 |
 |
| ON THE OTHER HAND |
| Is It for Real?
By Antonio C. Abaya Written Sept. 03, 2007 For the Manila Standard, September 04 issue There are so many things going on right now, it is actually difficult to decide which topic to discuss and dissect today: threats and fears over the impending verdict on Erap; the arrest and incarceration of Joma Sison in the Netherlands, the increasingly bellicose rhetoric of George W. Bush and Dick Cheney towards Iran; the possible unraveling of Pakistan and its implications for the Philippines; Mother Teresa�s newly revealed despondency over the silence of God; the break-up in Gawad Kalinga; the near-collapse of the capitalist financial system, and the surprising 7.5% GDP growth of the Philippine economy in the second quarter of 2007�..each of which can actually be parsed and analyzed under the one-title-fits-all umbrella: Is It for Real? I have decided to focus on the 7.5% GDP growth, which has taken just about everybody by surprise for its unexpected robustness. Unless there is statistical and factual proof to the contrary, I am prepared to accept that the economy did grow by 7.5% during the second quarter of 2007, relative to the second quarter of 2006. And I congratulate President Arroyo for it, just as I did when the GDP grew by 6.9% during the first quarter. (See my article Hooray for 6.9%, June 04, 2007). An analysis of the numbers shows that the service sector grew 8.4% (versus 6.7% in the second quarter of 2006). This is credible, considering the continued expansion and proliferation of call centers and other business processing outfits, and a modest increase in tourist arrivals, especially from South Korea . Part of this growth is also due to election spending by candidates in the months leading to May 2007. The industry sector also grew, 8.0% versus 4.5% in 2006, with the mining sector growing by a hefty 33% and construction by 21%. Again, this is credible. Mining is fulfilling its promise to be one of the biggest job-generating sectors in the economy � especially among rural folks who would not qualify for call center positions - despite the efforts of stupid (there is no other word to describe them) bishops and the communist movement to block its expansion. The robust growth of the construction industry is self-evident, much of it attributable to the surge among overseas contract workers and among successful Fil-Ams to buy decent housing and Metro Manila condos for their families. The Arroyo government has also invested heavily in public infrastructure � roads, bridges, airports, seaports � spending 39.6% more this year than it did in 2006. The negatives in this summary are: the slow growth in the agriculture, fisheries and forestry sector (3.9% versus 3.8% in 2006), attributable to extreme weather conditions; the lower growth in exports (5.9% versus 21.7% in 2006); and the pronounced drop in imports (negative 12.2% versus 4.1% in 2006), both of which may be attributed to a drop in global demand for our electronic exports. So, yes, 7.5% GDP growth is credible. The usual naysaying from media, the communist movement and oppositionists like presidential wannabes Sen. Panfilo Lacson and Sen. Manny Villar, that this growth has not filtered down to the poorest of the poor, merely reveals their ignorance of matters economic. Another presidential contender in 2010, Sen. Mar Roxas, who understands economics, laments that the manufacturing sector grew by only 3.71%, but it sounds more like nitpicking for want of something negative to say. High economic growth has to be sustained for at least twenty years or 80 quarters for the tide to rise high enough to lift all boats. This was the case in South Korea , Singapore , Taiwan , Malaysia , etc. But it has to begin at some point in time, and maybe � just maybe - our time is now.. Even after decades of phenomenally high growth rates, hundreds of millions of Chinese, hundreds of millions of Indians, and � in a shorter time span - tens of millions of Vietnamese�. are still mired in grinding poverty. But it does not invalidate the progress already achieved. President Arroyo is correct in pointing out that her government has been in power for six years or 24 quarters. And that there was never a quarter in those six years when economic growth went down to or near zero�the so-called boom-and-bust cycle.. For this, President Arroyo has had good luck. President Cory Aquino was able to raise GDP from minus 4% in 1985 - an after-effect of Ninoy�s assassination in 1983 - to 6.8% in 1988 and 6.2% in 1989, until Gringo Hoanasan�s coup attempt in December 1989 brought it down to 4.0% in 1990 and minus 0.6% in 1991. President Fidel Ramos raised GDP from 0.3% in 1992 to 5.8% in 1996 and 5.2% in 1997. But the Asian financial crisis in July 1997 caused the GDP to crash to minus 0.6% in 1998. During his two years in power, President Joseph Estrada managed only 3.4% in 1999 and 4.0% in 2000. The question should not be, is 7.5% for real, but, can it be sustained and even increased for the next 20 years? All the economic tigers in East Asia attained their present status by posting average growth rates of 8.0 to 12.0% per annum over a period of at least 20 years, largely through the export of manufactured goods and under protectionist regimes that protected their industries from foreign competition. The Philippines is the only major country in East Asia that did not adopt an export-oriented economy early on. And it is the only economy that embraced, foolishly and prematurely, the free trade and globalization religion that has since decimated its modest manufacturing base. In addition, the Philippines � together with the whole world � faces the possibility of US and Israeli attacks on Iran and its disastrous effects on both the price of oil and the continued employment of millions of Filipinos in the Middle East. The Philippine economy would be especially vulnerable to such a catastrophic blow because a major part of our foreign exchange comes, more than from exports and tourism, from the remittances - $12.6 billion in 2006 - of overseas contract workers. A victory of the jihadists in Pakistan would embolden the jihadists in Mindanao to raise the decibel of their jihad here. There is also the possibility of a perfect storm brewing, in which Erap loyalists and Joma reaffirmists combine their destabilization efforts in reaction to on-going judicial processes here and in Utrecht . So, to the question, can the 7.5%.GDP growth be sustained in the medium and long terms, the answer has to be: no amount of supplications to Mother Teresa�s silent God can draw a reassuuring reply. ***** Reactions to [email protected]. Other articles in www.tapatt.org and in acabaya.blogspot.com. OOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOO Reactions to �Is It for Real?