PHILIPPINE GROSS domestic product grew at 7.3 percent in 2010, propelled mainly by industry and services. Now that the main engine of growth is the domestic market, as noted by former US President Bill Clinton in his visit to the Philippines last year, it is highly likely that the 7 percent or higher GDP growth can be sustained for the next six to 10 years. Finally, the Philippine economy can follow the paths trodden by India and Vietnam in the last seven to 10 years. These two countries have registered growth rates of 7 percent or more for a decade or more, despite rampant corruption, inefficient infrastructures and suffocating red tape.
As Finance Secretary Cesar Purisima announced in a speech at the annual membership meeting of the Institute of International Finance in Washington, D.C. last October, the new Philippine competitive advantage under the administration of President Aquino is good governance. The upbeat mood of both consumers and investors is clearly due to a perception that the leadership of the country is in the right hands. This perception is being backed by reality as some early economic wins have been registered by the new administration in barely seven months since it came into power.
There have already been two months of budget surpluses, despite the continuing difficulties stemming from the global economic crisis. These surpluses came partly from improved collections as tax evaders were prosecuted with vigor. For the first time in 11 years, the budget was signed by the President in the same year it was passed. Despite an austerity program, the 2011 budget contains large appropriations for infrastructure, education and other social services.
There is a significant improvement in investors’ confidence after a relatively peaceful and successful election. Inflation has been controlled at less than 4 percent, despite the very liquid financial system. The savings rate is at an all-time high of 30 percent of GDP while the investment rate is still only 17 percent, leaving room for big-ticket projects in the high-growth sectors to be funded by local money. In fact, a peso-denominated bond issue was oversubscribed by 13 times.
As one of the emerging markets of Asia, the Philippines has attracted large flows of portfolio investments, sending stock market prices to unprecedented levels. Dollar inflows have grown rapidly so that the peso has appreciated from P45 to $1 at the end of 2009 to P43-P44 in December 2010, allowing the Bangko Sentral to build its reserves to an all-time high of nine months of import coverage so as to prevent a further appreciation of the peso.
An investment-led growth is getting strong support from the foreign investment community. The Joint Foreign Chambers presented to the government on Dec. 13, 2010 a roadmap dubbed “Arangkada Philippines” which described in great detail how a 7 to 9 percent universal growth in GDP can be achieved in the next five to six years. Seven key industries were identified as potential enablers for the Philippine economy to move twice as fast: agribusiness, business process outsourcing, creative industries, infrastructures, manufacturing and logistics, mining and tourism, medical travel and retirement.
What is encouraging is that these are the same “sunrise industries” in which the local taipans are investing heavily. The likes of San Miguel Corp., the SM Group, the Metro Pacific Group, Ayala Holdings, First Philippine Holdings and the Phinma Group, among other companies, are leading the way to an investment-led recovery. The abundance of local financing is helping the recovery. Foreign direct investments (FDIs) will strongly complement the local investors, who have been first in regaining confidence in the Philippine economy, as the government completes the pre-feasibility studies of the solicited projects that will be subject to public-private partnership (PPP).
Purisima estimated the investment requirements for 28 PPP projects to be about $6 billion. In addition, some $8 billion can be invested in 43 power projects being offered by the government for privatization.
Like what both India and Vietnam accomplished over the last 10 years or so, the Philippines is finally poised to grow at 7 percent or more in the next six to 10 years. This growth will be made possible by significant improvements in governance and infrastructures, the two key factors for the high growth of 7 percent or more, which is completely indispensable for reducing the poverty line from 30 percent to 15 percent of the population in the next 10 years.
Dr. Bernardo M. Villegas is senior vice president of the University of Asia and the Pacific. His e-mail address is [email protected].
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By: Dr. Bernardo M. Villegas – Business Matters
Source: Philippine Daily Inquirer, Feb. 19, 2011
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