Is the Philippines Finally Turning Around?: Growth is up. The deficit is down. President Arroyo has survived impeachment threats. The service sector is thriving. Yet much remains to be done (Assif Shameen , 11/22/06, Business Week)
[T]he fact that the center is even close to completion is significant. It is all part of a concerted rebranding effort underway under Arroyo’s leadership for this sprawling archipelago—long viewed as a politically unstable economic underachiever. “We want the region and the world to see that the Philippines has arrived,” Arroyo said during an exclusive interview with BusinessWeek.com on Nov. 20.
Maybe Arroyo has arrived too, in a way. That she is even around to host the summit is nothing short of a miracle. A year ago, Arroyo’s five-year-old administration was under siege. Almost daily street demonstrators called for her ouster in what was billed as “People Power III.” That was not a good place to be, considering two previous people power waves of protest led to the removal of dictator Ferdinand Marcos in 1986 and Joseph Estrada in January 2001.
Amid rumors of military coups (that never transpired), Arroyo also managed to narrowly avoid an impeachment trial in the Congress over allegations of government corruption and vote fraud. Along the way, though, she stayed focused on economic reforms, pushing through tax hikes to cope with the country’s massive fiscal problems and ushering in other revenue-boosting measures. The economy is now in the best shape it has been since the 1950s. “I have said all along there is no gain without pain,” she points out.
Economists have boosted growth forecasts this year to 5.6%—and to more than 6.5% in 2007. Chronic budget deficits have almost been eliminated in a nation that was under scrutiny from credit agencies as a government-default candidate. Moreover, foreign investors are testing the waters again. Foreign direct investments hit $1.2 billion last year and likely will grow to $2 billion this year based on preliminary data. “We are now ready for a take-off,” Arroyo insists.
Analysts enjoy the Philippines turnaround story even though they say much more needs to be done. “Stronger economic fundamentals and growth are starting to feed off one another,” notes Rob Subbaraman, an economist for Lehman Brothers in Hong Kong.
Long Way to Go
Indeed, he is so impressed with the turnaround that Subbaraman says “credit rating agencies should start rewarding the Philippines for its economic growth” with upgrades. “The reforms have reached a critical point where virtuous spirals are developing,” he thinks.
President Arroyo’s Vision for the Philippines: She tells Businessweek.com about her plans to privatize, invest in infrastructure, and make the archipelago a top player in business process outsourcing (Assif Shameen , 11/22/06, Business Week)
Not long ago, the Philippines was in political turmoil, suffering from a huge budget deficit, weak currency and worries the country couldn’t compete with China or India. Today the International Monetary Fund praises the country. What has changed?
I am glad that people are seeing that we’ve finally arrived. There is no looking back from here. Clearly, because of the steps we took, the days of huge deficits are gone. Gone, too, are the days of stagnation and poor economic growth. We fought hard for economic reforms. The first phase was to raise the revenues needed to invest in our infrastructure and our people so that Philippines is a more competitive place to do business and have a better standard of living. Those first battles have been won.
The budget deficit is under control, we are on our way to having a balanced budget by 2008, the stock market is up, the peso is strong, poverty rate is down, per capita income is up, investors are coming in again, growth is robust, new revenues can now be invested in long-overdue repair and rebuilding of our infrastructure, education, health, and job creation. The IMF and credit-rating agencies recognize this and so we are getting constant upgrades. We believe we are now in a virtuous cycle where one good thing leads to another.
Still, the Philippines has an image problem. How do you counter this image issue and tell investors this time it’s for real?
Well, they can see the difficult economic reforms that we’ve undertaken. They can see the revenues that we’ve raised in order to make investments in infrastructure and education. They can also see that I was even willing to pay a political cost to get these through. Now the results are coming in. I am happy the investors are more forthcoming.
The IMF and credit rating agencies reflect the image that we have in the world and we are getting accolades from them for the improvements we have made. Investments are coming in a range of sectors from business process outsourcing to mining. We’ve made it clear that we only encourage mining investments that are ecologically responsible so that there is sustainable development.
Because we now have money to invest, I have announced a trillion peso (nearly $20 billion) infrastructure program for the medium term. The money will come from our new revenues, from government corporations as well as the private sector. A lot of private-sector companies and foreign investors have shown interest and we are now trying to move on the infrastructure projects.