The Philippine Economy

The Economy of the Philippines is the 43rd largest in the world; according to 2011 World Bank statistics and it is also one of the emerging markets in the world; according to the CIA Fact book, the estimated 2011 GDP (purchasing power parity) was 391.1 billion. Goldman Sachs estimates that by the year 2050, it will be the 14th largest economy in the world; Goldman Sachs also included the Philippines in its list of the Next Eleven economies. HSBC projects the Philippine economy to become the 16th largest economy in the world, 5th largest economy in Asia and the largest economy in the South East Asian region by 2050.

Echoing softly across the 7,100 islands that form the Philippines archipelago, the lilting strains of the country’s national anthem seem to be a reminder of a volatile past. This indeed is a country where invaders trampled its sacred shores, imposing colonization for more than three centuries. Freedom since then has been a thorny crown to wear and the years of toil under colonial masters and then despotic power hungry leaders have marred these pristine islands. Asia’s only predominantly Christian country, the Philippines enjoys one of the highest literacy rates in the world, and it would seem that economic prosperity is its destiny. But then man plays a cruel hand where destiny cannot. It has been the curse of the Philippines that its leaders have shorn the country of its value. Will the nation rise again? Perhaps, gentle as the wind that swirls across the country, it already has.

The economy of the Philippines is an anomaly in the Asia-Pacific region in that it has lagged behind other economies, such as those of Singapore, South Korea, and Taiwan. From a position as one of the wealthiest countries in Asia after World War II, the Philippines is now one of the poorest. Since the 1970s, which were a relatively prosperous decade, the Philippines has failed to achieve a sustained period of rapid economic growth and has suffered from recurring economic crises. This persistent underperformance has occurred in spite of the Philippines’ rich natural and human resources.

The reasons are rooted partly in history, partly in policy. As a legacy of the U.S. colonial period, oligopolies have dominated the economy, particularly in agriculture, where farmland continues to be concentrated in large estates. In the post-World War II period, the Philippines pursued a strategy of import substitution industrialization, whereby domestic goods are substituted for imports. This strategy required protectionist measures, which led to inefficiencies and the misallocation of resources.

After reconstruction followingf World War II, the Philippines was one of the richest countries in Asia. Growth slowed however, as years of economic mismanagement and political volatility during the Marcos regime contributed to economic stagnation. Political instability during the Corazon Aquino administration further dampened economic activity.During the 1990s, the Philippine Government introduced a broad range of reforms designed to spur growth and attract foreign investment. As a result, the Philippines saw a period of economic expansion, although the Asian financial crisis in 1997 slowed growth once again.

The Philippines found itself in an economic crisis in early 1970, in large part the consequence of the profligate spending of government funds by President Marcos in his reelection bid. The government, unable to meet payments on its US$2.3 billion international debt, worked out a US$27.5 million standby credit arrangement with the International Monetary Fund (IMF) that involved renegotiating the country’s external debt and devaluing the Philippine currency to P6.40 to the United States dollar. The government, unwilling and unable to take the necessary steps to deal with economic difficulties on its own, submitted to the external dictates of the IMF. It was a pattern that would be repeated with increasing frequency in the next twenty years. Source: http://www.mongabay.com/reference/country_studies/philippines /ECONOMY.html In the past, during the long years of American occupation, the Philippines functioned only as an economic vassal to the world superpower. Supplying the U.S. with mainly agricultural and forest products, the Philippines was forced to import most manufactured items from the U.S. Industrial growth virtually grounded to a halt during this period.

Post-independence, the Philippines economy swirled through a dizzying cycle of boom and bust. During the 1950s, the country tried to become an industrialized nation with the policy of import substitution, where domestic goods are substituted for imports. However, these protectionist measures had a negative effect in the long term leading to inefficiencies and misallocation of resources. For that period during the 1970s, however, economic growth spurted.

