Bernardo M. Villegas
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Perfectly Fine

           That's how Jim Walker, one of the most respected analysts in Asia, titled his report  in the website of Asianomics.Limited  last August 31 after the Government announced that the GDP growth rate for the second quarter of 2012 was 5.9%,  besting consensus forecast of 5.5%:  PERFECTLY FINE.  Just a few days before him, even before the GDP results were out, Floyd Whaley wrote in the New York Times (August 27): " A youthful populace helps make the Philippines an economic bright spot in Asia."  What makes these two very positive statements especially meaningful is that both Jim Walker and the New York Times have been very critical, with reason, of the economic performances of the Philippines in past years.  Suddenly, foreign observers have turned very positive about the Philippine economy, contradicting the local naysayers and critics of the present Administration.  The New York Times article quoted one of the many foreign analysts vindicating the bullish stance taken by President Benigno Aquino III in his last State of the Nation Address:  "Trinh D. Nguyen, an economist with HSBC in Hong Kong, said the  Philippines had been benefitted from an increase in government efficiency and revenue collection as well as aggressive actions to address corruption, like the impeachment of the chief justice of the Supreme Court and the arrest of former President Gloria Macapagal Arroyo on suspicion of accepting kickbacks and of misusing government lottery money."

          With an average GDP growth of 6.1% in the first semester of 2012, the Philippine economy registered the highest growth in the whole of East Asia, with the exception of China that most probably grew at 7.5%, a significant slowdown from its historical record over the last ten or more years of 9% or more.  Even India slowed down to 5.5% from its usual 7 to 8% since the early 1990s.  Vietnam will not grow more than 4% this year.  Probably, Indonesia is the only country that can come close to the Philippine growth rate.  Since all analysts are agreed that the engine of growth of the Philippine economy is domestic demand (not exports), the second semester can even improve on the first semester considering the acceleration of infrastructure spending as the rainy season ends, the numerous repairs that have to be made after the recent floods, the usual splurge in consumption spending in the last quarter when Christmas starts as early as September and the competition of politicians to impress their respective constituents with projects before the spending ban preceding the elections in May 2013.

          Among the many hard facts cited by President Aquino in his last SONA were those referring to the rapidly expanding sector of business process outsourcing (BPO).  Lest we forget, let me quote from the English version of the speech which was largely delivered in Filipino:  "Look at the BPO sector.  Back in the year 2000, only five thousand people were employed in this industry.  Fast forward to 2011:  638,000 people are employed by BPOs, and the industry has contributed 11 billion dollars to our economy.  It has been projected that come 2016, it will be bringing in 25 billion dollars and will be employing 1.3 million Filipinos.  And this does not include the estimated 3.2 million taxi drivers, baristas, corner stores, canteens, and many others that will benefit from the indirect jobs that the BPO industry will create."   President Aquino has hit the nail on the head:  the BPO sector differs significantly from other industries that have been responsible for earning foreign exchange for the Philippine economy:  mining, agribusiness, electronics, garments, furniture, etc.  These export-oriented sectors had small multiplier effects on domestic consumption, either because they did not employ too many Filipinos, or the ones they employed such as in garments, electronics, and furniture had limited demand for consumption goods.  The more than 600,000 workers in the BPO sector belong to the middle class and have a significant impact on market demand for all types of consumer goods and services.  Of course, the same can be said for the ten million OFWs whose families automatically are raised to at least low middle class status.

          That is why, as the New York Times article emphasized, it is the youthful populace that powers the BPO sector that helps make the Philippines an economic bright spot in Asia.  More concretely, Frederic Neuman, a senior economist at HSBC in Hong Kong, is quoted by the New York Times justifying HSBC's very bold forecast that the Philippines will be the 16th largest economy in the world in 2050:  "A high population growth rate, long considered a hindrance to prosperity, is now often seen as a driving force for economic growth.  About 61 percent of the population in the Philippines is of working age, between 15 and 64.  That figure is expected to continue increasing, which is not the case for many of its Asian neighbors, whose populations are aging....There are a number of countries in Asia that will see their working-age populations decline in the coming years...The Philippines stands out as the youngest population.  As other countries see their labor costs go up, the Philippines will remain competitive due to the sheer abundance of workers joining the labor force."  The words of Mr. Neuman were recently echoed by Prime Minister B.G. Lee of Singapore when he appealed in his National Rally Day speech to the women of Singapore to be patriotic by getting married and having a good number of children.  Governments of South Korea, Taiwan, Hong Kong and especially Japan are issuing the same exhortations.

          Predictably, the generally upbeat report in the New York Times also pointed out our major weaknesses:  "Recent flooding, which by some estimates submerged 50 percent of Manila, illustrates a shortage of infrastructure that makes the Philippines highly vulnerable to disasters.  The Philippines is hit with several deadly and devastating natural disasters every year."   In his SONA, President Aquino already anticipated this type of criticisms:  "A large portion of our job generation strategy is building sufficient infrastructure.  For those who have gone to Boracay on vacation, you have probably seen our newly christened terminal in Caticlan.  The plan to expand its runway has also been laid out.  And we will not stop there. Before the end of my term, the New Bohol Airport in Panglao, New Legaspi Airport in Daraga, and Lagindigan Airport in Misamis Oriental will have been built.  We will also upgrade our international airports in Mactan, Cebu, Tacloban, and Puerto Princesa Airport, so that they can receive more passengers; in addition to remodeling the airports in Butuan, Cotabato, Dipolog, Pagadian, Tawi-Tawi, Southern Leyte, and San Vicente in Palawan.

          These are not empty promises.  In the numerous investment road shows in which I have participated in the U.S. and all over Asia, I have talked to many foreign groups who are eager to partner with local investors in the building of infrastructures in the Philippines.  There are many willing Philippine conglomerates such as Metro Pacific, San Miguel Corporation, the SM Group,

the First Metro Group, DMCI, Aboitiz, Ayala, etc. who can partner with these foreign investors.  With the positive assessments coming from dozens of  foreign bankers and analysts, I have no doubts that in  the next two to three years, we will see a bigger flow into infrastructure investments, part of which have been outlined broadly by President Aquino in his SONA.  Indeed, as Jim Walker quipped in his latest report, the Philippine economy is PERFECTLY FINE.  For comments, my email address is bernardo.villegas@uap.asia.