Books on The Philippines
Philippine peso (PHP)
Update No: 027 - (04/04/06)
The state of emergency declared by President Arroyo on the
morning of Friday February 24th was rescinded on the morning of Friday March
3rd. It lasted barely a week. The coup, according to official spokespersons had
been foiled: Situation normal? Well, almost.
Outwardly the country carried on much as usual during and after the declaration
but in fact the decree has only further polarised the political atmosphere.
That there were various cabals of the left and the right plotting against the
government there was no doubt. That these groups were capable of staging a coup
- or even launching one for that matter - we have strong doubts. That there are
still shadowy oppositionists plotting the downfall of the Arroyo presidency, we
are in no doubt either. Can they topple the President? We doubt it.
To those who support the president - and this includes the majority of the
business community - the firming of presidential resolve to come down hard on
dissent is a welcoming sign that the administration is serious about further
improving the state of the economy and protecting the gains from those who would
seek to commit sabotage. To her detractors, it is a further signal that
President Arroyo is prepared to ignore basic freedoms and return the country to
a quasi-Marcosian form of rule in which the laws of the land are interpreted to
suit presidential expediency - and presidential survival.
The truth - as is so often the case - lies somewhere between these two extremes.
Certainly, the president has a case to answer before the people over allegations
of manipulating the result of the 2004 presidential election, then seeking to
cover up her transgressions. When the matter was brought before Congress she
used the advantage of numbers to stifle any proper investigation through
procedural means. "The matter is settled" say her supporters.
"Far from it" say her opponents. "Let's get on with life"
say most people.
Sadly, the truth is also that the track record of the opposition when it comes
to manipulating the democratic process is no different to that of the
incumbency. The people of the Philippines no longer want media personalities
running the country - after all former President Estrada was not even able to
preside over a Cabinet meeting and governance under Estrada quickly passed into
the hands of his drinking buddies - "the midnight Cabinet." President
Arroyo at least is known to be a hard-working intellectual who, as she has
shown, is fully in charge of those who serve at her pleasure. Most people see
the present situation as being the lesser of two evils.
The popularity of President Arroyo shows little signs of improvement in spite of
an economy that continues to perform reasonably well. The problem here though is
that while the macro numbers look good, growth is still remittance driven and
fed by a small number of very large companies - principally the telcos, food
processors and large-scale retailers who are doing very well indeed. The rest of
the economy continues to languish. She has singularly failed to inspire any mass
constituency and is therefore reduced to depending on groups such as the
Catholic Bishops Conference and other politicians to shore up her support base.
The employment situation says a lot about the economy
According to the government, a total of 750,000 jobs have been created in
the past year - a rise in employment of 2.4 percent, or so it is claimed. This
is lower than the one million jobs promised annually but at first blush looks to
be a good result nonetheless. However, a closer look at the numbers shows that
the micro picture is not quite as rose tinted as the government would paint.
Firstly, it appears that a significant number of jobs have been lost in sectors
such as construction, health and social work and manufacturing. These are key
areas involved in asset formation - including social assets as well as fixed
assets - and the decline would appear to place the country in further jeopardy.
On the other hand, the most significant employment growth appears to have
occurred in farming and hunting (which does not include fishing - another sector
where employment actually contracted) where a total of 479,000 jobs were added -
or so the statistics tell us. Whether these are salaried jobs or subsistence
employment (where people are paid in rice or corn) is not spelled out but we
suspect much of it would be the latter. The second highest growth area was in
local private households where a further 102,000 jobs were added. Again it
suggests a migration from formal to informal employment.
Altogether these numbers do not suggest to us a picture of robust economic
health but rather indicate employment degradation - higher status jobs being
lost and replaced by low-paying ones - and a migration towards subsistence
employment. This is hardly a recipe for long-term health.
Yet the RP rating continues to improve
Merrill Lynch is the latest to upgrade its rating of the Philippines and has
recommended recently an overweight exposure to the Philippines, citing the
country's attractive valuations and the government's progress on the fiscal and
debt sustainability fronts as reasons for the upgrade.
