[Editorials of The Connection] PHL economic reforms: Today’s the moment


The year that just ended for the Philippine economy brewed with optimism that even long-time skeptical Filipino

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economists were impressed with today’s levels of economic growth. “This is the moment for the Philippines,” said Felipe Medalla during a November convention by Filipino economists.

The developed economies continue to struggle. The heartaches continue for Greece and Spain, and the Eurozone had reached a record-high unemployment level recently. The United States Congress, when everyone’s celebrating the New Year with fireworks, barely passed legislation to give the country a breather from an impending “fiscal cliff” (a situation that, given American laws that put a cap into the country’s debt, left the country with no choice but to avoid that. Had the US fail to enact a law last Dec. 31, Americans would have to pay more taxes and get lesser pensions, thus the fears of another American recession loom).

And the Philippines? The stock market reached 6,000 points, and record-highs continue to be set on a day-to-day basis. Also setting a record high was the country’s dollar reserves, as remittances from overseas Filipinos (a big reason for the country’s rising foreign exchange reserves) are expected to reach another historic high. Property companies continue to enjoy continued demand for condominium units and houses.

While the Philippines continues to struggle in getting as much foreign direct investments (FDIs) and in revitalizing the local manufacturing sector, at the moment the current economic fundamentals are up and about.

Although, external and even internal threats loom. If the US, given its ongoing relief from the fiscal cliff, again fails to enact legislation in the coming months, immediately world markets will siren signals that the mightiest economy in the world will go back into a recession.

Luckily, the European Union is able to manage what could have been a debilitating impact of a European crisis had the struggles of Greece, Spain and now Italy grew. Bailout funds had been given to these countries in exchange for fiscal reforms, though at the expense of people’s jobs, livelihood and patience to government and government leaders.

So the Philippines ain’t spared from possible global or regional economic crises coming from these developed economies.

Interestingly, Deutsche Bank Asia-Pacific warns that the Philippine economy might “overheat”. When an economy is “overheating,” says chief economist Michael Spencer of Deutsche Bank Asia Pacific, “we’re talking about an economy growing faster than its long-run potential growth rate.”

Jobs remain the country’s perennial problem, as rising gross domestic product numbers as of late have never generated as much employment locally. Spencer adds there can be a “significant positive output gap” (positive output gap refers to the difference between GDP rates and employment rates).

If such is the case, local businesses will have a harder time to find workers, and these firms may have to pay higher salaries (especially since there are other opportunities for these workers, like working abroad).

So in a situation of higher labor costs and higher rent prices under a continually growing economy, business costs go up and firms will raise the prices of goods and services (i.e. inflation), affecting Filipino consumers.

Not surprisingly, the country’s central bank contends that the Philippine economy isn’t overheating. High growth rates and a stable inflation rate in the Philippines (currently among the lowest in the region) “have converged,” Bangko Sentral ng Pilipinas Deputy Governor Diwa Guinigundo was quoted in media reports as saying.

The whole debate has revealed that the Philippines, for the longest time a low-income country, has entered into an economic regime wherein there’s no way to go but up—and, more importantly, to sustain it. Can the Philippines do what China and India had done during the pre-global economic crisis era, when they had sustained over-7 percent GDP rates in a few years and continue to do so?

But going back to the economist Medalla’s remark, now is the time for the Philippines to boldly make economic reforms work. These reforms include finally formulating an industrial policy, easing the ways that foreigners and Filipinos here and abroad do business in the country, escalating the receipt of more FDIs here, and transforming overseas Filipinos’ remittances into more savings, investments and enterprises for the country.

It is time for these reforms to work because Philippine GDP performance in the past 30 decades (including today’s upswing) continues to be “boom and bust” —episodes of high then low growth, like a roller coaster. A nation hopes that under an anti-corruption government, necessary economic reforms that are enacted quickly will erase memories of a roller-coaster economic ride.