� Tony: I like your caution, that the quarterly economic growth of 7.5% is good news. I hope it is not a fluke. Maximo Fabella, (by email), Florida , Sept. 04, 2007 wwwwwwwwwwwwwwwwwwwwwwwwwwwwww Hi Tony, Good article and good choice of topic. BTW, I have been trying to email you my STAR article yesterday -"The panic of 2007: US Fed heads off Black Friday", but it kept bouncing back. Could you give me another email address? Eddie Yap, (by email), Sept. 04, 2007 (We met at a dinner at Fil's house) wwwwwwwwwwwwwwwwwwwwwwwwwwwwww I think the growth can be sustained as we export more nurses , PT's , technical workers abroad, and other healthcare related job skills backed by the continuous growth of call centers. Take note that these sector do not depend on heavy importation of raw materials like the manufacturing sector. Other businesses will follow perhaps the manufacturing will regenerate in the near future as the country generates more wealth and investments. More service jobs means improvement in a household purchasing power in effect will trigger further growth in the housing market. Attached to the housing market are other industries such construction materials, home appliances, utilities subscription, real estate marketing, shopping mall expansion, etc. There will be improvement in consumer confidence. OFW regularly send dollars back home filling our banks reserve. The cost of education is expensive particularly for the lower social class but if lucky enough to find a job abroad after graduation, the ROI is more than 10 folds. Sad to say we lost our best skilled workers only to be use by develop nations... that is reality. We're saving the develop nations millions of dollars in training skilled workers their economy need. Nonoy Ramos, (by email), Pennsylvania , Sept. 05, 2007 wwwwwwwwwwwwwwwwwwwwwwwwwwwww Dear Sir Tony, Thank you for sending me again your factual and un-biased comments. You are right like you always did. Economic Growth had not been felt down below yet, but time will have it showering effect later. Money is just like fishes swimming everywhere, you just have to learn how to catch them. People can use their bare hands or devise machines, system to effectively scoop money everywhere. There is one best way, befriend everybody and make good business. If your quarrel "those who haves", the "have nots" like me before, suffers more. Much more if people listened to politicians... they become more empowered and people.....dead! The time now is not more quite frightening during the Martial Law days. the threat is not in the inside. Except perhaps if those fool politicians will rock the boat. if they did, we will be back to medieval ages once more. Lacson if ever sits in office as a leader, being a Martial Law boy will use chaos to impose another kind of Military rule, the Machiavellian style. On other hand, if Villar chanced to be President, systematic devastation of our arable land and the environment ensued. What people should do, is prepare for any eventuality and listened to your assessment of the outside. People should act positively with whatever those dirty politicians are brewing right now which will have a very negative effect on our economy, just like Honasan did during Cory's time. Rodolfo Cada, (by email), Sept. 05, 2007 wwwwwwwwwwwwwwwwwwwwwwwwwwwwwww With all these excitements, aren�t you happy we live in the Philippines ? I believe in the 7.5 GDP. I believe that the "silent God" isn�t really silent. It was either His attempt to let Sister Teresa to continue her search for Him by giving her more poor people, and the poorer they were, the harder she'd work and thereby continue to Glorify Him. Now, finally, God is no longer silent to her. And I think God is finally answering our prayers with whatever is giving us the 7.5. Let's all help maintain it or better, help it grow some more. Hopefully, He will silently act (acts of God?) on the corruptors (sorry for cannibalizing the English language) Let Estrada�s and Sison's trouble makers try their evil ways. God knows what He is doing. If God is with us, how can we not expect favorable outcomes from all these? But we have to stay on the righteousness path. As far as the CFC and Gawad Kalinga, it�s all a matter of over-used and bruised egos. CFC should not feel insecure and overlooked if one of their projects shone better that the mother organization. And GK should always remember where they came/come from. I�m just too focused on all that's happening in our little world to be bothered by the craziness outside our country. But we also have to take care of the bad things that are happening. Let's work on the abolition of all fraternities with history of violence. Emphasis should be in true brotherhood. Pura Flor Isleta, (by email), Sept. 05, 2007 wwwwwwwwwwwwwwwwwwwwwwwwwwwwwww Dear Tony: I join you in congratulating President Gloria Macapagal-Arroyo for this 7.5% quarterly growth of the Philippine economy, a signal achievement considering that for many years now the country has been achieving an economic rate of growth that can only be characterized objectively and accurately as anaemic. One sincerely hopes that the economy could maintain this robust rate of growth consistently over time. But to be realistic about it, bottlenecks and constraints are bound to develop, which is only to be expected. Even as early as now, policy-makers in government and in the private sector will need to sit down and anticipate