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Key Economic Data 
 
  2003 2002 2001 Ranking(2003)
GDP
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)

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Update No: 050 - (28/02/08)

FIRST WORLD BY 2020? FORGET IT!
Last month we noted the forgotten anniversary of EDSA II-the second "people's power" uprising that led to the ouster of President Estrada and the installation of (then) Vice President Gloria Macapagal-Arroyo. That anniversary went almost unnoticed, certainly in official circles.

This month (February) brings the 22nd anniversary of the original "people's power". This one is a little more difficult for the government to brush aside. For a government that is once again embroiled in crisis, it is not surprising that there has been yet another bout of soul searching over where the country is headed.

But we are probably getting a little ahead of ourselves… President Arroyo should be on a roll. The numbers from last year are finally coming in and at first sight look very encouraging. The economy grew by some 7.3 percent, the fastest rate of increase in 31 years-since a peak of 8.8 percent achieved in 1976. The economy grew by just 5.4 percent in 2006. The final quarter of 2006 represented the 27th consecutive quarter of positive growth and Mrs. Arroyo can justifiably claim to have had oversight of the longest continuous spell of expansion in recent history.

There have been gains too on the fiscal front. The budget deficit was down to Php9.4 billion last year; the lowest in 10 years and the government looks set to balance the books this year.

The peso appreciated last year by more than 15 percent against the US dollar-well above the Asian average. This suggests that there was more to the enthusiasm for pesos than just a wounded American economy. Of course overseas remittances-another record year-totalling some US$14 million played no small part.

Last year the per capita gross domestic product (GDP) of the Philippines climbed above US$1,700 at current prices for the first time, on the back of rapid economic expansion and peso appreciation. President Arroyo, at a recent economic briefing for the business community trumpeted that the country was on the verge of achieving "first-world status" by 2020.

How come nobody outside of government is cheering? Well, we gave you a clue last month. Our January comment noted that President Arroyo was widely perceived to have oversight of "an abusive and corrupt regime." Just when people thought it could get no worse, it got worse.

Firstly, the much vaunted economic progress is demonstrably shallow. Neither the population at large nor the small business sector sees much to cheer about. There has been hardly a dint made in hunger and while the government claims unemployment is down to around seven percent of the workforce that is only because the official definitions have been redefined to exclude people who have given up looking for work. Unpaid household labour by contrast has been included. Using the older definition, the unemployment and underemployment rate is well above 30 percent. 

Certainly the budget deficit was down but then too was the revenue effort of the main collection agencies, the Bureau of Internal Revenue (BIR) and the Bureau of Customs (BOC). The deficit was down because revenue was boosted by one-off asset sales of government. Sustainability remains as elusive as ever.

And while both remittances and per capita GDP look good in dollar terms, let's remind ourselves of the currency appreciation that took place. When converted to pesos, the amount of money pumped into the economy was flat and probably not even ahead of inflationary effects-which have again started to climb.

A first-world country by 2020? Forget it. Quoting rates at current prices makes for a good political sound byte but the more meaningful figure comparing purchasing power parity, paints a different picture entirely. When PPP rates are considered, by 2020, the Philippines may just be ahead of Pakistan-but still bringing up the rear among Asian countries.

The sad fact is that while window dressing the economy, the present administration has done nothing to come to terms with issues associated with corruption, transparency and nepotism. Indeed most observers believe that the Arroyo regime is worse than that of President Marcos a generation ago. The extent of corruption in high places is now becoming only too clear and no amount of stonewalling by government officials,' up to and including the president of the country, can hide the fact. 

The issue that has brought corruption back into the limelight is one that we have mentioned several times before-the ZTE deal. It is back to haunt those in Malacañang. For those who may not recall it, this was a contract for a national broadband network to link up all government offices and agencies around the country and improve efficiency in communication. It started as a Build-Operate-Transfer contract whereby a private contractor would have built the network at no cost to government. Then, in mysterious circumstances and just ahead of the 2007 election the contract suddenly morphed into a loan-financed deal. The loan contract, which originally was said to be just over US$200 million but which later became $329 million, was to be financed by the Chinese Government and the contract awarded to a Chinese company, ZTE.

