Page last updated at 12:16 Asia/Manila, Wednesday, 11 April 2012 PH
The start of the last Lunar New Year on January 23, 2012 will long be remembered, for better or worse, for the spectacular news from economists of the HongKong Shanghai Bank Corporation (HSBC) that the Philippines will emerge in 2050 as the sixteenth largest economy in the world. Many eyebrows were raised because exactly a year ago, a similar forecast by the same bank did not include the Philippines even among the top countries. In fact, the Philippines did not even appear in the ranking because only the top 30 were enumerated and the Philippines ranked 43 last year. Within a space of 12 months, perceptions about the Philippines had changed so dramatically that this former "sick man of Asia" was catapulted by 27 places to number 16. As an editorial in the Philippine Daily Inquirer that appeared on January 23, 2012 remarked, "Because it was released in the run-up to Monday's Chinese Lunar Year, the HSBC report, 'The World in 2050,' has been met with incredulity, with critics attributing it to the geomancy typical of the season." How is it possible for a country to so improve its fundamentals within a space of 12 months for it to be perceived as deserving to leapfrog by 26 places?
Before we answer this question, let us read exactly what Karen Ward, Senior Global Economist of HSBC, wrote in the lead article announcing the forecast entitled "The Wider World in 2050": "When HSBC published 'The World in 2050' in January 2011 we gave a projection for the Top 30 economies by size in mid-century from a pool of today's largest 40 economies. This update casts a wider net and seeks to identify the Top 100 and highlights some fascinating outcomes. The larger universe increases competition for the Top 30. The original report highlighted the good prospects for the likes of China, India, Malaysia, Indonesia, Colombia and Turkey. With this extension, the Philippines and Peru are making the headlines. The Philippines is set to become the world's 16th largest economy, up 27 places from today, while Peru could sustain average growth of 5.5% for four decades and jump 20 places to 26th position." An accompanying listing published in CNN International showed the Philippines surpassing such countries as Indonesia, Australia, Argentina, Egypt, Malaysia, Saudi Arabia, Thailand, the Netherlands, Poland, Peru, Iran, Colombia, Switzerland and Pakistan in the list of the top 30 by the year 2050. Incredible?
Not really. Here, the important phenomenon is what is called in management parlance the "tipping point." What seems to be a sudden, revolutionary and dramatic transformation is in fact the result of at least a quarter of century process of slow and painstaking reforms--political, financial, market, social and governance reforms--that began in 1986 after the ouster of the authoritarian Marcos regime. Unlike in still existing authoritarian regimes, as China and Vietnam, where reforms can be rammed down the throats of the citizenry, the democracy restored under the presidency of Cory Aquino was true to the description given by Winston Churchill: democracy is the worst form of government except all other forms. It has taken over 25 years for the country to reach a critical mass of reforms that can now make it possible for the economy to register an annual growth at 7 to 10% in its GDP, the rate of growth necessary to make a dent on the intractable problem of mass poverty, in which some 26 to 30 per cent of the population live in dehumanizing conditions. The year 2011 was the watershed in which objective observers like the HSBC perceived the country as poised to grow at double its historical rate of 3 to 4 percent. The perception of those who have become bullish about the Philippine economic situation is that in the first full year of the Administration of President Benigno Aquino III, the Philippine economy has finally accumulated a critical mass of reforms that will enable it to start growing at 7 per cent or more over the next twenty years.
What were these reforms that were being implemented step by painful step? The first fundamental reform was the restoration of democracy under the Administration of Cory Aquino. Thanks to her remarkable courage and persistence, she was able to thwart seven or more attempted military coups, sending the rebellious soldiers back to the barracks. Because of the constant threat to her life and those of her Cabinet, she had very little time and energy for fundamental economic reforms. The inward-looking, protectionist and feudal structure of the economy hardly changed during her watch. The only significant improvement in the economy during her Administration was the strengthening of the financial sector and the return of the Philippine economy to the international financial markets, after having declared a debt moratorium in 1984. Thanks to the financial reforms started during her presidency, the Philippine banking sector is now one of the most stable in the East Asian region.
