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PHILIPPINES


 

 

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: 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 heretofore. 

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

Another mutiny
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.

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