where these bottlenecks and constraints are very likely to develop--then institute the proper measures early enough to avoid them as far as humanly possible. I say "as far as humanly possible" because there are those types of bottlenecks and constraints which lie outside the ambit of policymakers in the Philippines and over which, therefore, they can have no influence. That said, the Philippine economy appears to be moving in the right direction--and at a respectable pace. May it continue to do so. Mariano Patalinjug, (by email), Yonkers , NY , Sept. 05, 2007 wwwwwwwwwwwwwwwwwwwwwwwwwwwwwww Tony, Bold, credible and -- most unfortunately -- a high probability reading. As hope is mostly for the hopeless, let us hope you are wrong. Most unlikely, the rational and courageous among us would observe. Pepe Miranda , (by email), Sept. 05, 2007 Founding chairman, Pulse Asia Inc. wwwwwwwwwwwwwwwwwwwwwwwwwwwwwww Tony, Good choice in choosing the 7.5% economic growth. We need Good News, or else we will become despondent like Mother Teresa. On the split-up of Gawad Kalinga (GK), I think it is more on the mother organization, Couples for Christ (CFC), where EJ and I were members of from 1985 to 1993. On GK, there is the "other side" Gawad Kalinga and Tony Meloto that the public do not know. I was recently involved with them in a project for 1.5 years. Tony, ever wondered why everything you hear and read about Gawad Kalinga is Great & Wonderful. Nothing can be that good! For one, I do not think anyone will dare write anything negative about GK and Tony Meloto. Mass media have successfully elevated them to the level of the gods. Tony Meloto and GK are also very good in promoting themselves because as your Tukayo would tell you he is a "Marketing Man." Just look at the Philippine STAR (Ii remember you told me before you do not read the STAR), GK has a regular front page Sunday article there written by a certain Patricia Esteves. Ain't that great? Regards. Ric Ramos, (by email), Santa Rosa , Laguna, Sept. 05, 2007 wwwwwwwwwwwwwwwwwwwwwwwwwwwwwww Dear Mr. Abaya, Thanks again for enlightening people of what is going in this country. Yours is an example of balanced journalism - criticizing faults and misdeeds, appreciating those worthy of praise. It is true that the mining sector grows in leaps and bounds. This is evident in Surigao provinces where large and small scale mining operations continue to operate side by side, extracting nickel and chromite ores. Shipping millions and millions of metric tons of these ores to China , Japan and Australia is somehow a loss of value adding benefits to our country. I remember what you had been saying, that the basic key for our country to develop fully is to focus its effort on industrialization. Yes, it is true that the rural populace enjoy certain benefits in these mining boom in certain degree. However, we all know that this activity is very short term and generates much lesser economic benefits to the locality and the country in general. Only with considerable environmental trade offs. If there are certain environmental consequences in the process, we might as well find ways to maximize our benefits. It is high time for our country to institute policies to push for full-scale industrialization in the metallic mineral processing sector and discourage outright disposal of raw ores that is only being hoarded by highly developed countries (like China) to ensure sustainable raw material supply for their steel processing industries. Attracting foreign direct investments that can catalyze industrial growth should have been the priority concern of our leaders. Of course not the type of the shady deals and lobbying relative to foreign business entries that is hitting the headlines from time to time. Allowing entry of industrial giants to put up processing plants in our country will create more government revenues, quality employment and a wide multiplier effect for our economic development. Driggs Matabaran, (by email), Sept. 05, 2007 wwwwwwwwwwwwwwwwwwwwwwwwwwww Dear Mr. Abaya, Just two quick comments on your piece which, I think, provides a sensible alternative perspective to earlier skeptical reactions to RP's 7.5% GDP growth in the second quarter. First, you're correct to say the Asian tigers managed to sustain robust economic growth for two decades or so, resulting in rapid poverty reduction, owing to good economic policy (i.e., promotion of manufactured exports, etc.). But you failed to mention that those Asian countries, without exception, also had sound population policy to complement good economic policy. So, the question is can GDP growth of 7.5% or so be sustained and reduce poverty significantly with the Philippine government's continued benign neglect of the population problem? Highly unlikely, I think. Second, could The Philippines have achieved even faster GDP growth with better governance and if the country were not beset by so many distracting problems (many of these you've written on in your column)? And can strong growth performance be sustained in a "business as usual" environment? Nice pieces you write. More power! Yours sincerely, Ernesto M. Pernia, Ph.D, (by email), UP Diliman, Sept. 05, 2007. Professor of Economics, University of the Philippines (Thank you. In previous columns, I have mentioned the fact our neighbors have lower population growth rates than ours. In my summary article, �Why Are We Poor?