Monday, 27 April 2009

Philippines can do better than zero growth

The Entrepreneur
Manny Villar
Business Mirror

SIX months ago, local and international economic analysts predicted that the Philippines’ growth rate would be only 1.8 in terms of gross domestic product (GDP) for 2009.

Less than two weeks ago, I told a friend that “soon you’ll hear people talking about a zero-growth rate,” in contrast to forecasts by multilateral agencies, economists and analysts, including the government, that the growth rate would be a high of 4.7 percent to a low of 1 percent.

Lo and behold, on April 22, the Manila office of the International Monetary Fund (IMF) announced that it was revising its GDP growth forecast for the Philippines for this year from 2.5 percent to zero percent!

If it’s any consolation, the IMF said the Philippines would still perform better than its neighbors, like Singapore and Thailand, which are expected to end the year with negative growth.

The IMF’s lower forecast reflected the impact of the worsening global situation on the Philippine economy, such as the continuing decline in exports and lower remittances from overseas Filipino workers (OFWs) in countries which cut back on their imported labor.

Maybe, the decline in demand from foreign countries for Philippine-made goods and the supposed repatriation of OFWs are factors that we can consider as beyond our control.

I think the decline in remittances and exports were already inputted when the government estimated 2009 GDP growth target at 3.7 percent to 4.7 percent, or at least at the latest 3.1 percent to 4.1 percent. The IMF itself expects remittances to reach $15.17 billion this year, lower than the $16.4 billion posted last year, but still more than the $14 billion posted in 2007, when the economy grew at a three-decade high of 7.2 percent.

On exports, the biggest adverse impact was on electronics, which has been discounted since last year. On a net basis, electronics exports are not that significant because of the high import content. Actually, the biggest impact is on employment, when it comes to electronics exports.

What disappoints me is that there are other factors that can help us grow better, which we can do but are not doing. First is the national government budget for 2009 that was signed only on March 12, more than two months late. The annual appropriation is significant because it includes the P10-billion Economic Stimulus Fund, designed to cope with the global crisis.

There was also much ballyhoo when the government announced a P330-billion Economic Resiliency Plan, the Philippines’ own version of stimulus packages adopted by countries that have been affected by the global turmoil.

Now, has anyone seen any pump-priming activities? If so, that pump priming has not taken effect, and that means the Economic Resiliency Plan has remained just a plan.

It’s bad that the approval of the national budget was delayed, but what makes the situation worse is that fund releases for 2009 were still not being made, three months into the fiscal year.

I think even the regular fund releases, such as for the projects of congressmen and senators, have not been made for the first quarter. Why? Are the releases being withheld for other purposes, such as Charter change?

I sincerely hope not. Politicizing the economic solution to the economic crisis will guarantee its failure to the detriment of our people.

So, I’m not surprised about the lower and lower predictions for the economy. But this should not mean that we surrender ourselves to a stagnant economic growth.

I have a lot of confidence in the Filipino people and what we can do to push our country forward.

It’s not too late. There’s still time to pump prime the economy and ensure a higher rate of growth. Instead of debating whether the low or zero growth will happen, as I’ve always said, let’s prepare for the worst and hope for the best.

To prepare for the worst means taking action. I have already discussed the delay in fund releases, both for regular capital expenditures and for pump priming. I suspect the government’s decision to lower its growth target was prompted by concerns that revenue agencies like the Bureau of Customs and the Bureau of Internal Revenue will not be able to achieve their collection goals.

The administration may be concerned about the deficit, although the IMF itself agrees with the raising of the fiscal deficit to as high as 3 percent of GDP.

This cautious attitude is understandable, given the precrisis objective of balancing the budget by 2010. But let’s not delve into it too much because the damage on the economy might be irreversible.

And, talking of irreversible damage, I think it is time for the monetary authorities to look at bank lending. After all, banks are major sources of funds for economic activities.

However, I have noted that bank lending has generally stopped. Not that they have closed the doors to borrowers, but they have adopted strict rules and imposed stringent standards.

Oh, yes, some companies are able to borrow, some are building up their cash hoards to finance acquisitions or in preparation for the recovery. For others the credit flow has stopped.

I have been receiving complaints from small and medium enterprises, actually the biggest employers, which are running out of funds for their operations. In effect, only those who have a lot of cash are able to borrow more, while those without cash are not able to borrow at all.

The Monetary Board should take a hard look at the credit problem. If this problem persists, then we will be headed toward negative growth.

In fact, it is not just negative growth that I am worried about. I’m worried about the long-term effect when companies closed. That’s reducing productive capacity, for which restoration will be very difficult.

So the issue of economic growth amid the global crisis boils down to two points. One is the stimulus plan of the government and second is the banking system.

These are factors within our control. And we should act on them now!

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