Philippines: Not too sick


Dr Ron May

For years described as 'the sick man of Asia', the Philippines appears to have weathered the Asian financial crisis better than most of its neighbours. Following the withdrawal of central bank support on July 1997, the peso fell from 26 to the US dollar to a record low of 36 in October, recovering somewhat before a further sharp fall to 45 in January, and recovering again to around 40 in mid February. The stockmarket has also been substantially devalued and corporate borrowing rates have risen to around 30 per cent. On the other hand, exports have continued to grow (the annual growth in 1997 reaching 15 per cent), direct investment flows have continued, inflation is still relatively modest (averaging 5 per cent for 1997), and none of the country's 53 commercial banks has collapsed. GDP growth targets for 1997 were revised downwards (from 5.9-6.3 per cent to 5.0-5.5 per cent) and have been set lower for 1998 (4 per cent) but still do not compare badly with the pre-crisis 1996 figure of 5.7 per cent. And major infrastructure projects (notably in transport and water supply) have not been put off. Although the Philippines' long-awaited graduation from IMF programmes has been postponed beyond the anticipated date of December 1997; it is still expected to be achieved (while retaining a short-term 'precautionary' facility) early in 1998. The relative strength of the Philippines' situation reflects the process of ongoing reforms set in motion by the People Power overthrow of President Marcos in 1986. Particularly under the Ramos administration, the Philippine government has embarked upon an active programme of breaking down patronage-based monopolies and pursuing privatization, deregulating key industries, and liberalizing trade, foreign exchange and investment regimes. The finance sector has been specifically targetted; the government and its central bank have also placed limits on short-term overseas borrowing and on banks' lending to the property (building and home buying) sector. In November President Ramos explained his government's economic record: 'We concentrated first on our democracy and then focussed on economic growth'. Paradoxically the Philippines' democracy is also perhaps a source of economic uncertainty. Recent court decisions overturning some contracts and declaring unconstitutional the government's deregulation of the oil industry have caused concern among foreign investors, as have delays in finalizing controversial regulations of the country's recently enacted mining legislation. Parliamentary resistance has also resulted in the watering down of proposed tax reforms (which were a condition of IMF loan arrangements). Also contributing to business uncertainty are the forthcoming Presidential elections, which will be held in May 1998.

WATCHPOINT: Will the prospect of a new leader erode the Philippines' relatively safe economic position?


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