� [Dec. 14, 2004], I listed high population growth rate as one of the five reasons for our poverty. (In reply to your second question, I agree that we can achieve even faster GDP growth if we had better governance. And it is not just that we are squandering so much resources to pervasive corruption, we also lack a sense of national purpose, and we are led by leaders whom we do not trust. Since 2002, I have been writing in favor of a revolutionary government. ACA) wwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwww When I visited the Philippines , I saw mango, ponkan, and other fruit labeled - imported from Pakistan . However, I do not know the importance and quantity of trade between Republic of the Philippines and Pakistan . On the other topic, the usual naysayers you describe sound exactly like American politics. I hope this is not what our country exported to yours. In the USA , we heard this criticism of economic growth first during Ronald Reagan's administration - the talk of "trickle down economics" does not reach the poor. Again we heard it in 2004, when Senator John Kerry spoke of "two Americas ". The naysaying is false here, also. Gary E. Murphy, (by email), Columbus , Indiana , Sept. 05, 2007 wwwwwwwwwwwwwwwwwwwwwwwwwwwwwwww Dear Mr. Abaya, Sana nga po'y for real na ang magandang takbo ng ekonomiya ng ating bansa para ang katulad kong nangibang bayan para maghanap buhay sa hindi na umalis at palaging kapiling ng aking pamilya. Sana nga po'y hindi isang palabas lamang ang statistics at hindi isang dagdag-bawas na naman. Pagkabasa ko ng inyong artikulo, kagyat kong tinawagan ang aking ina sa Pilipinas upang i-text niya sa aking ang kasalukuyang presyo ng pangunahing bilihin at ito ang kanyang sagot: 1 kilo Baboy - P155 1 kilo Manok - P122 1 kilo Baka - P220 165 gram, Luncheon meat - P26 150 gram Sardinas - P21 170 gram, Meat loaf - P29 1/4 kilo, Talong - P20 1/4 kilo, Pechay - P20 1/4 kilo, Kamatis- P10 Bago mapatalsik si Erap Estrada, isang kilo ng baboy ay wala pang P100. Hindi ko na iisa-isahin kung magkaano ang presyo ng iba pa sapagkat maliwanag na na halos 50% ang itinaas ng mga bilihin simula noong maupo si GMA. . Tumaas ang halaga ng ating peso. Naglulundagan sa galak ang nasa administrasyon. Pero ang sa panig ng mga OFW, bumaba ang halaga ng katumbas ng ipinapadalang pera sa gitna nang mataas na bilihin. Nakakaramdam na ang pamilya ko ng gipit na kalagayan. May hanap buhay ako ngunit kinakapos na rin. Sa Pilipinas, may pagkakataon na kayang magkatrabaho ang maraming walang hanap buhay? Tumaas na ba ang kanilang sahod ayon sa pagtaas ng mga bilihin? Kung oo ang kasagutan, gusto ko nang umuwi sa ating bayan. Ang tanong ng isang katulad kong hindi masyadong nag-aral, nasaan ang 7.5% GDP growth? Saan at paano kaya ito makikita? Marami pong salamat. Frank Y. Anoyan, (by email), Singapore , Sept. 05, 2007 OFW, Singapore (Kagaya ng sinabi ko sa aking artikulo, yung 7.5% na-paglago ng ekonomiya ay kailangang lumago pa at ma-sustena sa mahabang panahon, para maramdaman ng pangkaramihang mamamayan. Yung nakikita mong kaunlaran sa Singapore ay hindi nangyari sa loob ng isang taon lamang. Ito ay nagsimula noong dekadang 1970 at tuloy na lumago pa hanggang sa dekadang 1990, na hindi bumaba sa 8% bawa�t taon. Bukod pa sa tamang stratehiya, nakinabang pa ang mga mamamayan ng Singapore sa malinis na pamahalaan sa ilalim ni Lee Kwan Yew, at sa pagbawal sa mga komunista na manggulo sa lipunan ACA) wwwwwwwwwwwwwwwwwwwwwwwwwwwwwww Dear Mr. Abaya, Is this for real? Mother Teresa�s newly revealed despondency over the silence of God? All the best, Gabriel Ripoll Jr., (by email), Sept. 05, 2007 Managing Director, Tabaqueria de Filipinas, Inc. (It is for real. A book has just been published in the US containing letters that Mother Teresa wrote to several people over the past 50 years, revealing her doubts about the existence of God. She is on the cover of TIME magazine, issue of Sept. 03, 2007. ACA) wwwwwwwwwwwwwwwwwwwwwwwwwwwwwww President Gloria Macappagal-Arroyo, an economist herself, deserves a pat in the back for being the chief steward in the resurgence of the country's economy, posting a phenomenal 7.5% GDP growth. In order to sustain this achievement, she doesn't only need luck but must also zero in on other areas of governance, foremost of which is to immediately address the following: 1. graft and corruption which to many Filipinos and foreigners alike, still erodes whatever accomplishments that her administration has attained; 2. ballooning population; and 3. local and foreign debt. Thank you for giving us the privilege to pitch in our opinion. Niel Enrile Narca, (by email), Sept. 05, 2007 wwwwwwwwwwwwwwwwwwwwwwwwwwwwwww Dear Sir, Please allow me to thank you for this nice article. At last I read some credible good news. Salamat po, Larry S. Razon, (by email), Saudi Arabia , Sept. 05, 2007 Project Accountant, AYTB-O&M SMP Projects wwwwwwwwwwwwwwwwwwwwwwwwwwwwwww Hello Tony, I do not think Sen Roxas is nitpicking when he lamented the minimal growth of the manufacturing sector. Despite the spectacular growth of call centers and the service sectors, they cannot replace the impact of manufacturing with respect to its impact on complementary industries and the technology that it can bring. I've been working in the semicon industry for more than 10 years now and the manufacturing sector has been severely ignored by the government. This sector is the real engine of an export-oriented economy that, as you mentioned, we really need. Yet we are losing to Vietnam and China with respect to direct investments. Why? Because of government red tape, lack of infrastructure and high cost of electricity. To really have a real and sustained economic growth, government must focus in the development of manufacturing, agriculture and tourism. Not call centers!!! Regards, Marvin Valido, (by email), Sept. 05, 2007 (I agree with you that this government has severely ignored the manufacturing sector and that we are losing to Vietnam and China in foreign direct investments. And I agree with Sen. Roxas that manufacturing has not grown much. But there have been positive developments in other sectors. I am disappointed that he has ignored these positive developments. But then he is running for president in 2010 and does not want to admit that anything positive has occurred. That�s what I meant by �nitpicking.