Hold your horses, cool your jets, the sky may not be falling on us, after all. At least, not in the way that Ben Kritz appeared to be hinting in one column last week, (“The sky is falling,” 1 February, Manila Times). Ben took off from an op-ed piece by former presidential candidate Steve Forbes in Forbes Magazine, that declared that “we could have another big financial crisis like that which hit Asia in 1997-98.”
As though to underscore the fact that different crystal balls can produce different forecasts, the influential journal Foreign Affairs, in its first issue for 2014 (January-February 2014) carries a highly positive report on the Philippines, saying that it is now “providing the biggest upside surprise.”
The magazine does not dispute the fact that many of the once-hot emerging markets have cooled. Or that the BRICS (Brazil, Russia, India, China) are sagging. Or that the global economy is in for a rough ride this year.
Messrs, Gideon Rose and Jonathan Tepperman, editor and managing editor, respectively, of Foreign Affairs, contend that not all the news is bad. They write: “the United States has surprised skeptics by making a slow but steady recovery, led by energy and manufacturing. And a whole new crop of green shoots is springing up.”
Six economies to watch
Given the tumult in the global economy, they decided that now is a good time “to survey the up-and-comers–the countries and regions whose combination of size, recent performance and potential make them particularly interesting to watch and attractive to investors over the next half decade.”
They picked six countries as the top markets to watch: Mexico, South Korea, Poland, Turkey, Indonesia and the Philippines
They observe: “all six countries are well positioned to thrive as China slows and the commodity boom cools. All have crucial strengths to draw on and will play increasingly important roles in the future of the global economy. And yet each faces a distinctive set of challenges.”
Indonesia and the Philippines
Indonesia and the Philippines are discussed together in one analytic piece: “Indonesia and the Philippines: A tale of two archipelagoes,” written by Karen Brooks, senior fellow for Asia of the Council on Foreign Relations.
She begins with a familiar overview of Asean—a collective market of 620 million people; home to a young, large and growing labor pool, as well as a growing consumption-oriented middle class; a combined GDP of over $2.2 trillion in 2012— larger than Russia’s GDP and almost the same size as Brazil’s.
Brooks writes: “Impressive as the Asean pack has been, two of its members have stood out as particularly promising.
“Giant Indonesia soared during the last half decade, boasting high growth, low inflation, an extremely low debt-to-GDP ratio, strong foreign exchange reserves, and a top-performing stock market.
“But it is the Philippines, the region’s other archipelago, that is now providing the biggest upside surprise. The Philippine economy expanded by 6.6 percent in 2012, exceeding most economists’ prediction, and was among the fastest growing economies in the world in the first half of 2013, expanding by 7.6 percent. (despite the destruction of typhoon Haiyan, the Philippines’ growth rate for all of 2013 is expected to remain above 6.5 percent.
“The Philippine Stock Exchange has posted record highs since President Benigno Aquino 3rd came into office in 2010, and approvals for foreign investment have more than doubled in that period. The country’s inflation is low, its foreign exchange reserves are high, and its public debt is steadily declining. As a result, all the major credit-rating agencies upgraded Philippine sovereign debt to investment grade in 2013; the first such rating in the country’s history.”
Brooks’s article should lift the spirits of the tenant of Malacañang, who has lately absorbed some setbacks and much criticism, and needs to take a more positive worldview.
This should also waken Congress from its depression over the millions of lost and never-to-be recovered pork barrel.
Prospects and challenges
Brooks in her analysis outlines both problems and prospects of the Philippines for the balance of this decade.
“Thanks to reforms put in place after the 1997-98 Asian financial crisis, the Philippines, like Indonesia, has a strong banking system, with large amounts of capital on hand and a low incidence of loans in default. Respected technocrats run key economic portfolios and produce sound macroeconomic management.
“Unlike Indonesia, the Philippines’ current account has been in surplus since 2003, ending an era of perennial balance of payments crises. Indeed, the Philippines’ current account surplus exceeded that of the rest of Asia in 2012 and is projected to keep growing. This success is the result of two key factors: the substantial flow of remittances from the more than ten million Filipinos working abroad and a dramatic expansion in the Philippines’ service sector, thanks to huge growth in business process outsourcing.
“The Philippines continues to struggle on a number of key fronts. High economic growth has yet to translate into more jobs and less poverty. Unemployment has stubbornly remained above seven percent— higher than in any other core Asean state—for the past six years, and underemployment has stood at roughly 20 percent during the same period. With over one million Filipinos entering the labor force each year, the service sector alone cannot absorb them all, especially since the manufacturing and agricultural sectors have been shedding jobs. No surprise, then, that poverty has barely declined in recent years or that the country’s per capita GDP is the lowest among ASEAN’s core five.
“To reverse these trends, the country has to create jobs for semi- and unskilled workers in manufacturing and agriculture. But doing that, in turn, will require attracting more foreign investment, which for the Philippines is currently among the lowest in Asia, reaching only $2 billion in 2012 (compared with the $20 billion that went to Indonesia).
“Investment in the Philippines has stayed so low because the country’s economy remains one of the most restrictive in the world, with constitutional provisions limiting foreign ownership of Philippine companies to 40 percent in a broad range of sectors.
“Because of improvements and reforms made under the Aquino administration, the Philippines is well placed to withstand the expected return to volatility in global capital and equity markets when the US Federal Reserve ends its quantitative easing in 2014 (as it is expected to do). The Philippines will have significantly more leeway than its Indonesian counterpart, for example, to maintain a flexible monetary policy and to take measures to spur growth.”
Two immediate challenges
Brooks concludes her analysis by underscoring two challenges that President Aquino should immediately tackle:
“To make the most of the country’s opportunities, Aquino will first need to manage the humanitarian disaster wreaked by Typhoon Haiyan as quickly, efficiently, and compassionately as possible. Then, he will need to push forward with structural reforms, especially constitutional changes necessary to promote foreign investment.
“All business groups now support the relevant constitutional amendments, reflecting a change in the country’s political economy, as Filipino oligarchs now feel that they have more to gain than lose from the introduction of new foreign capital and competition.
“In the end, it may be this evolving public consensus in favor of openness and transparency that provides the most promise in the Philippines. Revelations in late 2013 that legislators had siphoned off huge sums of pork-barrel funds for personal use and that the office of the president had also misused discretionary funds sparked a public outcry so strong that Aquino may have to go even further than intended in fighting corruption in order to maintain his moral authority.”
President Aquino must not miss the opportunities before the nation today, because it may take some time before they come again. This is a thought worthy of a day of pr-ayer.