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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: 082 - (24/12/10)


For the first time in a number of years, the Philippines begins 2011 in an upbeat mood. On both the political and the economic fronts, there is cause for optimism.

Let’s start by looking at the political environment. The nine years of misrule by former President Gloria Macapagal-Arroyo are at an end and the country has a new administration that has promised an era of openness, transparency and good governance. True, these are the same things Arroyo promised when she took over the reins of power from “the people’s president”, Josef Estrada back in January 2001, but her government was flawed from the outset. An arrogant technocrat by nature, nobody doubted her ability or her workaholic pace but she lacked charisma and the popular support that goes with it. So she was dependent on other constituencies, particularly the generals, the bishops and the oligarchs for support and that support came at a price. The result was backsliding from principled government, slow at first but accelerating after discovery that the 2004 election result – which returned her to office by popular vote – was rigged.

President Aquino, who took over the presidency on June 30 2010 is both popular across the country and comes from a family that has a track record of integrity. We do not doubt the monumental task he faces to bring good governance back to the Philippines but neither do we doubt that he is probably the best person for the job. As Tony Kwok, a former deputy commissioner of the Hong Kong ICAC and anti-corruption advisor to the Philippine Government remarked back in 2006 “corruption in the Philippines can be beaten but it has to start from the top.” Shortly after making that statement he left the country, never to return.
Bringing Arroyo to account for her misdeeds is another matter. Now a member of the legislature for her home province of Pampanga, she thwarted established protocol in the dying days of her presidency to appoint friends to high places thereby making it difficult for any incoming administration to prosecute her. It may well be that history – and perhaps Transparency International – will have the last words on her presidency.

These difficulties aside, the business community has given the new government its stamp of approval and is upbeat about investment prospects. Both manufacturing as well as services are recording steady growth and this is more than compensating for the downturn this year in the agricultural sector.

The Asian Development Bank in its revised (October 2010) forecast has noted that the renewed emphasis on public-private partnerships to fund much of the needed infrastructure with private sector financing will allow the government to focus its limited resources on debt reduction and human capital development. Outlays on social services will rise to around one third of all government spending – up by around 14 percent. Education spending alone is to increase by 18 percent, the largest increase in more than a decade while the conditional cash transfer programme that provides income for the poorest of the poor (provided they meet certain criteria in terms of keeping children in school and accessing rural health services) is to be increased as well.

The government can be thankful that the external environment is proving relatively benign. And while the developed economies appear to be having some difficulties in recovering from the global crisis that hit two years ago, developing countries are faring much better and none so well as those in Asia. Recent data released by the IMF and reported in its World Economic Outlook suggest that high-income countries will grow on average this year by a modest 2.7 percent while the developing world will likely achieve a 7.1 percent GDP spurt. At 9.4 percent, Asia will fare even better – although of course, China weighs heavily in the Asian figures.

The Philippines did relatively well in 2010 with a stronger than expected recovery in the first half of the year – thanks in part to election-related spending by government. In the period January to June, GDP increased by 7.9 percent (compared to just 0.9 percent in 2009). Private consumption expenditure grew at a robust 5.1 percent and was again supported by remittances which grew in dollar terms by 7 percent to $9.1 billion although in peso terms the increase was much less (around 2.2 percent).

According to ADB, fixed investment is also once again making a significant contribution to GDP growth with outlays on fixed capital surging by 21 percent year-on-year and investment into plant and equipment rising by 30 percent over the period. Strong growth was recorded in spending on commercial vehicles, industrial machinery, and telecommunications equipment. Fixed investment as a ratio to GDP rose to 17.2 percent, the highest level in seven years.

As a result of improved export demand, imports in September rose by 24.6 percent year-on-year to a high of $4.6 billion. As an intermediate producer, imports are regarded as a bellwether of export orders in the months to come. The country’s trade surplus was the largest in 10 years and now sufficient to cover more than nine months of imports. Significantly, electronics exports have seen a jump this year by more than 50 percent.

The improved trade position has led to a rebound in manufacturing although it is too early to tell what effect this will have on the dire unemployment and underemployment rates in the country. In the first half of 2010, manufacturing (which accounts for two thirds of the industry sector) grew by 16.2 percent – although admittedly this was from a low base in 2009. Nevertheless it shows that the economy is now regaining its health. The job now is to sustain the momentum.

Strong demand from the business process outsourcing sector has helped propel the service side of the economy which grew by 6.7 percent in the first half year and early indicators suggest that demand continues to pick up. A recent statement issued by the Contact Center Association of the Philippines predicts industry growth of 23 percent for the year as a whole – from $5.1 billion in 2009 to $6.3 billion in 2010. This growth translates to an additional 70,000 jobs bringing the total to 350,000 people.

The Central Bank has reported that gross inflows of foreign portfolio investments reached $11.6 billion in January to November, significantly higher than the $7.4 billion in gross outflows. These inflows more than doubled from the $5.9 billion seen during the same period last year. The central bank said the inflows were investments made by foreign funds, mostly from the United States, Singapore, United Kingdom, Luxembourg and Hong Kong. Of the total inflow, $7.7 billion was invested in stocks listed on the Philippine Stock Exchange.

So for a change, the political and economic landscapes are enjoying a rare period of sympathetic resonance. Allowing for the low base effects especially evident during the first half year, overall GDP growth for 2010 is predicted to come in at around 6.2 percent. For 2011, this is likely to ease back to 4.6 percent – still a respectable figure but not enough to make significant inroads into poverty in this country. Nevertheless it is a good beginning and people of the Philippines have a reason for cautious optimism. Now, if only the country could get a grasp on its unbridled population growth.

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