Books on The Philippines
Update No: 109 - (26/10/13)
This country must be doing something right
President Aquino is having a dream run! While the rest of Asia appears to be in
the economic doldrums, dragged down by its overdependence of exporting to the
major economic drivers of the USA and Europe (as well as China of course), all
of whom are facing major problems; the Philippines is starting to look good.
Three credit rating agencies have now raised the Philippines out of the junk
category and both the Asian Development Bank and the World Bank have given their
own stamp of approval.
“Slow and steady” seems to be a winner
and should give President Aquino the impetus needed to continue his process of
economic reform against the naysayers. Let us hope that the ambitious action
plan he announced early in his presidency to improve infrastructure, impose
fiscal discipline on government and increase foreign investment into the
country, will finally bring the dividends to the people of this country who need
Despite all the ongoing problems the Philippines is facing, not least of which
is the vexatious issue of corruption in high places and the misappropriation of
funds meant to alleviate the suffering of the poor in the country, the
Philippines — or more particularly President Aquino and his administration —
must be doing something right.
In a year marked by a lacklustre performance by the major world economies and
the knock-on effect this had had in export-oriented Asia, some quiet
congratulations directed to the Philippines may be in order. Both the Asian
Development Bank as well as the World Bank have come out in recent weeks with
their revised forecasts and in each report the Philippines stands out as the
country doing better than the others.
The first report to be published was
the revised forecast contained in the Asian Development Bank’s (ADB’s) Asian
Development Outlook. The scenario was reasonably gloomy with projected growth
for Southeast Asia as a whole being revised downwards for this year from 5.7 per
cent to 4.7 per cent. Standing alone was the Philippines as the only country
likely to grow at a better-than-expected pace. Taking note that in the first
half of the year, the Philippines economy grew at a healthy 7.6 per cent (the
fastest in Southeast Asia), the bank revised upwards its forecast for the
country for the year, from six per cent to seven per cent.
It seems that while much of the region has been lulled into a false sense of
economic security by a seemingly endless inflow of capital seeking higher
returns than can be obtained in mature markets across the globe; the Philippines
under President Aquino has instead set about massive reforms. that include
reducing the country’s budget deficit, higher spending on infrastructure and, of
course, tackling the endemic problem of corruption and malversion.
Not surprisingly, the World Bank
report, which followed a week later, said much the same thing.
Casting a slightly wider net and taking in the 10 ASEAN economies as well as
China, Korea, India and Bangladesh, the Bank pumped for 7.1 per cent growth for
2013 and 7.2 per cent for next year. Nevertheless, these revised figures were
also down on earlier projections of 7.8 per cent and 7.6 per cent contained in
its earlier review. The higher numbers quoted in this report are largely due to
the inclusion of China which is expected to grow its economy by 7.5 per cent
Considering that ‘Developing East Asia’ is growing at a slower pace than earlier
predicted, the World Bank also noted that the Philippines was bucking the trend.
In its latest East Asia and Pacific Economic Update released on October 6, the
Bank now forecast that the Philippines would grow by seven per cent this year
and 6.7 per cent in 2014. Again this was an upward revision from the report’s
previous forecast in May of 6.2 per cent and 6.4 per cent, respectively.
Bolstered by the business processing
outsourcing industry, as well as a resurgence in manufacturing, gross
international reserves have more than doubled on the Aquino watch from just $38
billion in 2008 to $84 billion at the end of 2012 and are projected to reach $90
billion by end 2013. Total remittances in the January-August period amounted to
$14.5 billion — up by almost 6 per cent from the $13.7 billion received in the
same period last year.
Remittances from overseas Filipino workers are also standing up well. Total
remittances in the January-August period amounted to US$14.5 billion up by
almost 6 per cent from the $13.7 billion received in the same period last year.
Public expenditure has been reined in and the budget has returned to surplus.
Three of the global credit rating agencies, Moody’s Investor Services, Fitch
Ratings and Standard & Poor have each upgraded the Philippines to ‘investment
grade’ in recent weeks, representing yet another vote of confidence in the
direction this country is heading.
