It’s no longer 2011, but this has to be published. Sayang namán casí.
It appears that Pananaw magazine will forever remain in limbo. So I will publish another important article that was supposed to appear on that magazine’s maiden issue but didn’t, and is now long overdue.
During the rush for the said magazine’s supposedly first issue (for January 2011), editor-in-chief JB Lazarte gave me the task of soliciting an article on economics from a prominent person. Coincidentally, I was reviewing a textbook on the same subject at that time. The book is something that is very familiar to many a college student — Economics: An Introduction, authored by the country’s foremost economist, Dr. Bernardo M. Villegas (currently Vice President of the University of Asia and the Pacific). The idea is that a scholarly article will be published on our magazine vis-à-vis an interview with a fortune teller regarding the latter’s economic forecast for the rest of 2011. The technique was to entice readers to become interested in matters of national economics.
I immediately sought Dr. Villegas through his email and asked if he would be so kind to furnish us a brief article about the subject we had in mind. I honestly never expected him to reply; I was just pushing my luck. But to my utter surprise, he obliged!
Unfortunately, just like many startup publications and businesses, Pananaw’s maiden issue was not able to see the light of day. And Dr. Villegas’ precious article remained in my email inbox for the rest of the year.
So without further ado, below is the it-should-have-made-them-sit-up-and-take-notice article written exclusively for Pananaw Magazine by the Harvard-educated economist, Dr. Bernardo M. Villegas. You be the judge, dear reader, if his economic forecast for last year came into fruition.
ACCELERATING PHILIPPINE ECONOMIC GROWTH
Dr. Bernardo M. Villegas
In economic management, the new competitive advantage of the Philippines 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 up by reality as some early economic wins have been registered by the new Administration of President Benigno Aquino III in less than six 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 eleven 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 infrastructures, education, and other social services. Led by a highly experienced management team, the Development Bank of the Philippines (DBP) has announced that it will support an investment-led growth by making available a total of P200 billion to jumpstart the national government’s Public-Private Partnership (PPP) initiatives.
Just before the Great Recession, the Philippine GDP grew in 2007 at 7.1%. Like all the East Asian economies, the economy suffered a slowdown in the next two years, 4.8% in 2008 and 1.2% in 2009. Its resilience was once again tested (as in the 1997-1998 financial crisis when it was the least adversely affected among Southeast Asian countries) when it was only one of three (with Indonesia and Vietnam) that did not experience a recession in 2009 (excluding China). Like its two ASEAN neighbors, it still managed a positive GDP growth rate in 2009 because of its large domestic market of 93 million of whom at least 60 million are already part of the middle class, a strong foundation for a consumption-led growth.
In the first half of 2010, GDP grew at 7.9% bolstered by elections-related spending in the first four months, remittances from overseas Filipino workers (OFWs), a government stimulus package that frontloaded the budget for 2010 and a 40% growth in exports resulting from a strong recovery of the U.S. economy in the last quarter of 2009. This export recovery was especially boosted by the electronics sector that recovered the volumes they lost in 2009.
The strong recovery of electronics and semiconductor components helped the industry sector to grow at 16% during the first semester, making up for the poor performance of agriculture and fisheries that actually declined at -3% because of poor weather conditions. Services—propelled by the BPO, telecom and logistics sectors—grew at 6.7%.
For most of the second half of 2010, growth came from continued strength in exports, from increased OFW remittances that could break the US$20 billion mark for the whole year and from rising investments especially in infrastructure and energy, housing and real estate, mining, BPO, tourism, logistics and agribusiness. These investments started to replace the elections-related spending and pump priming that disappeared during the second half of the year.
There is a significant improvement in investors’ confidence after a relatively peaceful and successful election. Inflation has been controlled at less than 4%, despite the very liquid financial system. The savings rate is at an all-time high of 30% of GDP while the investment rate is still only 17%, 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. Secretary Cesar Purisima announced in mid-December 2010 that another peso-denominated bond issue is in the offing. 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, prompting the Central Bank to build its reserves to an all-time high of 9 months of import coverage so as to prevent further peso appreciation. There is a high likelihood that the balance of payments surplus for the whole year of 2010 will top $10 billion.
The downside risk is a slowdown of exports as its major markets, the U.S., the EU and Japan succumb to a double-dip recession or at best stagnant growth at less than 2% in 2011. If exports, especially of electronic components, slow down and quick money flees the Philippine capital market in the worst-case scenario of an escalation of the foreign currency war among the giants, the peso may return to the P45-P46 range in the first half of 2011.
An investment-led growth is getting strong support from the foreign investment community. The Joint Foreign Chambers presented to the Government last December 13, 2010 a roadmap dubbed “Arangkada Philippines” which described in great detail how a 7 to 9% 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. They are 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 Corporation, the SM Group, the Metro Pacific Group, the Ayala Holdings, First Philippine Holdings and the PHINMA Group, among others, 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 both India and Vietnam had accomplished over the last ten years or so, the Philippines is finally poised to grow at 7% or more in the next six to ten years. This growth will be made possible by significant improvements in governance and infrastructures, the two key factors for the high growth of 7% or more, completely indispensable for reducing the poverty line from 30% to 15% of the population in the next ten years.
I would like to take this opportunity to thank Dr. Villegas for this enlightening article. Also, to apologize to him, because he took the time and effort to write a laudable 2011 economic forecast for a magazine that he has not heard of before, but nobody got to read it but me and my editor. Special thanks also to his secretary, Ms. Louella Orque, for mediating between me and his esteemed boss. ¡Muchísimas gracias a ustedes!