Bernardo M. Villegas
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Emerging Markets

           Some twelve years ago, Jim O’Neil,  an economist working for the investment bank Goldman Sachs, identified four large economies—Brazil, Russia, India and China—as the  “emerging markets” that will dominate the global economy in the first half of the twenty first century.  The acronym “BRIC” became fashionable in economic literature.  Two years later, he enlarged the list of emerging markets by adding another eleven (The Next Eleven or N11).  These fourteen economies with domestic markets of at least 50 million consumers are supposed to lead the world in attracting investments from all over the world, in growing the GDP most rapidly, and most importantly expanding their middle class households at a phenomenal rate.  Lucky for us, the Philippines was one of the three Southeast Asian countries included in this exclusively list.  The other two are Indonesia and Vietnam.  Thailand was excluded because it is ageing too fast, already suffering from serious shortages of labor.  Malaysia, Singapore and Brunei are not part of the lucky eleven because their respective populations are too small. Myanmar, Lao and Cambodia are still too poor to qualify.

          Some economists have coined the symbol EAGLES to refer to these fourteen emerging markets.  Eagles stands for Emerging and Growth Leading Economies.  Unlike the “tiger economies” of the last century (i.e. Singapore, Taiwan, Hong Kong and South Korea), these Eagles have very large populations and are generally rich in natural resources (the prime example is Indonesia that can boast of having any resource to be found on this planet, starting with 14,000 islands!).  These emerging markets may face short-term economic and financial crises (like the 1997 East Asian financial crisis) but their large domestic markets and rich natural endowments can enable them grow at above-average rates over the long run.  They will act as magnets to foreign capital (both portfolio flows and foreign direct investments) for the foreseeable future.

          A recent article that appeared in the Financial Times (May 14, 2015) reported that “economies in emerging markets slow to levels not seen since aftermath of financial crisis,” citing data from the Institute of International Finance (IIF).  The IIF said average growth in GDP across emerging markets fell to 1.6 percent in the three months to the end of April 2015 compared with the previous three months. It is expected that EM growth in the second quarter could turn out even weaker.  A forecast for the whole year of 2015 showed that average growth in emerging markets could fall to an annual rate of 3.5 percent.  The downturn was strongest in Latin America, led by negative growth in Brazil.  The bright spot is in the emerging markets of Asia, in which the Philippines stands out as one of the fastest growing economies.  As the Philippine Government reverses last year’s trend of underspending in infrastructures, very much needed to present a good image for next year’s elections, GDP growth could very well be at least 7.5 percent annually.  This will highlight the leading role that the Philippine economy will play in Asia’s emerging markets.  As the FT. article noted:  “The downturn was strongest in Latin America, led by negative growth in Brazil.  The pace of GDP growth was strongest in emerging Asia, although there, too, the IIF’s indicator suggested the pace had slower sharply.”

          These observations make it very important for the Philippines to seize the opportunity of significantly increasing its rate of investment from the mediocre 20 percent of GDP to a much higher level (say, 30 percent) in the next ten years by taking advantage of its being singled out by foreign investors as an attractive site for direct investments, especially in infrastructures, public utilities (energy, water, and telecom), tourism and labor-intensive manufacturing.  We have a “young, growing and English-speaking population” and a very stable macroeconomic environment.  Unfortunately as Dr. Gerardo Sicat has pointed out repeatedly, we have the lowest levels of FDIs in East Asia because of numerous restrictions found in our Constitution against foreign direct investments.  Our being a lead emerging market will come to naught if we do not use the next election in May 2016 to conduct a plebiscite that will amend our Constitution.  I hope the Philippine Congress will be up to the challenge of passing the law amending the Philippine Constitution in the remaining months of the present Administration.  For comments, my email address is