Corp. and Subic Bay Metropolitan Authority (SBMA), which have yet to release their own reports. It should be kept in mind that not all approvals result in bricks and mortar on the ground.

The president was in China this month to attend the Boao forum. She flew back home with close to US$1 billion in fresh Chinese investments. So at least was claimed in the press statement. In fact it is likely that these so-called investments were actually concessional loans. No matter, if they are used to further develop the country’s infrastructure, all well and good.

But revenue collection continues to be problematical
The Department of Finance announced that it incurred a budget shortfall of PhP52 billion for the first quarter of 2007, overshooting its deficit target of PhP45.8 billion for the period, because of falling collections. The budget gap in the first three months, however, was 23.1 percent lower than the PhP67.6-billion deficit registered in the same period last year. It also represented 82.5 percent of the full-year deficit target of PhP63 billion or 0.9 percent of gross domestic product for 2007.

The government's revenue collections for the quarter reached only PhP237.3 billion. In particular, collections by the Bureau of Internal Revenue amounted to PhP143.1 billion, or 12.1 percent lower than the target of PhP155.2 billion for the quarter. The Bureau of Customs collected PhP40.2 billion during the period, or 6.7 percent lower than its PhP46.9-billion target. Under the financial programme approved by the inter-agency Development Budget Coordination Committee (DBCC), the government was supposed to raise PhP255.8 billion in revenue in the January-March quarter.

More worrisome is the source of revenue, it is not coming from expanded collections but rather from asset sales. Finance Secretary Margarito Teves put a positive spin on this when he said that additional proceeds of privatisation sales later this year would give the government some flexibility to spend on its priority programmes while keeping the budget deficit at no more than PhP63 billion for the year. The government expects to get about PhP50 billion from the sale of sequestered shares in beverage and food group San Miguel Corp. by the second half of the year.

Last year, the government was able to reduce its budget deficit to an eight-year low of PhP62.2 billion from PhP146.5 billion in 2005. It hopes to achieve a balanced budget by 2008.

Secretary Teves said the government may forgo budget surpluses in 2009 and 2010 and may even consider incurring "manageable" deficits during these years just to increase infrastructure spending.

This move will allow the government to increase its capital outlays, which include allocations for infrastructure projects, to about 5 percent of gross domestic product (GDP) by 2010 from 2.4 percent in 2006. The DBCC had originally targeted a PhP12.1-billion surplus in 2009 and a PhP17-billion surplus in 2010. "The projected surpluses after 2008 will be used to fund more infrastructure projects but we will maintain balanced budgets until 2010," he said. 

Business developments
The multitude of problems facing the country should not be under-estimated. Nor should attempts by the Administration to address these problems be dismissed lightly. But progress is incremental and for many it is not coming fast enough.
One significant development over the past month has been the opening of the billion dollar Hanjin Shipyard at Subic Bay. This, together with the new container terminal being constructed by Chinese interests is starting to turn the tide at Subic and the area is once again looking toward a promising future.

Another significant, albeit almost unnoticed development, has been the ruling by the Supreme Court that local government units cannot thwart national policy by making decisions at the local level that overturn a national decision. This ruling has been long awaited by the mining sector which is often held hostage by local government officials seeking to extract additional concessions from international mining companies above and beyond what has been agreed in the formal contractual arrangements. There is now a legal basis for companies (not only mining companies) to reject such overtures. Hopefully, this will be a further step in creating fresh investor confidence.

A further administrative improvement has come in the form of a new agreement between the Department of Trade Industry (DTI), through its Board of Investments (BOI), with the Bureau of Immigration (BI) which is claimed will further promote foreign investment in the country by reducing the visa application process for foreign businessmen to just three working days, making it easier and faster for them who are planning or are already doing business in the country. While on the face of it any effort to reduce the amount of red tape is to be welcomed, people are not holding their breath. Red tape provides opportunities for mulcting and strong resistance from counter staff is to be expected. It is the means by which public officials send their children to private schools or purchase recreational vehicles. After all, fast service is already available—if you are prepared to pay the price.

But it is always a case in the Philippines of two steps forward one step back and the recent decision to claw back the open skies policy that promised to reinvigorate the tourism industry is seen by many (except of course, the local airline carriers) as being a retrograde step. Despite government pronouncements about how well it is doing at encouraging inbound tourists, a closer look suggests that many “tourists” are actually overseas Filipinos on VFR visits or young Koreans seeking a cheap place to learn English. 

Political developments
It is difficult in the weeks ahead of an election to truly discern where the country is going politically as most people can only see a continuation of present trends. President Arroyo continues to believe that she is on a “mission from God” to save the Filipino people—and has said as much in the national press. As we noted in an earlier commentary, the principle of the divine right of kings is alive and well and living in the Philippines.

Journalists and political opponents continue to be slain with saddening regularity. More often than not, the official attitude appears to be that “they had it coming.” Over the Easter holiday break, a US Peace Corps Volunteer, a 40-year old female, disappeared while walking in a well-known tourist area and was later found murdered. She too “had it coming” according to some.

While lip service is paid to the democratic ideal, the practice of government is that of expediency—what is legal is what can be gotten away with. Those in the administration are neither worse nor better than their opponents. To the political class, politics is a “game” and a zero sum game at that. People do want better than they are getting but it eludes them for the present which is why the present election is garnering so little real popular interest. No matter who wins the election, it will be more of the same.

Part of the problem of course is the fact that President Arroyo lacks a popular power base. Her mandate comes from the powerful business clans, the provincial families and the military services. And it is these constituencies, to which she is beholden.

Expect globalisation to proceed but at a glacial pace and in a manner that it does not upset entrenched family interests, especially in retailing and property.

Expect improvements in governance to move slowly and with partiality. If you are a local mayor or provincial governor and are “pro GMA” you will receive your fair share of the revenue allotment and as much largess as the central government can muster. If you are not on board, then expect nothing.

Expect the war in Mindanao and the fight against terrorism to continue at the skirmish level. The military loves to have a war, even a small one. It is the key to unlocking a large budget and, more to the point, American largesse. Peace in Mindanao would be the one over-arching factor that would be in the interest of the entire nation to achieve but it will likely remain elusive under the present administration.

Come 2010 and there will likely be a change of presidency and a chance for a fresh beginning. From this perspective, the Senate race is the one to watch since the next leader will most likely come from those who score best in the national vote. That is of course, unless President Arroyo seeks again to manipulate the constitution to continue in office. That is the one factor that likely would cause a revolution, but it is best not dwell on that possibility at this time.

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