� ACA) wwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwww Dear Tony, If US uses Israel to attack Iran , that would be disastrous. US will be alienated further from the rest of the world. The American people will not support such action and Bush will be impeached. Furthermore, the military has been weakened in Afghanistan and Iraq . Who wants to die for a Jew when the Jews killed my Jesus? As to the 7.5% GDP growth, sustaining it is difficult because of the unpredictability of both private and government sector activities. The Philippine GDP will grow as the world economy grows also. Philippine economy benefits from it without a doubt! Dr. Nestor P. Baylan, (by email), New York City , Sept. 06, 2007 wwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwww Hello Tony! I also think the 7.5% growth is for real. I too have eyes and can see the surge in construction activities going on in places where I've been recently, such as in my province of Cotabato, Davao City, Tagum City, Mati City, General Santos City and the municipalities in between. Of course, it would have been much better if more of the growth have trickled down to the poor but we live in a capitalist world and some groups will always end up holding the short end of the stick. As to sustainability, well, let us not be derailed from pursuing further growth just because Uncle Sam is going to blow up Iran , or Pakistan is becoming Talibanized. There will always be bad news somewhere. These adverse events should be part of our government's contingency plans. (This is what worries me; we are not known for making sound contingency plans. Our style is more of reacting to events ala senators and congressmen who call for investigations based on whatever they read on the headlines.) Meantime, let us move full speed ahead with our development. Speaking of development, I think the opposition including the stupid (your word) bishops are pissed off because a remarkable growth did occur despite their best efforts to derail the government. This does not bode well for the political ambitions of some persons. Expect these persons to do more to distract the government and make it look worse as the countdown to 2010 begins. Expect also more SWS survey results portraying GMA as the most evil person in this country and Erap as a saint. Expect more members of the opposition to throw more accusations at the president in order to get elected to higher positions Meanwhile, it would be better for us ordinary citizens to just ignore the political noise in our country and focus more on what we can do to alleviate our situation. Just recently, several thousands of takers passed the nursing board exam. This means additional billions of dollars to the economy if these can find jobs in other countries. Thousands more jobs are available abroad, if we believe the newspaper classified ads. Despite criticisms, our local government officials are generally more results-oriented and responsive to people's concerns and that's why many of them are reelected; this also bodes well for development. Small enterprises are sprouting right and left, which means that the small people have money to open businesses. Hey, ours is a country on the move. Let us make all efforts to ensure that this movement continues and if possible accelerates. Herminigildo Gutierrez, (by email), Sept. 06, 2007 wwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwww I love reading your articles! BTW my husband - Manuel Trampe of the legal dept., DENR, sends his "hello" to you. Nanette Trampe, (by email), Sept. 08, 2007 (Thank you, and �hello� to you, too, Manny. ACA) wwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwww Has Gloria Macapagal-Arroyo finally applied her knowledge of economics that she has blatantly bragged about, adding that Bill Clinton was her classmate in an economics class? As one of the Filipino expatriates who practically gave up on the old country but still cares very much about the Philippine economy, I'm happy to note that the Wall Street Journal issue of today is a good morale-booster for us all. Mabuhay ang Pilipinas! Rome Farol, (by email), Highlands Ranch, Colorado , Sept. 01, 2007 wwwwwwwwwwwwwwwwwwwwwwwwwwwwwwww (Forwarded to Tapatt by Misael Balayan, of Mililani , Hawaii ) Reprinted from the Wall Street Journal (Asian edition), August 31, 2007 COMEBACK TRAIL: For Philippine Economy, Harsh Remedies Pay Off President's Tax Hikes Lure Foreign Investors; Risk of Global Crunch By JAMES HOOKWAY August 31, 2007; Page A1 MANILA, Philippines -- The perpetual sick man of Asia is making an unexpected recovery. Once among Asia's most prosperous nations, the Philippines had languished economically for decades while neighboring countries, big and small, raced ahead. But for the past two years -- almost lost amid the international excitement about the growth of China , India and Vietnam -- the Philippines has been rebounding. This year, the nation's economy is expected to post its fastest growth rate since the early 1990s, despite the economic shadow cast by the global credit squeeze sparked by problems in the U.S. mortgage market. The Philippine economy grew at a 7.5% annual rate in the second quarter. The stock market has soared over the past two years, although it has faltered recently. Foreign investors are coming back, attracted by the Philippines' young population -- the average age of its 89 million people is 22 -- and the widespread use of English, a legacy of its past as an American colony. The call-center business is thriving, some of it poached from India . Not long ago, Fort Bonifacio , a sprawling old military base in the heart of Manila , was an emblem of economic malaise -- a stalled redevelopment taken over by cyclists, skateboarders and kite enthusiasts. Now, office towers, embassy buildings and shopping malls are going up there. Nike Inc., Starbucks Corp. and Nokia Corp. have opened stores, and the Manila stock exchange will be joining them soon. "The Philippines could be the next India in terms of its ability to surprise," says Adrian Mowat, a stock strategist at J.P. Morgan Securities Ltd. in Hong Kong . Gloria Macapagal Arroyo, the country's 60-year-old president, gets much of the credit for the turnaround. Two years ago, with thousands of street protestors threatening to oust her and the country drifting toward a financial crisis, she pushed a higher sales tax through Congress and signed it into law over the objections of her advisers. The move raised the tax to 12% from 10% and expanded it to a range of new products and services, including gasoline. That