Now it has been revealed that the final contract was padded by a cool $130 million at the very least. This was the amount due to be paid out in commissions to people in high places and to be paid back, of course, with taxpayers money. Recent Senate hearings have heard tales of "shock and horror" with the good senators looking surprised to learn that most government contracts have 20 percent built into them to accommodate commissions to persons in high places. No less than former Socio-economic Planning Secretary, Romulo Neri, was offered no less than Php200 million (around $5 million at present exchange rates) to affix his signature to the tainted contract but who chose instead to report the matter to President Arroyo. Her reaction? Well, she told Mr. Neri to refuse the bribe but to sign the contract anyway. Instead he despatched his own consultants to talk to the brokers in an effort to get them to "moderate their greed."

All this has come from the revelations of the consultant involved, Mr. Rodolfo Noel Lozada Jr., former president and CEO of state-owned Philippine Forest Corp. and a consultant of the National Economic and Development Authority (NBN) who had helped facilitate the NBN project, said the Chairman of the Commission on elections, Benjamin Abalos had demanded the US$130 million as his own personal cut from the NBN deal (and which would have made the total payout considerably more than this). He said Mr. Abalos had consulted President Gloria Macapagal-Arroyo's husband on how to go about securing their own financial stake in the project.

There is much more to it than just the testimony. Indeed the manner of Mr. Lozarda's return to the Philippines, brought him to the public eye and turned him into the latest folk hero. Refusing to stay outside of the country for an extended period he was met at the airport by members of the Presidential Security Force and taken "for a sightseeing tour" of adjacent provinces-in the middle of the night. Government spokespersons have claimed that Mr. Lozarda was taken into protective custody-a claim that he denies. The forced airport abduction while deplaning (caught on surveillance cameras), the midnight car ride with military escort while waiting for instructions are eerily reminiscent of the Marcos era and the "salvaging" operations used to dispose of inconvenient witnesses. That was before the cellular phone however, and Lozarda was able to text his wife before his phone was taken from him. 

She alerted the media and then of course the game was up.

All of this came just days ahead of the 22nd anniversary of the overthrow of the Marcos regime. The president is now facing fresh calls for her resignation amid accusations of massive corruption and abuse of power perpetrated by her close allies in government and business. Senator Panfilo Lacson, a leading opposition spokesperson and likely presidential aspirant in 2010 said President Arroyo has lost all her moral ascendancy to stay in Malacañang Palace. He said it is time to call for snap elections. The president will certainly ignore the call. Most people, it seems, are prepared to wait until 2010.

Oppositionists are calling for snap elections or a further people's power uprising to force Mrs. Arroyo to relinquish government. She will not do so. Like Mr. Marcos she will cling to power as long as she can. The question is whether she will step down at all? Certainly she and her close advisors are not behaving as though they are mortal beings.

A recently issued UNCTAD report showed that in global terms foreign direct investment (FDI) was up by 17.8 percent last year for a total (provisional) of $1.538 trillion. Of this some $438 billion flowed to developing economies and a little more than half of it ($224 billion) into South, East and Southeast Asia. Within this envelope, the Philippines is estimated to have received some $2.5 billion-a paltry amount and the lowest among the original ASEAN economies. Singapore, received US$36.9 billion worth of FDIs in 2007; Thailand, US$10 billion; Malaysia, US$9.4 billion; and Indonesia, US$5.9 billion.

The UNCTAD data was calculated on the basis of the first three quarters of the year and may be an overestimate. Separate data issued by the Bangko Sentral ng Pilipinas (Central Bank) shows that the net inflows of foreign direct investments (FDIs) in the Philippines went down by 5.6 percent year-on-year in the first 11 months of 2007 from the same period a year ago. Cumulative FDI net inflows reached only US$1.9 billion in the January-November period last year. This level was lower compared to the US$2.0 billion net inflow posted in the comparable period in 2006.

The domestic economy supported by consumption expenditure which in turn is fuelled by remittance income may have some insulation from all the political shenanigans taking place but foreign investment is a different matter. FDI has shown virtually no growth (and certainly no consistent growth) over the period of the Arroyo presidency and this has to be her major failing. Remittances support spending which supports the mall owners and big business. FDI builds factories and creates jobs. Simple economics really but an inconvenient fact.

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