What's in store for the Philippine economy?
By Raul Nicolas S. Tomas
In Siargao, an island off Mindanao, the ride from Sayak Airport to the town of Gen. Luna takes about one hour over 30 kilometers of paved and rough roads that skirt around mountains, grazing land and mangroves.
Despite the island’s relative remoteness, Alex, the driver I commissioned on my recent visit there, was knowledgeable enough to explain to me and my companions how tourist arrivals to the island have slowed down because of the global financial crisis and the A(H1N1) virus – tourism has become the main source of income for the local population.
Clearly, the issues that are worrying leaders of economic powerhouses are also on the minds of regular folks in the remotest places.
And yet, due to the very nature of forecasts and projections, experts, and people like Alex, cannot agree on what the future holds for the Philippines.
A couple of realizations can be gleaned from our driver's comments.
First, that this is indeed the information age, where no one has an excuse not to know what is going on around the world. Second, that the world economy has become so integrated that even a flu strain that first became evident in Mexico can eventually affect the livelihood of people in Siargao.
Compared to its neighbors, however, the Philippines may be one of the least affected by developments in the economies of the developed countries.
Our economy hasn’t stumbled as badly as our other Asian neighbors, but in the same token, we also haven’t grown as fast as these countries during boom times.
In the current global financial crisis, for example, Singapore, Malaysia and Thailand have been hardest hit in the Asean region, with negative growth rates in the first half of 2009. On the other hand, the Philippines is one of three countries (aside from Indonesia and Vietnam) that registered positive year-on-year quarterly real growth rates in Gross Domestic Product (GDP) among the major Asean economies (or the so-called Asean-6). True to form, however, the Philippines' growth rates are generally not as high as the other two countries. The obvious question begging to be asked is: What's so different about the Philippines and what role will such differences play (if at all) in the country’s recovery from the current economic crisis?
The answer to the first part of the question is actually relatively easy since the Philippines is indeed quite different economically from the Asean-6. Except for Indonesia, the Philippines has the lowest ratio of exports and total international trade to national income among the Asean-6 – 29.4 percent and 63.4 percent, respectively, in 2008. The country has also consistently attracted the lowest level and growth rate of foreign direct investments.
Taken together, these characteristics make the Philippines the least integrated to the world economy among the Asean-6.
Thus, when the economies of the developed countries began to stall and contract, the impact on the Philippines was not as severe.
This is not to say that the country is completely unaffected. On the contrary, there is another conduit through which the impact of the world economy is more directly transmitted to the Philippines: remittances from overseas Filipino workers (OFWs).
In 2008, remittances from OFWs reached US$18.6 billion; that’s the fourth largest in the world.
According to the World Bank, the ratio of remittances to the Philippines from abroad to the country’s GDP has been steady at about 10 percent per year over the past six years, the highest among East Asian countries. It has often been believed that the dollar remittances drive private consumer spending in the country, which represents 70 percent of GDP. While this is good for economic growth in terms of statistics, it does not really have a positive effect on future growth as the r
emittan ces are not necessarily channeled to long-term productive use. There has been increasing evidence, however, that remittances also encourage households to spend more on education, medical care and housing, which can help sustain long-term growth.
With the slowdown in the economies where the OFWs are based, particularly in the United States where about half of remittances come from, the International Monetary Fund forecasts a 7.5-percent decrease in remittances from OFWs in 2009. From January to July 2009, however, remittances have actually increased by 3.8 percent versus the same period last year, with remittances through banks reaching $9.97 billion. How could remittances to the Philippines defy the expectations of some experts?
At a recent talk given to the executives of Punongbayan & Araullo, Dr. Bernie Villegas of the University of Asia and the Pacific said that the IMF came up with an estimate of how much global remittances will decline in 2009 and then distributed the decline equally among the countries. Such methodology, he said, does not account for the preference of the receiving countries for Filipino workers, which Dr. Villegas himself witnessed.
During a trip to Spain, Dr. Villegas noticed that most of the workers at the restaurant he was dining at were Filipinos. When he asked the owner about this, the restaurateur gamely answered that his patrons like Pinoys because, unlike other workers, they make it a point to bathe everyday. Through personal experience, another possible reason could be a substitution effect, whereby Filipinos abroad send more remittances during times of crises, thinking their families need the extra help. This can help combat the possible effects of the global recession. Whatever the reason, it is apparent that OFW remittances continue to prop up the economy despite its predicted weakening.
Does this mean then that the Philippines has this elixir that can guarantee continued economic growth? Well, maybe not an elixir, but as long as OFWs continue to channel large chunks of their earnings to their families here, remittances will remain one of the, if not the, primary driver of the economy. Let’s not forget, however, that a weakening in OFW remittances in the future could also spell big trouble for the economy.
In this way, it can be said that the Philippines is in the same boat as its neighbors in that our economy is also captive to forces outside the country. The only difference is that we are dependent on remittances while our neighbors are dependent on trade. Thus, even though the Philippines is finding ways to power through this global recession, the country cannot escape the fact that like its neighbors, it is highly dependent on a handful of rich nations.
In his Far Eastern Economic Review article on Southeast Asia earlier this year (Jan. 20, 2009), Abe De Ramos observed that the contribution of export revenues and worker remittances to the Asean-6 economies actually emphasizes “the troubling reality that developing Asean nations are struggling to create their own wealth within their respective boundaries.”
More efficient use
What do all these mean for ordinary Filipinos like Alex, our driver in Siargao? For one, we really have to thank our OFWs, who have been keeping our economy afloat through these tough times. Also, we have to make more efficient use of the resources they remit to us by engaging in more entrepreneurial activities and by making wise investments – both in physical and human capital.
Our efforts, however, will only have a major impact if the government gets serious in cleaning up and strengthening our economic systems to ensure that all resources are put to productive long-term use. This leads to one more thing we can easily do: participate actively and diligently in the election of people who will lead us. After all, our leaders reflect who we are, and we want our ref
lection to be as progressive and positive as possible. And while there is no guarantee when it comes to economic forecasting, our entrepreneurial efforts, combined with the government’s commitment to good governance, are prerequisites for wealth to be possible even for ordinary people like Alex.
(The author is a Director with Punongbayan & Araullo’s Specialist Advisory Services division.)
(As published in the Philippine Daily Inquirer, 9 November 2009. A version of this article also appeared in The Philippine Star, 9 November 2009.)