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AN ASIAN Development Bank (ADB) team will meet with Philippine
economic managers to discuss ways to boost economic growth, the
Department of Finance announced on the same day the government said
inflation shot up to a 14-year high.
The meeting between the ADB representatives and
the country’s officials are scheduled on July 15 to 25.
ADB is the second-biggest foreign lender to the
Philippines, extending $9.8 billion last year. The country is the
bank’s fifth-largest borrower accounting for 7 percent of total
loans approved.
The finance department had said it may tap more
project loans this year from banks like ADB to cushion the high
inflation which already breached the double-digit level in June.
To ensure that growth can be sustained at a high
level similar to that achieved by other Southeast and East Asian
economies in recent decades, the Philippines will have to address
market failures to encourage investments in a diversified
manufacturing sector and exports, and in the upgrade of the level of
technology, the ADB said.
The lender proposed the expansion of the
government’s fiscal space by instituting an efficient tax
collection machinery, streamlining of the tax incentive program,
strengthening expenditure management, rationalizing the rate
structure of the tax system, and cutting losses of and subsidies to
government owned or controlled corporations.
The ADB also said the country should accelerate
infrastructure development, catch up with the Electric Power
Industry Restructuring Act of 2001 mandate, upgrade and maintain
roads and transport systems, expand regional and local
infrastructure and minimize political instability.
Despite the continued surge in prices, the
Bangko Sentral ng Pilipinas (BSP) said it expects inflation to
normalize next year, as the demand pressure is likely to moderate on
account of tightened monetary policy.
BSP Gov. Amando Tetangco, Jr. said inflation
will decelerate in the fourth quarter of the year through 2009.
“We share the view that current oil and food
prices are hardly sustainable, producing global slowdown and
widespread inflation in all countries. Demand pressures will
moderate as monetary policy is generally tightened. For RP, we
should be back to normal cycle by early next year,” Tetangco said.
In a commentary, Development Bank of Singapore
(DBS), however, said inflation in June is less alarming but will
continue to be driven mainly by food, beverages and tobacco at 50
percent of the basket.
DBS said the hike in private-sector minimum
wages granted by the government in mid-May, which is to be rolled
out over the next few months, would also contribute to price spikes.
The civil service salaries are set to increase by 10 percent this
month.
“The hikes in wages are so far not occurring
on a sustained basis. Still, it is clear from the recent wage
demands and other surveys that inflation expectations are rising. To
keep those expectations anchored, the BSP will have to keep on
raising interest rates,” DBS said.
DBS said the country’s gross domestic product
growth is likely to slow to 5.4 percent this year due to high
inflation.
To curb inflation, DBS said the BSP is expected
to further lift its key policy rates by 25 basis points in its next
Monetary Board meeting on July 17 and by another 50 basis points
within the second half of the year.
At present, the central bank’s overnight
borrowing and lending rates stand at 5.25 percent and 7.25 percent,
respectively.
-- Chino S. Leyco and Maricel E. Burgonio
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