politically risky step showed investors the nation was serious about putting its house in order after years of half-hearted attempts to cut its budget deficit, crack down on corruption, and do something about its decaying ports and power grid. A J.P. Morgan report in May predicted that the Philippines could have a balanced budget by next year and a budget surplus by 2009. "I knew the risks, but I decided that if we had to bite the bullet, then that's what we would do," said Ms. Arroyo in a recent interview. The nation's economic comeback shows the kinds of remedies that struggling developing nations must consider to compete in the global economy. Following China 's rise as a manufacturing power, the nations of Southeast Asia -- once one of the world's most popular manufacturing hubs -- have been trying to make themselves more attractive to foreign investors and markets. "The whole region is going through the same process, and it's all in response to China ," says Luz Lorenzo, an economist who covers the region for ATR-Kim Eng Securities Inc. in Manila . "How do these countries survive China ?" Many problems remain in the Philippines . One of the richest countries in Asia before World War II, the Philippines saw its economy deteriorate during decades of misrule, punctuated by military coups and economic mismanagement. Ms. Arroyo herself has survived two attempts by military officers to grab power. The country has called in U.S. military advisers to help tackle a persistent Islamist insurgency, and it continues to be criticized widely for human-rights abuses and corruption. The recent economic progress could be undermined by problems that have long plagued the economy. The country has a legacy of crony capitalism that has left former business associates of late President Ferdinand Marcos in powerful positions in the business sector. Political analysts say Ms. Arroyo must avoid spending the growing tax receipts on unnecessary projects that benefit her own political supporters. And questions remain about the government's ability to collect corporate taxes. Moreover, the Philippine economy is heavily dependent on exports, which account for around 40% of gross domestic product. A significant economic slowdown in the U.S. could harm that sector. But economists contend that domestic investment and demand has become a more important driver of the economy -- and could help buffer it from global economic problems. "The growth story here is changing from one which is export driven to one which is domestic led," says Ms. Lorenzo of ATR-Kim Eng. Ms. Arroyo's current six-year term expires in 2010. It's unclear whether the next president will continue her economic policies, or will resort to past practices. Prior governments have limited the business opportunities available to foreign companies, allowing local tycoons to build lucrative monopolies. Ms. Arroyo's father, Diosdado Macapagal, was president of the Philippines in the early 1960s. After studying economics at Georgetown University , she returned home to teach at the University of the Philippines , then entered politics. She was elected vice president in 1998. She quickly set about distancing herself from her unpopular boss, President Joseph Estrada, a former action-movie star who became embroiled in a series of corruption scandals. In 2000, she openly began plotting his removal. In January 2001, after the armed forces joined hundreds of thousands of demonstrators in the streets of Manila to force him from office, she was sworn in as his successor. Ms. Arroyo, whose short fuse has led her to slam cellphones on tables and publicly berate her deputies for making mistakes, has proved to be a tough political infighter. She's stood up to two failed military-coup attempts by rallying her allies in the armed forces and the powerful Roman Catholic Church, of which she is a devout member. When the business dealings of her husband began drawing political heat in 2005, she exiled him to the U.S. for several months until the fuss subsided. Her priority after winning the 2004 presidential election was to put the nation's chronically ailing finances in order. A key problem: anemic tax revenues due to endemic corruption among tax officials and loopholes in the tax code. In 2003, tax revenues were 14.8% of GDP. That's a lower rate than in poverty-ridden countries such as Indonesia and India , and far below rates in developed countries such as the U.S. , where government revenue totaled 25% of GDP in 2006. A combination of weak state revenues and high foreign debt -- 70% of the government's budget went to paying interest in 2005 -- was spooking investors. They worried that too much of the government's budget went to service debt, and not enough to fix roads, schools and the power supply. Japan 's Toshiba Corp. shut down its Philippine laptop factory in 2004 and moved the operation to China . GROWTH STORY � The Situation: After languishing for years, the Philippine economy is showing signs of renewal. � The Background: President Arroyo pushed through higher taxes, which helped persuade foreign investors she was serious about economic reform. � What's Next: Like other Southeast Asian nations, the Philippines is worried about a potential economic slowdown in the U.S. "Our country was going through a credibility gap with the institutional and financial community globally," says Jaime Augusto Zobel de Ayala, chief executive officer of Ayala Corp., one of the companies redeveloping Fort Bonifacio. The Philippines , he says, "needed to send a signal." Ms. Arroyo warned in 2005 that if the Philippines didn't act decisively to improve its tax-collection rate, it risked becoming the next Argentina , where economic problems led to a currency collapse. She and her advisers began looking for ways to raise new money. She increased tobacco and alcohol taxes, but that wasn't enough. She and her economic team began working to push another unpopular measure through Congress in 2005: an expanded sales tax [EVAT]. Demonstrators took to the streets to contest her tax plans. One of her advisers, former stock analyst Joey Salceda, suggested