Philippines: Despite Positive Economic News Confidence Remains Shaky

2002

Professor Mark Turner

The economy is growing at over 3 per cent a year. Inflation is down to 2.6 per cent. The peso exchange rate against the US dollar has remained stable for more than 12 months. And the Abu Sayyaf terrorist group is definitely on the retreat. These positive signals should be generating confidence in the economic future of the Philippines. However, the latest indexes of business confidence (BCI) and consumer confidence (CCI) reveal widespread caution.

The BCI survey is conducted among respondents from the country’s top 700 corporations. Those who said ‘current business conditions are good’ declined 6 per cent to 24.3 per cent while those who considered conditions as bad rose 4.4 per cent. The numbers who thought the government was doing a worse job than a year ago increased by 7 per cent to 16 per cent. Forty-nine per cent believed that the President had not achieved the objectives set out in her State of the Nation Address of one year earlier. Only 30 per cent thought that she had. Thirty-seven per cent saw the economy improving over the next 6 months, but various problems were identified. Prime amongst these was whether the government could contain the fiscal deficit. By June the deficit had almost reached the ceiling set for the year. There is also concern about tax collection. The Bureau of Internal Revenue (BIR) only achieved 58 per cent of its collection target for the first quarter of 2002, while the Bureau of Customs (BOC) has projected a shortfall of 9.6 billion pesos. Opposition Senator, Edgardo Angara, has alleged that the government’s ‘tax effort’ (revenue collection over GDP) was the lowest in Southeast Asia at 11 per cent compared to other countries with 19-22 per cent. Given these and other concerns, businesses said they were less willing to hire more people or invest more over the next 6 months.

The CCI reached its lowest point for a year. Only 14.7 per cent thought the economy would improve over the next 6 months. Only 25.7 per cent thought the government was doing a better job this year than the last, down from 39.7 per cent in the previous month’s poll. More alarmingly for the government, only 17 per cent of respondents believed that the present government could carry out its promises. The Social Weather Stations (SWS) survey in May-June also revealed declines in public satisfaction with government performance. Electricity prices were a particular bone of contention for the general public. But President Arroyo can take some comfort from the fact that all presidents have suffered significant declines in their popularity after an initial honeymoon period of approximately one year. Also, the trust rating of former President Estrada fell indicating that he is a waning political threat to the current administration.

The overall picture is not of gloom and doom, but businesses and the public are somewhat apprehensive about the future and await positive results from government actions. Some economic statistics are good, but the government needs to persuade everybody that it has a firm grip on the situation and demonstrate this in improved performance.

WATCHPOINT: Will President Arroyo be able to deliver on the promises made in her 22 July State of the Nation Address?

 

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