The Philippines is rich in human and natural resources, it seemed then that the Philippines was destined to become one of Asia’s real superpowers. However, the overwhelming power of corruption tainted its leaders, and the Philippines struggled under Marcos’ long rule. By 1981, the nation was heavily in debt, the country was facing problems making payments on its international loans, and poverty was endemic as economic and democratic institutions collapsed. Plunged into a deep recession in the 1980s, the Philippines suffered from what came to be known as crony capitalism, as President Marcos built up a monopolistic system that favoured his relatives and associates. Marcos’s removal from office ushered in the more progressive Aquino administration, which introduced vital reforms such as a liberal Foreign Investment Act, a Comprehensive Agrarian Reform Law, and the privatization of public companies. Then, under Ramos, the government embarked on a development plan called ‘Philippines 2000,’which enhanced privatization in key industries like banking, electricity, telecommunications, shipping and oil.

For a country that always promised much, it seems that for the Philippines potential has never matched performance. Corruption has been a deadly poison that has sunk its fangs deep into the very fiber of its society. Almost all of the country’s leaders from Marcos to Estrada have succumbed to the dark side, and the country’s political scene remains tumultuous despite the optimism surrounding Aquino’s 2010 win. The U.S. continues to be the Philippines’ biggest ally, and relations with China and old rival Indonesia are improving, although Malaysia remains a testy neighbor. Rising economic growth, however, has not resulted in better standards of living, with nearly a fifth of the population still subsisting on less than $1.25 a day.

Yet, the island nation is not giving up. The Philippine economy has been growing steadily over decades and the International Monetary Fund in 2011 reported it as the 45th largest economy in the world. However its growth has been behind that of many of its Asian neighbors, the so-called Asian Tigers, nor is it a part of the Group of 20 nations. Instead it is often grouped in a second tier of emerging markets or of newly industrialized countries. Depending upon the analyst, this second tier can go by the name the Next Eleven or the Tiger Cub Economies.It has not suffered from the downturn in the world economy that began in 2007. The Philippine economy seems comparatively well-equipped to weather the global financial crisis in the short term as a result of the efforts over the past few years to control the fiscal deficit, bring down debt ratios, and adopt internationally-accepted banking sector capital adequacy standards

At long last, though, the tide is turning. Just as many of the world’s best-performing countries of recent years – including Brazil, India and even China – are sagging, the Philippines is stirring into life. Last quarter, its economy again surprised on the upside, growing 7.1 per cent and notching up its 55th straight quarter of growth. It now seems to be growing at a steady 5-6 per cent, despite an adverse external environment, against a lowly 3 per cent in the 1990s. The finance ministry believes the potential growth rate can be lifted to 6-7 per cent and eventually to 7-8 per cent.

The fiscal position has altered beyond recognition. The Philippines has gone from being a country constantly on the verge of a balance of payments crisis to one with manageable external debt and a fiscal deficit of just 2 per cent of output. Such has been the improvement that rating agencies have nudged its sovereign debt to within a whisker of investment grade, a status it is likely to achieve in the next year or so. As a result, money is pouring in. The stock market, one of the world’s best-performing in 2011, is up 32.5 per cent in the year to date in peso terms. That makes it the world’s fifth-best performing index.

The Philippine economy can expand by as much as eight percent this year, according to global investment bank JP Morgan Chase. The forecast is the highest yet given, surpassing the World Bank’s and other investment companies’ estimate of six percent.It said that this growth will pull up income growth among listed companies to 17 percent that should attract more investors into the country.

In an interview, an economist of multinational Deutsche Bank AG said that the Philippines is the brightest economic star in Asia right now. And in an August 9 interview with Bloomberg’s Susan Li, Duetsche’s chief economist for Asia Michael Spencer touted the Philippines as the strongest performing economy in Asia as well as the safest place for funds to be. Philippines is expected also to get its investment grade this year which will surely help boost the economy and attract more investors.

Among other factors, confidence in the Aquino administration has kept the economy afloat amid global uncertainties and led to a growth rate last year that the President has described as “impressive,” according to the country’s socioeconomic planning chief. There’s a build-up of confidence in the business community and the general public. People see that we are addressing the basic constraints to our development. We are addressing in a substantial way the financial difficulties, and we are clearly sending signals that we have a good understanding of the constraints to our growth and our poverty reduction efforts.