At the same time, the bank scaled back its recommendation for Peru to
underweight from market weight, ahead of the presidential elections there in
April. "In our model portfolio, we choose to scale back our Peru exposure
to underweight. We think that there is more compelling value elsewhere, notably
in the Philippines, where we have an overweight recommendation," the bank
said in its latest report.
"We implement this in the cash market by selling Peru '12s and buying
Philippines '30s with the proceeds," it added, referring to bonds maturing
in 2012 and 2030.
Bear Stearns & Co. Inc. is equally bullish on the country and has predicted
that the Philippine economy would grow by close to 6 percent in 2006. The
company upgraded its outlook after President successfully thwarted last month's
In its Emerging Market Asia & Pacific Rim report, Bear Stearns said that
investors are impressed by the growing optimism on how the Philippine economy
will perform over the next one to two years.
Bear Stearns said the expected increase in foreign direct investments,
particularly in the electronic sector, and liberalized conditions in the mining
sector will drive economic growth in the Philippines. It also predicted that
inflation would settle at 7 percent in 2006, down from 7.6 percent in 2005.
At least its resilient
The World Bank (WB) is another agency bullish about the prospects for the
Philippines. In its latest report the Bank says that it expects the
"resilient" Philippine economy to post growth above 5 percent over the
next two years, after expanding 6.0 percent in 2004 and 5.1 percent in 2005
(note that this number is provisional and could yet be revised - most likely
downwards). "The Philippine economy recorded another relatively strong
performance in 2005. Public sector deficits and debt were reduced in real terms
and the value added tax (VAT) reform law, passed in May 2005, was fully
implemented by February 2006 following a number of challenges and delays,"
the WB said in its latest East Asia Update.
At the same time, the consolidated public sector deficit (CPSD) fell to 2.8 per
cent of the GDP last year from 4.8 per cent in 2004, because of rising tax
effort and improving balance sheets of government-owned and controlled
corporations. The government's tax effort, it said, improved to 12.7 per cent of
the GDP last year from 12.4 per cent in 2004.
"Progress on implementation of the fiscal reform programme, coupled with
the economy's resilience to various shocks - ongoing political tensions, higher
oil prices, agricultural slowdown - boosted financial markets as reflected in a
stronger peso, higher private capital inflows, and falling borrowing costs and
spreads for the public sector," the multilateral lender said.
The bank, however, emphasized the need for improved tax administration and
governance to ensure that recent policy reforms translate into sustained deficit
and debt reduction as well as effectively implemented public programmes for
infrastructure and social development.
In 2005, the country's gross domestic product (GDP) grew by 5.1 per cent despite
a high inflation regime induced by soaring crude oil prices in the world market.
Inflation rate averaged 7.6 per cent last year. For 2006 and 2007, the WB sees
the Philippine economy growing by 5.3 per cent and 5.6 per cent, respectively,
although these figures are more conservative than the government's projections.
The revised growth target of the government is between 5.5 and 6.2 per cent for
Governance is the key
Governance is the key issue. While the Philippines is back on the radar
screens of international investors, most of the money now dribbling into the
country (to call it a "flow" at this stage would be overstating the
case) is going into the bourse and into lending activities. The amount of FDI
attracted into the Philippines remains very small indeed. Endemic corruption and
policy vacillation continues to dampen the appetites of many who otherwise would
be keen to invest in the country. Perhaps no better example exists than in the
minerals industry. In 2004, a favourable decision of the Supreme Court once
again opened this country to large-scale foreign investment into the mining
sector. Yet again, many are waiting on the sidelines to see just how welcome -
and how secure - such investment really would be.
According to the Chamber of Mines of the Philippines, the country needs as much
as US$8.5 billion to implement the 23 priority mining projects and 37
exploration deals offered by the government to the private sector. In
particular, US$8 billion would be needed for the mining projects, an amount that
has been raised from an initial estimate of US$6.5 billion. Another US$500
million would be required to jump-start 37 mining exploration projects, the
Yet while there have been a number of expressions of interest in investing into
the local minerals sector, there is hardly a rush to commit funds and the
government, is now seeking to review - yet again - its mining investment policy
in the face of concerted opposition from special interest groups who oppose any
development of the local minerals industry by international capital - preferring
to reserve the sector for small-scale local investment - which ironically is
responsible for much of the pollution and environmental degradation.
