Bernardo M. Villegas
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A \'Glass Is Half-Full\' View

           For more than twenty years now, one of my most reliable sources of information about developments in Asia has been Dr. Jim Walker, who up to early this year, was a leading economic guru of CLSA Asia Pacific Markets in Hong Kong.  I first met him in 1991 when he was working for Peregrine Brokerage in Hong Kong.  We exchanged views about what was happening in the Philippine economy during the Administration of former President Cory Aquino.  As always, I took the view that the "glass was half-full" although the country had just experienced some nine military coup attempts and Manila was experiencing hours and hours of "brownouts" because of lack of electricity supply.  I think some of my optimism rubbed onto him.  As he reported in an article he wrote for his online magazine Asianomics (March 19, 2012), he came away from that initial three-day visit convinced enough to buy shares in the Philippine mining sector and ended up owning millions of the things.  He managed to cash out close to break-even.  His candid lament:  "But that was my first taste of being sucked in by Philippine enthusiasm."

          In a recent visit to Manila, he asked me to have lunch with him at the Sofitel Hotel.  As an incorrigible optimist, I exuded even more enthusiasm about the prospects of the Philippine economy in the coming ten to twenty years.  I gave him my current spill that the Philippine economy has reached a tipping point after 26 years of political, financial, market, social and governance reforms.  It is now poised to grow at 6% or more for the coming years.  He reminded me that this is not the first time that he has become optimistic about prospects in the Philippines only to see his hopes dashed.  But I insisted that this time it is different.  We have a President that is truly committed to combatting corruption to improve governance in the public sector.  Backed up by an equally determined private sector that is supporting his efforts through an Integrity Initiative, the Aquino Government has contributed the final ingredient for long-term rapid and sustainable growth.

          I was heartened to read the report that he sent me after his recent visit to Manila.  Of course, as a very thorough analyst, he talked to many top officials of both the public and private sectors and gathered both positive and negative views about current developments in the Philippines.  In fact, in the same issue of Asianomics where his article appeared, there are other less optimistic views expressed about Philippine economic prospects.  I am glad, however, that Jim Walker, a very influential analyst in the Asian investment community, ended his introduction to the series of articles contained in the publication entitled "All-In On Noynoy" with the following remarks:  "If the economic benefits of Mr. Aquino's political courage unfold in the way that I envisage, then an already sound corporate sector is about to be dealt a full house.  Investors should overweight the Philippines.  PLACE YOUR BETS."

          As an economist, Jim made sure that his report would be riddled with abundant data on economic indicators about the health of the Philippine economy.  What I appreciate, however, about his analysis was a listing of anecdotes and data points constituting more qualitative than quantitative insights into the marginal changes for the better that have occurred since President Benigno Aquino III came to power at the end of June 2010.  Let me summarize these observations from a very independent analyst of the Philippine situation:

          - At every shopping mall and busy restaurant area in Manila there are people handing fliers for condominium developments.  The surge in activity is confirmed by the crane count in Makati, Rockwell, Ortigas, Fort Bonifacio and other upscale areas of Metro Manila.  (Here, let me add the same frenetic activity visible in Metro Cebu, which Jim was not able to visit.)  Increased property activity suggests plentiful liquidity and positive income flows.

          - There is no sign of a bubble in real estate prices except at the very top end.  According to BSP estimates, in real terms Grade A office prices in Makati and Ortigas are only 49% of their peak 1997 levels.  Residential prices are 52% of peak in real terms.  In nominal terms, residential units have only just risen above the 1997 selling price.  Compared with elsewhere property prices in Manila are not in bubble territory.  There is plenty of upside.

          -There is renewed interest among Japanese investors, especially in locating in the export-processing zones of the Philippines Economic Zone authority.  Japanese banks are asking for Philippines economic assessments because of the interest being shown by their customers.

          -The appreciation of the yen and renminbi plus wage inflation in China and Vietnam are encouraging a new wave of outward investment or relocation within Asia.  (In my own travels around Asia, I have observed that this relocation moves will mainly benefit Indonesia and the Philippines, the only two remaining Southeast Asian countries benefiting from the demographic dividend of a very young labor force.

          -There is increased activity among private-equity funds in the Philippines for the first time in many years. (I can confirm this from my vantage point as a member of the board of one of the leading equity funds, the Filipino Fund of the Gaisano family.)

          -The introduction of one-stop investment shops, aimed at streamlining the business-registration process, will improve the Philippines ranking in the Doing Business Survey. (My own observation in this regard is that the hands-on policy of Secretary of Trade and Industry Greg Domingo and his two undersecretaries has raised significantly the effectiveness of both investment promotion and the clarity and consistency of investment policies.

          -There are now 250 registered economic zones, with more liberal tax regimes and easier business registration rules, under the auspices of PEZA.  (I would add that the most valuable asset of the PEZA is the non-nonsense and squeaky clean governance style of the longest staying top government official in the Philippine industrial scene, PEZA Director General Lilia de Lima.)

          -The concentration on corruption eradication in national government ministries and departments promises to reduce wasteful spending and improve the economic efficiency of public projects.  (My own take here is that the model department in combatting corruption is the Department of Public Works and Highways that used to be one of the most corrupt agencies in the past.  Under the leadership of Secretary Rogelio Singson, the DPWH has already saved billions through more transparent bidding and monitoring of construction projects.)

          - The regional open skies policy has encouraged tourism outside the Metro Manila area.  Already there are over 40 direct flights a month from Korea to Boracay:  International airports in Luzon (Clark), Cebu, Caticlan, Davao, Iloilo, Cagayan de Oro, Bacolod and Tacloban are all vying for tourist arrivals. 

          - For the first time in 11 years, the Philippine national budget for 2012 was delivered and approved on schedule in July 2011.

          - The award of the first PPP project in December 2011 to the highly respected Ayala Corporation is seen as a major step forward for good governance in public infrastructure projects.  Future projects promise to be less about skimming and leakages and more about efficiency and prompt delivery.

          - In the last year Philippines gross international reserves (worth US $77 billion as of end-February 2012) have outstripped the country's total external debt ($64.2 billion, including both public and private sectors) for the first time.  No externally induced crises are in prospect.

          - And the punch line:  As of March 13, 2012, the five-year Philippines CDS spread was at 141 basis points, down from over 200 basis points in the fourth quarter of last year.  This compared with Spain at 413 basis points;  Italy at 384 basis points;  France at 180 basis points; Indonesia at 153 basis points; and Thailand at 135 basis points.  The difference between the Philippines and these countries:  It is the only one not yet rated as investment grade!    Jim concludes:  Directionally, the money is on the Philippines. 

          His final message to investors:  INCREASE YOUR BETS IN THE PHILIPPINES.   Those who want to subscribe to Asianomics may go to its website,   For comments, my email address is