Before there are too many backslaps
handed out, as always there is a caveat. The Philippines is making real progress
and the extent of that progress needs to be recognised, but as we have pointed
out before in these essays, the good growth figures are not translating into
meaningful inroads into poverty alleviation. The oft-repeated mantra ‘a rising
tide lifts all boats’ does not appear to hold for the Philippines.
The incidence of poverty remains stubbornly high standing nationwide at 22.3 per
cent of all families. Visitors to Manila might be surprised to learn that in the
nation’s capital the rate is only 3.8 per cent whereas in other provinces and
regions it goes much higher – especially in the Visayas and Mindanao. In the
ARMM for example the poverty incidence is 46.9 per cent, and that is only an
average. These are of course the official figures and the actual numbers could
be far worse but what is most of concern is the fact that the numbers have
proven to be stubbornly resilient and in some provinces they are actually
The unemployment rate remains above
seven per cent and underemployment is above 20 per cent. Many of the jobs that
are available are in the informal sector of the economy where workers endure
long hours without basic social protection and a regular income.
Aside from the high birth rates experienced in this predominantly Catholic
country, the poor state of the agriculture and fisheries sector is a major
problem. As a contributor to GDP, agriculture has shrunk to a mere 11 per cent
of economic output, yet it still employs one third of the labour force. Farmers
and fisherfolk are among the lowest paid workers in the country with an average
daily wage of P156.8 ($3.62) and P178.43 in 2011 ($4.13) , respectively. Worse
yet, the official data only counts those aged 15 years and above, and so child
labour – believed to be rampant in this sector as it is in small-scale mining,
Clearly there remains much to be done and the clock is ticking. President Aquino
is now well into the second half of his presdiential term.
While foreign direct investment (FDI—the
type that goes into bricks and mortar rather than speculating on the Manila
bourse) into the Philippines is increasing, it remains abysmally low. With
developing Asia now responsible for some 40 per cent of global output, and with
wages increasing rapidly in both China and India, investors are keeping close
watch on opportunities elsewhere in Asia and with the ASEAN integrated market
due to come into being in 2015, this can only serve to increase the
attractiveness of the region. According to UNCTAD, despite global uncertainties,
FDI into the 10-member ASEAN group increased overall by two per cent last year;
however, the percentage by which FDI in the Philippines grew from 2011 to 2012
is a massive 185 per cent. But again, figures bandied around in isolation can be
deceiving. While FDI jumped from $981 million in 2011 to $2.8 billion in 2012
this was by far the smallest amount recorded among the five largest ASEAN
economies. Singapore received $56.7 billion in FDI during 2012 more than
Indonesia, Malaysia, the Philippines, Thailand, and Vietnam combined. Indonesia
and Malaysia were the 2nd and 3rd largest recipients of FDI in ASEAN in 2012,
To put the Philippines data in even
starker perspective, Vietnam received almost $10.5 billion in 2012.
Further economic liberalisation and greater investment into infrastructure are
often touted as the remedy that would really propel the Philippines into a new
age of dynamism. Yet both appear to be stymied for different reasons.
Despite the obvious benefits of opening up the economy, many Filipinos
particularly business people, as well as politicians, remain ambivalent about
opening up the economy to international competition. It will come of course and
soon, although nobody should underestimate the ability of Filipinos to erect
non-tariff barriers to protect what they see is rightfully theirs. The mining
industry is a case in point; despite the passage of a law almost a decade ago
opening up the mining industry to large scale (and world class) mining
investment, many projects have simply failed to get off the ground, because of
the complex labyrinth of permits required at each level of government: national,
provincial and local. The same holds true of retailing, where foreign retail
chains that wish to enter the country need to have a local partner in order to
operate. The list goes on.
Early in his presidency Aquino
announced that big-ticket Public Private Partnerships (PPP) were a viable
solution to addressing the growing need for better infrastructure but so far not
one project has seen the light of day. The government claims that it is a
complex process and one that it wants to get right; and that compared to other
countries, the Philippines is moving speedily. Projects on the table include
extensions to the Manila light rail system, a new international airport for Cebu
and a new expressway linking the industrial areas of Cavite and Laguna with both
Manila and the port of Batangas City.