The fact is that the administration of President Gloria Macapagal-Arroyo has not
lived up to its early promise of being a reformist government that would not
only lead the country back out of the doldrums but would actually place the
Philippines on a higher growth trajectory than has been achieved to date. In
fact, because of the need to compromise in the face of a seriously flawed
presidential election, the government has actually turned the clock back to a
culture of transactional politics in order to achieve its own survival. On most
objective measures, the country appears to be backsliding rather than moving
forward. The government is politically weak and unable to make hard decisions.
Instead it is prone to pressure from special interest groups, traditional
politicians and the wealthy families that control much of the local business
The result has been deterioration in the quality of governance as even the World
Bank notes in a recent study of governance throughout Southeast Asia. In the
Philippines there has been a sharp decline while others in the region have
improved. In terms of political stability, the Philippines is now seen to be
worse than Laos and only slightly better than Myanmar and Indonesia within
Southeast Asia. Both the Berlin-based corruption watch-dog Transparency
International and the Political and the Economic Risk Consultancy Ltd. (PERC) of
Hong Kong have rated the Philippines as being among the most corrupt countries
It's the Constitution stupid
According to President Arroyo, it is not the politicians who are to blame
for the present sad state of the country but rather it is the political system
they work under. With that in mind, the President has moved the issue of
constitutional change from the back burner to the front burner. The proposal,
which originated with present Speaker of the House, Jose de Venecia, is to
change from a presidential to a parliamentary form of government and from a
unified to a federal parliamentary system.
While most people would agree that the 1987 Constitution that came into effect
following the overthrow of President Marcos and which replaced the Constitution
of martial law years, is in need of some reform there appears little support -
outside of the political class that is - for scrapping it entirely. In the
effort to fast track a total overhaul of the constitution, many see a hidden
agenda at work. Rather than reform the system into a functional democracy, many
see the agenda - and the manner in which it is being implemented - as a last
ditch stand of the ruling class in this country to perpetuate their hold on
power indefinitely. Mr. de Venecia was a candidate for the presidency in the
1997 election and many believe that having been unsuccessful at seeking the
country's presidency, he now seeks the same objective through being the Prime
Minister of the Philippines. President Arroyo appears willing to indulge the
speaker - but then needing his support within the Congress, she really has had
little option but to go along with the measure. She is a shrewd tactician and
her expression of support may be no more than a tactical move to buy her time so
that she may serve out her full term and hand over to a friendly successor at
the end of it. Some even believe that it is President Arroyo that wants to
become the prime minister. The permutations are endless it seems.
As of the time of writing, the issue of Constitutional change is being put to a
"people's initiative" rather than follow the more conventional route
of convening a Constitutional Convention or have the two houses of Congress sit
as a Constituent Assembly. The first option has been ruled out ostensibly for
reasons of cost but in reality because it would surrender control of the change
process to an outside body. The second option is a non-starter since the two
chambers of Congress cannot agree on the issues of substance. By taking the
matter direct to the people, the administration hopes it can control the
"There is a clamour for charter change throughout the countryside"
according to one government spokesperson. If that is the case one can only
wonder why the tactics being used to garner the signatures needed (a total of 12
per cent of the electorate can instigate charter change through petitioning the
government) look depressingly similar to those used by former President Marcos
to push through the 1972 Martial Law Constitution. In fact there is no clamour
at all for change except from the traditional politicians who appear to be
surrounding the administration and who stand to benefit most from the process.
Most people would be supportive of change if it leads to a stronger Philippines
but in the current tactical combat between the opposing political camps, all
sense of strategy appears lost. Rather than moving forward towards becoming a
modern democratic state, there is a real fear among many quarters that the game
plan is to turn the clock backwards. That may work for a while but it will only
add to the social pressures building among the populace.