Bernardo M. Villegas
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What to Expect in 2012

           Before I do any predicting for 2012, let me at least establish my credibility in economic forecasting by citing one example in which I hit the mark.  At the beginning of the year and almost throughout the following quarters, there were many forecasting groups, especially with foreign banks, who said that the exchange rate would be close to P40 or even less to the U.S. dollar by the end of 2011.  I systematically maintained that the year would end with the peso at close to P44 to $1.  Well, on December 29, the last working day of the year, the weighted average of the exchange rate was at P43.919 to $1. 

          Now, mark my word.  Despite all the lamentations about the GDP growth slowdown during the first three quarters, I am still forecasting a GDP growth of close to 5% for the whole year of 2011 as a result of a strong last quarter fueled by accelerated infrastructure investments at both the national and local government levels as well as a splurge in consumption that the holiday season witnessed, mostly from funding of OFW remittances, which in the whole of 2011 exceeded $23 billion.  The tragic results of the devastating typhoon Sendong prompted our OFWs to be extra generous in the amounts they sent home for Christmas.

          I expect at least a 6% growth of GDP for the whole of 2012.  Thanks to our not being too export dependent, we are partly insulated from the stagnation that the world economy will experience in 2012.  Exports account for a little over 30% of our GDP in contrast with close to 200% in such tiger economies as Singapore and Hong Kong.  These rich countries will see their GDP suffering from either a decline or a significant slowdown.  Not the Philippines nor Indonesia, nor China nor India.  They can thank their large populations which guarantee a large domestic market for their local businesses.  Although I do not accept at face value the prediction by some population commission officials that the Philippine population will reach 97 million by the end of 2012 (it will be closer to 95 million), I welcome the talk of a large population.  A large population attracts investors, both domestic and foreign, because of the strong domestic market they see.  Even the lowest-income households (the so-called D and E markets) can offer attractive markets for the savvy business man who knows how to mine the "bottom of the pyramid."  Ask Procter and Gamble, Unilever, Jollibee, McDonald's, Alaska Milk Corporation, Lucky Me, Nestle, etc.  They are creative enough to design products that can be sold to the poorest of the poor.

          Because of expert management by people in our Central Bank, our inflation rate will be controlled at 3 to 4%.  Foreign reserves will be reaching an all-time high of $80 billion before the year is over, preventing any significant depreciation of the peso in the very volatile global environment. The lower rate of inflation, decreased commodities prices, and abundant liquidity in the financial sector will benefit the investment community, especially in such sectors as infrastructure, real estate, construction, BPO and KPO, mining, energy, agribusiness, tourism, logistics, transport, telecom, education and health care. Both investment and consumption will be engines of growth of the economy for the Year of the Black Water Dragon.  Just to humor a geomancer I overheard in a New Year's television program, let me agree with his "prediction "  that the "water" attached to the Dragon symbolizes a flood of investments and consumption expenditures in the Philippines for 2012.  This "flood" is made possible by the significant increase in domestic savings over the last four to five years and the still healthy demographic profile of the country in which the young still outnumber significantly the senior citizens.  To the RH Bill proponent, let me repeat:  It's the large population, stupid!

          What about "inclusive growth"?  Will the growth lead to alleviating mass poverty?  I am optimistic because I see the efforts of Vice President Binay complementing the excellent work of the economic team in controlling inflation and mobilizing funds for investments with pro-poor projects.  I see the Vice President trying to replicate at the national level what he did when he was Mayor of Makati in ensuring that growth in one of the richest cities in the country would trickle down to the poor in terms of quality education in the public schools, health care, housing and welfare for the senior citizens.  It was a very wise move of the President to assign the Vice President to two of the most effective channels to uplift the conditions of the masses:  social housing and OFW welfare.  Another source of optimism is the work I see being done at the Department of Public Works and Highways whose leadership is addressing the decades-old problem of inadequate rural and agricultural infrastructures.  Next to providing their children with access to quality public education, the greatest service we can give to the poor, who are mostly in the rural areas, is to endow them with the infrastructures they need to make their small farms productive and to bring their produce to the markets cost effectively.

          We may not achieve our targets for the Millennium Development Goals by 2015, but we are headed towards the right direction.  We are applying emergency measures to alleviate the economic sufferings of the poorest of the poor through the Conditional Cash Transfer program.  But even more important for the medium-term reduction of poverty, we are creating the right environment for both public and private investments in the countryside, the only sustainable way of creating employment opportunities and thereby reducing mass poverty. For comments, my email address is