that she limit the new sales tax to soften the political backlash. Gasoline prices, he said, should be excluded because they were already spiking. She ignored the advice. "I was determined not to sacrifice long-term gains for political expediency, even though we had to do it at the worst possible time," Ms. Arroyo says. At first, the sales tax hike appeared to make things worse. Her opponents challenged the legality of the legislation, and the Supreme Court suspended the tax law the day it was to take effect in July 2005. Stock prices slumped at the Philippines Stock Exchange, and ratings agencies Moody's and Standard & Poor's lowered their already dim outlooks on the nation's ability to pay its debt. Ms. Arroyo's popularity took a pounding. Eventually, the Supreme Court dismissed the objections and the tax hike took effect in early 2006. That greatly reassured business leaders and foreign investors, who were worried about the burden of the government's $54 billion in foreign debt. "The single turning point that changed people's minds about the Philippines was that she was able to pull off the expanded tax, and at such a difficult time," says Fernando Zobel de Ayala, brother of Ayala's CEO and head of its Ayala Land unit. The tax take in 2006 was 22% higher than in 2005, lifting government revenue to 16.3% of GDP. To further reduce the deficit, Ms. Arroyo started privatizing the nation's debt-burdened power industry in 2005. In addition, she encouraged foreign investment in the mining sector -- which anti-mining activists and the Catholic Church had blocked for years. Comments. The onset of fiscal discipline has produced harsh short-term results. It required cutbacks in public spending, increased revenue generation and a freeze in public sector wages to set the stage for sustained economic expansion further down the road. GMA ought to be credited for the political courage required to accept unpopularity as the near-term price to pay for future prosperity. Still, there are those who prefer populist but wrong policies. Filipinos, particularly the political Left and the masa, have unduly large expectation of what a government can and should do: create jobs, deliver social services, provide subsidies, desist from taxing the people. Over time, the country have assembled a large state sector expected to deliver the goods and services, those money-losing, white elephants -- government-owned or controlled corporations. But the ordinary citizen is reluctant to pay for a large state burdened by a wide assembly of public enterprises that chronically lose money. The upshot is a system in constant fiscal difficulty, and disposed to heavy borrowing that mortgages the future. By contrast, fiscal discipline produces a stable currency, a low inflation regime and a business climate hospitable to long-term investments that produce reliable jobs. In the long run, these will benefit the poor. Since then, institutional investors have been returning to the country's bond and stock markets. Since the new tax took effect in January 2006, the Philippines Stock Exchange Index has climbed 58%, outstripping most Asian markets over the same period. Net stock investment by foreign investors hit a record $870.8 million in June, according to the Philippine Stock Exchange, up from just $12.9 million in January 2004. The Philippine peso has risen 13.6% against the U.S. dollar since the tax took effect, partly due to the inflows of foreign money. The peso is the second best performing currency in Asia this year, after the Indian rupee. Rather than borrowing overseas, local companies are once again turning to the stock market to raise funds. There were numerous initial public offerings on the Philippines Stock Exchange in 2005 and 2006, following years in which offerings were rare. Eight 2006 offerings were aimed specifically at foreign investors, raising $1.56 billion. So far this year, five IPOs have hit the market. With business confidence on the mend, inflation and interest rates have declined. Local and foreign businesses have begun investing again, and multinational companies are adding plants and shipyards. In May, Texas Instruments pledged $1 billion to build a new chip testing and assembly plant at the old U.S. Air Force base at Clark Field, 62 miles north of Manila , to complement a plant it already has here. Kevin Ritchie, Texas Instrument's senior vice president for technology and manufacturing, said at the time that the country's skilled work force encouraged the company to raise its investment. Philippine officials said the company was also looking for reliable power and water, which are more available now that power privatization is under way. One of the world's largest shipping companies, Beijing-based China Ocean Shipping Co., is studying whether to build a multibillion-dollar cargo hub near Manila, company officials say [related story below]. South Korean shipbuilder Hanjin Heavy Industries & Construction Co. is investing $1.7 billion in a new shipyard at a former U.S. Navy base at Subic Bay . It was attracted by the skilled, English-speaking work force and low costs, a company official says. Filipino expatriates -- more than 10 million work abroad -- have taken notice. They are now sending home $14 billion a year, double what they sent five years ago, government figures indicate. Economists see this as a relatively secure source of revenue. While 35% of these expatriates work in the U.S. , there are also large pockets in Europe, the Middle East and East Asia . That geographical diversity could provide some insulation against a downturn in the U.S. The remittances aren't just going to support families, but into the stock market and property investments. Ayala Land , one of the country's biggest real-estate companies, says that in 2006, 37% of revenue came from Filipinos overseas buying land and condominiums, up from 26% the year before and just 16% in 2004. The company's chief financial officer, Jaime Ysmael, told shareholders on Tuesday that if economic problems in the U.S. deepen, Ayala Land can still count on Filipinos working in Europe and the Middle