Bernardo M. Villegas
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Drawing Praises from Habitual Pessimists

           I had been seeing positive news about the Philippine economy during even our darkest moments in the 1980s and the 1990s.  Some have called me the "prophet of boom” because I have the instinct to see the glass as a fraction full even if it is mostly empty.  Today, however, almost everyone is a prophet of boom for the Philippine economy.  Even those who have no special love for our present leaders have to admit that the Philippine economy is one of the best performing, not only in the Asian region, but in the world.  Even compared to the original  emerging markets like  Brazil and Russia (part of BRIC), the Philippines is being cited as one of  the most resilient.  Together with Indonesia, the Philippines stands out among the so-called Next Eleven.  Banks, investment analysts, international organizations like the World Bank and the IMF and other international commentators are running out of superlatives when they talk of the Philippines, using such phrases as "the new tiger," a "breakout nation," and the "darling of financial investors."

          There are two internationally known economists whose very positive views about the Philippines should weigh more than others because they have been known to be habitual pessimists about countries like the Philippines.  I am referring to Nouriel Roubini, an economics  professor at New York University, and Jim Walker, a veteran investment analyst in Asia who manages an independent research service called Asianomics Limited.   Dr. Roubini  was one of the very few who foresaw the US recession and the ongoing Great Recession.  He continues to be less than sanguine about the prospects of recovery of the advanced economies in the near future.  Jim Walker is a very recent convert to the bright future of the Philippine economy.   With reason, he advised his clients for a long time to underweight Philippine stocks.  For the past year or so, he has changed his tune.

          In a recent Investment Summit organized by the First Metro Investment, Dr. Roubini referred to the Philippines as an "economic success."  As reported in the Business World issue of January 31, 2013, he heaped praises on the Philippine economy:  "The economic fundamentals of the country have vastly improved.  And you see the results in terms of overall growth, low inflation, low fiscal deficits, low stock of public debt, positive external balance, low external debt, the performance of equity markets and bond markets and of the currency."  Coming from a master of macroeconomics, such complimentary remarks speak volume about our macroeconomic fundamentals.  Dr. Roubini agrees with the direction the government is taking, especially as regards the "macroprudential approach taken by monetary authorities in overseeing the financial system and dealing with currency appreciation."   He is not worried that the Philippine economy depends heavily on OFW remittances.  Debunking the myth that services are not a strong foundation of sustainable growth, he said that "the right thing to do is to think about your comparative advantage.  Exports of services have led to success in places like India and the Philippines...There is nothing in exports of goods that make them better in principle than exports of services...You can produce lots of goods very cheaply if your wages are damn low.  But being stuck in low-value added production of say, t-shirts, is not a source of long-term economic growth."

          Dr. Roubini, however, has alerted our leaders about a possible fly in the ointment:  our very low rate of investment as a percentage of GDP which still hovers around 20 percent when most of our neighbors like Indonesia and Vietnam are in the thirties.  A major solution to this problem is to introduce more competition in order to address monopolies and oligopolies.  To do this, the economy must be made more open to foreign direct investments.  Capital markets must be deepened and liberalized, and the public-private partnership program executed in time.  During the open forum, I seconded Dr. Roubini's opinion about FDIs by lambasting once again the "Filipino First" mentality still ingrained in the minds of many of our government officials, backed up by the people in the private sector who are benefiting from their stranglehold of key industries that result from the many restrictions against foreign direct investments.

          On is part, Jim Walker was very positive in his most recent appraisal of the performance of the Philippine economy.  In a report that was published on February 1 in a private communication to subscribers to his services, Dr. Walker definitely opines that the present high growth of the Philippine economy is sustainable:  "Full year real GDP growth in the Philippines hit 6.6% in 2012.  That was lower than 2010's 7.8% but that was a rebound year after the global financial crisis.  In a year when external trade was a drag on performance everywhere, this was a sterling performance.  It would be stretching things to credit this all to one man but our hats off to President Aquino and his team.  We have never seen such sure-footed governance in the Philippines.  His anti-corruption and public procurement transparency measures are bearing fruit that the Philippine could only dream of in the lean Estrada and Arroyo years.  Government makes a huge difference to the private sector.  Good government policies turn accumulated profits into investments and expansion.  Bad government policies turn accumulated profits into cash piles and zaitech.  That is why the Philippines is growing at 6.6% and the US is growing at 2.2%.  As we wrote in Asianomics No. 3/2012,... sustainable growth in the range of 6 - 8% is well within the Philippines reach if the government follows through with its fiscal clean-up plans.  It has done so.  The National Economic Development Authority has just approved four projects worth P80 bn (US$2bn) which will now go to tender.  That will boost growth further.  This particular tiger is just beginning to snarl."

          I am very glad that a number of very prominent international economists have taken my place as the "prophet of boom" for the Philippine economy.  Now, I can afford to nitpick about what is not going right.  I will continue to advocate for the amendment of the economic provisions in the Constitution that discourage foreign direct investments.  I will join the chorus of exporters and OFWs who warn our monetary authorities about the dangers of a strong currency.  I will watch very closely how the RH Bill will be implemented to make sure that no aggressive approach is taken to foster a contraceptive mentality among the population, whether rich or poor, so that we do not plant the seeds of a demographic winter that has already come very prematurely to a still impoverished country like Thailand.  I will continue to sing praises to the demographic dividends that make Vietnam, Indonesia and the Philippines the "darlings of manufacturing investors" that are moving away from China that no longer can boast of low-cost labor.  For comments, my email address is bernardo.villegas@uap.asia.