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By Darwin G. Amojelar Reporter
A STATE-RUN think tank said the
Philippines may be smitten by the
dreaded Dutch disease, citing the peso’s strength alongside a weak
manufacturing sector, which is a prelude to an economic slowdown.
The Dutch disease afflicted the
Netherlands during the 1960s when the discovery of vast natural gas
reserves caused massive foreign exchange inflows, which in turn
drove up the value of that country’s currency, eroding the
competitiveness of its exports and wiping out jobs in the sector.
In a briefing, Josef Yap,
Philippine Institute of Development Studies (PIDS) president, said
the economy, as measured by the country’s gross domestic product
(GDP), would grow at a slower 5.9 percent this year from 7.3 percent
last year, owing to a strong peso and weak investments and
manufacturing. The PIDS forecast is below the 6.3 to 7 percent
target range set by the Development and Budget Coordinating
Committee.
Yap said there are signs that the
country is suffering from the Dutch disease, as the domestic economy
shifts toward the services sector, and away from agriculture and
manufacturing.
He said that a major downside to
the robust economic growth in 2007 was the manufacturing sector,
which grew by only 3.3 percent, marking the third consecutive year
of decelerating expansion.
“This is a clear manifestation
of the Dutch disease phenomenon: a booming economy accompanied by a
slowdown in the manufacturing sector,” Yap said.
For this year, the manufacturing
sector may grow by only 3 percent, compared with the 7.2 percent
growth forecast for services, he said.
Yap said there is something
structurally wrong in the economy given poor infrastructure and
wrong regulatory policies that discourage private investments in
manufacturing.
He said that the country’s
investment rate slid to 13.8 percent of GDP in 2006 from 21.2
percent in 2000.
The problem started when the
local currency began appreciating against the dollar, the economist
said. Last year, the peso rose by more than 15 percent against the
dollar, making it Asia’s best performing currency.
The PIDS president said an
overvalued peso makes domestic industry less competitive than its
Asian peers.
He said the peso could be
overvalued by 10 percent at 40 to 41 against the dollar, which is
weighing on the income of overseas Filipino workers, exporters, and
domestic industries that are now hard-pressed against the influx of
cheaper imports.
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