East . Norma Ravanzo, a 58-year-old retired nurse from Houston , is one such investor. An American citizen for more than 30 years, Ms. Ravanzo is planning to return to her homeland with her husband, who was also born in the Philippines . Encouraged by the economic progress and improving living conditions, Ms. Ravanzo bought property in Cebu City , Manila 's financial district, and a retirement home in Subic Bay . "It's like living in a first-world community at third-world prices," she says. ****************************** Source: http://www.op.gov.ph/news.asp?newsid=18742 Wall Street Journal Asia reports on turnaround of RP economy The Wall Street Journal Asia said that the Philippines , the �perpetual sick man of Asia ,� has been making an unexpected turnaround. Press Secretary and Presidential Spokesman Ignacio R. Bunye said that in its August 31 banner story, titled �Comeback Trail for Philippine Economy, Harsh Remedies Paying Off,� the Hong Kong-based newspaper reported that this year, the Philippine economy is �expected to post its fastest growth rate since the early 1990s.� Datelined Manila and written by James Hookway, the WSJA report said that �almost lost amid the international excitement about the growth of China , India and Vietnam � the Philippines has been rebounding.� �This year, the nation's economy is expected to post its fastest growth rate since the early 1990s, despite the economic shadow cast by the global credit squeeze sparked by problems in the U.S. mortgage market. �The Philippine economy grew at a 7.5% annual rate in the second quarter. The stock market has soared over the past two years, although it has faltered recently. �Foreign investors are coming back, attracted by the Philippines' young population -- the average age of its 89 million people is 22 -- and the widespread use of English, a legacy of its past as an American colony. The call-center business is thriving,� Hookway reported. In his weekly column, The View From the Palace, Bunye said Hookway gave much of the credit to President Gloria Macapagal-Arroyo whose politically risky tax reforms �showed investors the nation was serious about putting its house in order after years of half-hearted attempts to cut its budget deficit.� Hookway quoted the President as saying: �I knew the risks, but I decided that if we have to bite the bullet, then that�s what we would do.� Bunye said that the politically risky reforms that the President instituted topped off by the Expanded Value Added Tax (EVAT) have �yielded huge dividends.� �For the first time in a generation, we now have the much-needed revenues with which the President intends to improve the lives of the people. Her mantra nowadays is �Invest. Invest. Invest.�� He said the Chief Executive �intends to invest in human capital and physical infrastructure which will make our country even more competitive and more progressive.� �You will notice this in the proposed 2007 budget. The biggest proposed increases in expenditures are in education, health, social services and in roads, ports, airports and agricultural infrastructure,� Bunye said. Aside from the banner story, the August 31 issue of WSJA also featured two articles on the country�s economic recovery. This is the result of fiscal discipline. The Philippines is beginning to tame the debt problem, reducing obligations not only as a percentage of its growing GDP but also in absolute terms. There are a lot of positive things going for the economy � despite the propensity of some politicians, the press, and the militant Left for creating destructive sideshows. Source: http://www.mb.com.ph/BSNS20070904102021.html NG debt level to drop to 54% of GDP next year � DoF Tuesday, September 4, 2007 National Government�s debt level is programmed to decline to P3.947 trillion next year, or just 54.2 percent of gross domestic product of P7.284 trillion [US $145 billion]. Finance Secretary Margarito B. Teves, in a report to the Committee on Appropriations of the House of Representatives yesterday in the Batasan Complex in Quezon City , said the country�s debt outstanding is expected to end the year at P3.935 trillion or 59.4 percent of GDP. As of end-June NG debt stood at P3.782 trillion or 61 percent of GDP (P6.609 trillion for 2007). According to Teves� report, the NG debt service is programmed at P624.1 billion next year from P612.8 billion in 2007. Interest expenses are P303.3 billion [US $6.07 billion] this year and P295.8 billion in 2008. Principal payments, on the other hand, is programmed at P309.5 billion [US $6.19 billion] this year and P328.3 billion in 2008. Teves said the NG also is cutting its net financing requirements by 78 percent in 2008 to P17.8 billion from P82.5 billion this year. Teves said the country�s net external financing requirements will decline to P37.8 billion next year from P54.6 billion in 2007 while net domestic financing will also drop to P19.9 billion from P27.9 billion. Gross financing mix next year, as announced before � remains at a ratio of 36:64 in favor of domestic sourcing. As of end-July this year, the government financing program, which has shifted more to domestic financing, amounted to P40.1 billion from P74.5 billion. Total net external financing amounted to P74.9 billion, exceeding program of P61.3 billion while net domestic financing totaled P34.8 billion against program of P13.1 billion. This is a borrowing mix of P36:64. For 2007, the DoF expects higher interest savings of P40 billion, P10 billion more than 2006�s P30 billion. Based on finance department papers, the government will pay P96.74 billion in the third quarter ending September, from P55.6 billion in the second quarter. The programmed interest expenses for the month of August is P28.77 billion and for September, P29.12 billion. Last year the DoF reported P30 billion as interest savings on past loans and about P18 billion from its debt exchange program. Also in 2006, the government paid P310.1 billion in interest payments, way below the program of P340 billion. In 2005, interest payments totaled P299.8 billion. OOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOO |