A breakout nation?
By: Cielito F. Habito
Philippine Daily Inquirer
9:24 pm | Monday, June 4th, 2012
Not a few were surprised that the Philippine economy grew by 6.4 percent
in the first quarter of this year—supposedly the fastest in Southeast
Asia—when most analysts expected less than 5 percent. I've been telling
my audiences that a 4-5 percent growth would be the prudent figure for
planning purposes, while the more aggressive could plan around 5-6
percent. Hence, when the National Statistical Coordination Board (NSCB)
announced last week that we actually made 6.4 percent, some began
wondering if it's too good to be true, or whether it's a mere fluke.
The news was a pleasant surprise indeed, but then again, the elements
for a resurgence of growth have actually been in place. First, the
government has apparently gone full throttle on its spending, both for
infrastructure and for regular operations. Having faced severe criticism
for drastic spending reductions that impeded overall growth last year,
our economic managers have resolved to make up. The first quarter saw
government construction bouncing by a hefty 62.2 percent from a steep
38-percent drop same time last year. Meanwhile, government's
noninfrastructure spending on regular operations jumped by 24 percent,
whereas it only inched up 1 percent last year. Just as lack of public
spending impeded the economy's growth last year, so did a renewed burst
in the same provoke the unexpectedly high surge this time around.
Another key contributor to the bounce-back was the recovery from last
year's disruptive disasters in Japan and Thailand. A major factor that
slowed us down last year was the triple disaster in Japan, and
debilitating floods in Thailand—both of which disrupted value chains
linked to our own domestic producers. For example, our vehicle assembly
operations were impeded by the lack of components coming from Japanese
factories shut down in the aftermath of the earthquakes, tsunami and
nuclear disaster that hit northern Japan. Similarly, certain product
flows from the Philippines to Japan suffered disruptions as the slowdown
in economic activity in the latter impaired their absorptive capacity
for our exports of both final and intermediate goods. The serious
flooding that hit key manufacturing areas in Thailand precipitated a
similar disruption in two-way commodity flows with that country. These
disruptions had already been overcome as of the first quarter this year,
and the interrupted product flows had not only been restored, but had
even seen further growth.
A third key element in the bounce-back is the unmistakable resurgence in
business confidence, among both domestic and foreign investors. The
Bangko Sentral ng Pilipinas quarterly Business Expectations Survey shows
business optimism reaching new highs. Providing independent affirmation
are continuing credit outlook and ratings upgrades over the past year
from Standard & Poor's, Fitch Ratings and Moody's Investors Service
(which just last week upgraded our outlook anew from "stable" to
"positive"). These suggest that the governance reforms pledged by the
Aquino government are seen by the business community as credible, if not
beginning to take hold. Accelerating internal revenue collections,
tightened accountability mechanisms in public projects (even at the cost
of last year's dramatic slowdown), and the recent demonstration that our
democratic processes are working all surely have a role in this. It is
thus encouraging that foreign direct investment (FDI) applications and
approvals have climbed to levels not seen in the last 16 years, based on
NSCB's latest FDI statistics. Announcements of large capital expenditure
plans by publicly listed domestic companies further bolster the picture
of general business optimism. All these seem oblivious to the threat of
an economic crisis in Europe; we have, after all, demonstrated
resilience in the face of international crisis more than once in the past.
In his international bestseller "Breakout Nations," Ruchir Sharma, head
of the emerging markets division at Morgan Stanley, names the
Philippines as among the upcoming new stars in the international
economic scene, the breakout nations. With Turkey and Indonesia, we make
up TIP, which he sees poised to upstage the BRIC economies (Brazil,
Russia, India and China), considered in recent years to be the rising
stars of the world economy. But to Sharma, BRICs are losing steam, while
his identified breakout nations (which also include Nigeria and
Thailand) will defy expectations and speed ahead. He describes President
Aquino as a good leader who is "delegating power to competent
technocrats and seems to understand what needs to be done to get the
lights back on."
Sharma's popular new book would help attract greater investor interest
in the Philippines, but becoming a breakout nation will not come
automatically. Much homework remains to be done, and breaking out into
sustained high growth will not serve the country well unless it is
growth that everyone partakes of. Sharma notes how our country's
stagnant decades had been marked by a few family-owned conglomerates
dominating the markets. In his view, Turkey's breakout is happening
because of its current leadership's drive for greater inclusiveness;
under Prime Minister Erdogan, masses once excluded on account of their
religious values now play a leading role in the economy. A key
observation Sharma makes is that breakout nations would be distinguished
by the quality of their politicians.
Is our first quarter growth performance the start of the nation's
breakout? I hesitate to bet on it until I see the politicians we vote
into power next year and in 2016.
* * *
E-mail: cielito.habito@gmail.com
--
------------------------------------------------------------------------
CARLOS ANI - International Microfinance Consultant - SEEDFINANCE Corporation Chairman
Mailing address: PO Box 90 UPLB Los Banos Laguna, Philippines 4031
Emails: carlosani@gmail.com , carlosani@seedfinance.net
Landline Phone: +63495010127 (PLDT)
Cellphone Numbers: +639152919580 (Globe) and +639328590859 (Sun)
Websites:
CARLOSANI.COM - http://www.carlosani.com
DEVJOBS - http://www.devjobsmail.com
PHILDEVFINANCE - http://phildevfinance.posterous.com
http://phildevfinance.blogspot.com
Family website - http://www.anifamily.net
SEEDFINANCE Corporation - http://www.seedfinance.net
My News Clippings - http://www.myclipps.posterous.com
Skype name: carlosaniph
-----------------------------------------------------------------------
