Let’s count our economic blessings (Part 1)

There is a lot of talk about the possibility of another global financial crisis resembling the East Asian financial crisis of 1997 to 2000 or even worse, the Great Recession of 2008 to 2012 as a result of the serious financial problems faced by such troubled economies as Argentina, Venezuela, Turkey, and South Africa. Some alarmists are saying that contagion from these problematic economies may be exacerbated by the trade war that the US is waging against China and the uncertainty in the Euro zone coming from a possible hard landing of Brexit. If worse comes to worst, however, we can be confident that the Philippines will be one of the least adversely affected by another global crisis. We proved this in 1997 and again during the Great Recession that started in 2008.

As we are ending another year in which the Philippines can still be among the three or four fastest growing economies in Asia, in keeping with the spirit of the Christmas Season, let us count our economic blessings. Why is it that during times of crisis, the Philippines is one of the most resilient economies among the emerging markets? In 1998, a year after the East Asian financial crisis erupted, the Philippine GDP declined only by 0.6% as compared to -13.1% in Indonesia, -7.6 in Thailand, -7.4% in Malaysia, -5.9% in Hong Kong and -5.5% in South Korea. In 2009, a year after the collapse of Lehman Brothers that started the crippling Great Recession, the Philippine GDP still grew at 1.1% as Thailand, Singapore, Malaysia, Hong Kong and Brazil all posted negative growth rates.

In explaining the resilience of the Philippine economy during times of global crisis, we have to look back at least at the last thirty to forty years of slow but sure progress in our economic institutions. Such progress has been so slow that it is easy to overlook them and only focus on the very obvious weaknesses of the Philippine economy such as corruption, lack of competitiveness, difficulty of doing business, a backward agricultural sector, and a great deal of political noise (especially in today’s environment). That is why it would be good to pause from time to time and count our blessings which are the bases for my always seeing that the Philippine glass is still half-filled.

Let us begin with the energy sector. Thanks to what happened in the 1970s, during which our sector was heavily dependent on imported petroleum (about 95% of our energy requirements), our economic managers started a long-term strategy to invest heavily in geothermal, hydro, dendro and natural gas so that today our dependence on petroleum has been brought way below 50%. In fact, today we are the second geothermal power in the world, next only to the US. Can you imagine if we continued to be 95% dependent on petroleum when global oil prices reached more than $80 per barrel in recent months? Our inflation rate would have been doubledigit, resembling what happened in the years after the EDSA revolution when we were suffering CPI increases of 50% or more.

Then thanks to the deregulation, privatization, liberalization of the electricity sector during the Ramos presidency, there is sufficient supply of power in Luzon, Visayas and Mindanao, making brownouts the exception rather than the rule, which was the case in the late 1980s and early 1990s when Metro Manila and other major cities were suffering from hours and hours of no electricity daily. The downside, of course, is that we still have the highest electricity rates in Southeast Asia, making it difficult for our manufacturing sector to be competitive with its counterpart in Vietnam, Thailand and Indonesia. This may be the reason why our economic managers are resigned to the fact that we may have to depend heavily on coal as a source of electric power for a long time to come until the renewables can truly bring down the cost of power. We may also have to grapple with the very contentious issue of whether or not we can entertain once again the possibility of nuclear power in the immediate future. There are those who still believe that nuclear is the cheapest source of power in today’s environment.

Thanks to the long-term financial reforms started during the Cory Administration, our monetary authorities are considered among the best in Asia (arguably the best in Southeast Asia) as time and again demonstrated by the granting to our Central Bank Governors the Best Governor awards year in and year out. Our Central Bank au- thorities have perfected the art of inflation targeting and have managed to professionalize the staff which are truly independent of political influence. As anyone who has dealt with officials of the BangkoSentral ng Pilipinas can attest, management succession has been very well undertaken through the years so that we can expect a continuing flow of very competent managers who can competently run our Central Bank for years to come. Parallel to the outstanding performance of our Central Bank, there has also been a long-term improvement in the quality of our fiscal managers. Also starting with the presidency of Cory Aquino and painstakingly sustained in subsequent Administrations, we have built a cadre of fiscal managers who can now guarantee that our fiscal deficit can be kept below 3% and debt-GDP ratio at close to 40% by prudent fiscal management. It is very unlikely that the Philippines will ever be in a fiscal crisis such has been experienced by countries like Greece, Turkey or Argentina. (To be continued)

For comments, my email address is bernardo.villegas@uap. asia.