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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: 081 - (24/11/10)

It is always good to end the year on a positive note and with the promise of good governance returning to the Philippines since the election earlier this year of President Benigno Aquino III to the presidency, there is indeed cause for optimism. At the very least, the worst excesses of the nine years of misrule by Arroyo and her cronies are behind us. That period saw an unprecedented number of high profile corruption scandals, cronyism and human rights violations that were on a par with those experienced during the Marcos years.

Now the cleanup has begun. It is a formidable task and as we have discussed previously, there are many hurdles to be overcome but it does appear that there is now principled leadership from the top and a governance platform that has made explicit “no corruption, no poverty.”

The task is Herculean. On Transparency International’s global corruption index, the Philippines ranks 134th out of 178 countries included in the current index and in Asia Pacific it ranks 26th out of 33 economies. Even Indonesia is now doing better.

The International Finance Corporation, the private sector venture arm of the World Bank, ranks the Philippines 148 out of 183 economies in terms of ease of doing business. This is closely correlated with the corruption index because of the red tape placed in the way of business at every level of government as a means of attracting fees and “facilitation” charges.

In relation to poverty, the Department of Interior and Local Government (DILG) has estimated that the government will need to spend at least PhP435.25 billion (US$9.93bn; £6.2 bn) over the next five years to bring down the incidence of extreme poverty and hunger to meet the first target of the Millennium Development Goals (MDG) of halving by 2015 the proportion of the populations whose income is below the poverty threshold. In 1991 the official poverty index of the country was 45.3 percent and the goal is therefore to reduce this to 22.7 percent. As of 2006 (the last time the figures were published), the rate stood at 32.9 percent. According to the National Statistical Coordination Board, the poverty threshold in the country (for a family of five persons) as of 2006 was PhP204 daily ($4.67, £2.92). The annual per capita urban poverty threshold was placed at PhP17.035 while for rural areas it was PhP14,123. The average for all areas was PhP14,906.

Significant poverty reduction will require very high levels of public investment. Most people believe that Aquino will have fulfilled his pledge if he makes inroads into these problems and claws back the deterioration that occurred during the Arroyo years. Government debt is already high. At PhP4.69 trillion ($107 bn; £67 bn) outstanding debt is PhP49,905 for each man, woman and child in the Philippines.

At least economic growth appears to have recovered. The official forecast is for GDP to grow by between five and six percent this year but with growth in the first half coming in at 7.9 percent, officials are optimistic that this target will be breached. It is important to bear in mind, however, that early growth was fuelled – at least in part – by election related spending so it will come as no surprise if figures for the second half are not quite as ebullient. But rising remittances as well as recovery of the export sector also played their part and, hopefully, will compensate for any decrease in public investment. Exports appear to be holding up surging 46 percent in September from the previous year and bringing export growth for the first nine months to 38.5 percent. But, exports are still heavily dependent on a single commodity – electronics goods – which continue to account for almost two thirds of the total. Ongoing growth will continue to be dependent in further recovery of global markets.

And while it appears that Filipinos have savings which they could invest in the economy; few have the propensity to do so. Local investors continue to favour areas that offer a quick return and this goes a long way to explain why this impoverished nation has so many air-conditioned shopping malls while many traditional industries have been allowed to wither. This is fine as long as remittances continue to grow but should they falter at some point, the country – and the investors – will be in trouble as consumption expenditure is not fuelled so much by domestic earnings as by those families (estimated at around 10 percent of the total) that rely on remittances from overseas working relatives.

As a result, the new government is looking for other means to overcome the investment gap, especially in infrastructure which is the precursor to enhancing the country’s investment climate. The preferred vehicle at this time is to give new teeth to the concept of public-private partnerships (PPP). However, with a poor track record in recent years, the new government must take the lead in demonstrating that times have changed and that the Philippines is now a safe place in which to invest.

One recently announced initiative aimed at giving greater confidence to wary investors is the announcement of a policy that will in future ensure investors are protected from “regulatory risk” – or changes in the local regulatory environment that prevent investors from recouping their investment. This was a common problem during the Arroyo years when the government capriciously shifted the goal posts on foreign companies for reasons of political expediency. The energy sector was particularly vulnerable with both the independent power producers as well as the oil companies seen as soft targets for regulatory control over their profitability and in contravention of contractual agreements. Hopefully this will now change although the details are still sketchy at this time. Commercial risk will not be covered.

A second initiative aimed at harmonising national and local legislation is one that has been eagerly awaited by the mining industry. Quite often under the Arroyo watch, local governments in the Philippines were able to adopt local regulations that flew in the face of national policy. Foreigners were invited to invest in the Philippines under the revised (1995) Mining Act that allowed foreign participation in the minerals industry, only to find that once the investment had been made and mines were brought to commercialisation, that local interests would move in and legislate at the local level to prevent the mine from operating. The motivations were twofold: firstly local officials were engaging in rent-seeking behaviour whereby they were trying to leverage a greater slice of the profits for themselves (without necessarily risking any of their own money) or worse, they were seeking to have the foreign investor walk away from the project so that they could take it over themselves.

President Aquino is trying to change things and we wish him well. Much of business is on his side, with business confidence at a new high. But he still has these entrenched interests to deal with; local elites that have been used to dispensing patronage and behaving as though they were above the law. The Philippines is moving in the right direction; yet while it may be back on track, it has a long way to go before it reaches the highway.

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