Then came the Administration of President Fidel V. Ramos who was terribly handicapped at the very beginning of his presidency with the most crippling energy shortage, a situation in which Manila was experiencing daily ten or more hours of no electricity. Thanks to the privatization of power plants through the Build-Operate-Transfer (BOT) and Build-Operate-Own (BOO), electricity supply was normalized in no time at all, albeit with huge economic costs as electricity rates soared to very high levels making Philippine electricity prices the highest in the region, second only to Japan. The second most significant reform under the Ramos Administration was the deregulation of the telecom industry. Once the monopoly of PLDT was broken, the Philippines took a quantum leap in the availability of telephone lines, especially in the mobile sector. The Philippines could have not possibly risen to the top of the world in Business Process Outsourcing without the broad band facilities made possible by the telecom deregulation mandated by the Ramos Government. It was during this Administration that the Philippines started to introduce market-oriented reforms to restructure its basically mercantilistic economy.
Then came the short-lived Administration of President Joseph Estrada. In those two colorful years at the dawn of the new millennium, the Estrada Government helped the economy to make a 180 degree turn away from inward-looking, capital-intensive industrialization towards the most important task of endowing the countryside with farm-to-market roads, irrigation systems, post-harvest facilities and other infrastructures needed by the small farmers. Aided by his Secretary of Agriculture, now Senator Edgardo Angara, President Estrada refocused national efforts towards rural and agricultural development, which our neighboring country Thailand started in the 1980s enabling it to surpass the Philippines in per capita income by the end of the last century. But better late than never. To her credit, President Gloria Macapagal Arroyo continued the task begun by her predecessor and endowed the Philippine Archipelago with a vast network of roads, highways, seaports, bridges and other infrastructures that now make up the so-called Philippine Nautical Highway which links some of the major islands to one another, facilitating cargo and passenger traffic. This seamless transport system is now allowing the Philippines to grow its tourism sector by double-digit rates every year. It has also brought down the transport costs of food products and other basic commodities.
Now, under the present regime of President Benigno Aquino III, the focus on "infrastructure, infrastructure and infrastructure" has intensified through the so-called Private Public Partnership Program (PPP), which is really just a new name for the BOT and BOO program under the Ramos Administration. This merely highlights the fact that over the last twenty five years, there has been a series of reforms capitalizing on previous reforms which, after twenty five years, have built a critical mass of favorable conditions that now make it possible for the Philippine economy to match the high growth rates of its neighbors. This is not wishful thinking. Already in the last five years, the Philippine economy registered a growth rate of more than 7% even in the midst of the most turbulent global environment. In 2007, the beginning of the sub-prime crisis which subsequently led to the collapse of many economies in the advanced world, Philippine GDP grew at 7.1%. In 2010, when the global economy was still weighed down by the Great Recession, Philippine GDP grew by 7.6%.
The more positive perception about the Philippine economy among foreign investors was obvious to those of us who just conducted a non-deal investment road show in three key U. S. cities, i.e. Washington, D.C., New York and San Francisco. I traveled with a team of private sector representatives from the mining, construction, real estate, and BPO sectors and met with record numbers of U.S. and other potential investors. The sessions were literally standing room only (SRO). In fact, because of strict building code regulations in the U.S. about room capacities, some interested parties had to be turned away. There is no doubt in my mind that the Philippines is finally on the radar screen of investors from all over the world, especially in such sectors as agribusiness, infrastructures, energy, mining, tourism, logistics, health care, IT-related services and high-value manufacturing. The investment bankers we met expressed the opinion that before 2012 is over, the Philippines will get a credit rating of investment grade, following closely the footsteps of Indonesia. It is not a coincidence that it was the aggressive campaign against corruption in the first five years of the Administration of President Susilo Bambang Yudyohono (SBY) that turned around negative perceptions about Indonesia. It is the unwavering political will of President Benigno Aquino III to uproot corruption in the Philippines that has enabled the Philippines to reach the tipping point towards rapid economic growth. For comments, my email address is email@example.com. Erratum: The last paragraph should read $800 million instead of $800 billion [Arguments for Solar Energy Now, Feb. 20, 2012).