Looking for better times ahead; acid test for Estrada government
1999
THE YEAR that was saw the Philippine economy go through an acid test.
Opinions varied: the Asian economic crunch had minimal effect on the country as it had already hit rock-bottom during the ’80s, while optimists said the pre- crisis democratic processes laid the groundwork for the country to withstand the turmoil. Still, people are looking forward to better times ahead.
The years 1992 to 1997 established a momentum to achieve economic gains. The resolution of the power crisis by the Ramos administration boosted investor confidence.
From a virtual flat growth in 1992, the gross national product (GNP), or the sum of goods and services produced in a year, peaked at 6.9% in 1996. The performance rating for the Ramos administration was at its highest. From double digit figures in 1991, inflation dropped to below 5% in the first half of 1997... the lowest in several years.
The onset of the currency crisis in July 1997 prompted the Ramos regime to ask the incoming Estrada administration to continue its economic programs, or negate whatever gains have been achieved for the past years.
The Estrada government faced the brunt of the crisis: a doubling of the foreign exchange rate to P40:$1 from P27:$1, and a downscaled GNP forecast. As of last month, Socioeconomic Planning Secretary Felipe Medalla said the currency crisis has forced the government to scale down the GNP forecast to between 1% and 1.5%.
He said the government is being pressured by foreign funding institutions such as the International Monetary Fund (IMF) to scale down the assumptions, with IMF representatives even projecting zero growth. “I don’t blame them ( funding institutions), considering what they have experienced in other countries in Asia... Their views have been largely pessimistic.”
As of the first quarter of last year, economic growth slowed down as the crisis and the El Nino pulled down GNP to 2.5%. In the second quarter, the economy hit its lowest with a performance of -1.6%, the National Economic and Development Authority (NEDA) said.
Mr. Medalla said the El Nino episode had the greater effect in the economy than the Asian crisis. Due to the prolonged drought, the performance of the agriculture, fishery and forestry sectors contracted by 11.5%, the worst in 30 years. The extreme weather conditions was blamed for a 30% drop in palay and a 40% drop in corn harvests during the first half of last year.
An economic boost was income from abroad, Mr. Medalla said, adding that with the currency depreciation increasing the value of the dollar, net factor income from abroad (NFIA) increased by 16.3% in the second half.
He said the P20.78 billion earned by the country during this period was due largely to the remittances of overseas Filipino workers and revenues from exports.
What may have been a turnaround was noted in the third quarter GNP performance. After the second quarter’s negative record, the NEDA reported the country “escaped the recession” by posting a 0.8% GNP growth.
Continued expansion of the services sector offset the losses from agriculture and industry, Mr. Medalla said, adding the continued increase in NFIA saw a growth in the country’s foreign earnings. “As a result, the country is assured of continued economic growth in the last quarter of the year.”
With income from abroad increasing by 18.6% in the third quarter to P12.2 billion, Mr. Medalla said the country is virtually assured of a positive 1998 GNP growth.
Another factor is the continued increase in electronics exports. With these goods accounting for more than half of total exports, the sector’s performance has offset the drop in agricultural exports, he said.
The National Statistics Office (NSO) said the country’s balance of payments (BOP) has been posting surpluses last year. As of the first half, the BOP surplus was at $1.6 billion from a $209-million deficit in 1997.
Meanwhile, Mr. Medalla said the peso depreciation caused imports to decline as industries reeled from the high cost of raw materials and intermediate goods. As of last June, NSO figures showed imports declined by 12.2% to $15.24 billion.
With renewed optimism, Mr. Medalla said government officials are projecting a slight recovery this year. NEDA expects GNP to grow to 3% from 1%. “Of course, we will do everything in our means to prevent us from achieving the low end of 1% GNP. We will go for the high-end of 3%.”
NEDA is also projecting exports to hit $29 billion next year, while investments are expected at P559 billion. These targets have been reduced from he initial assumptions in early 1998. The other signs also show an improvement in the economy: inflation at single digit levels, improving in interest rates with the bellwether 91- day Treasury bill falling from 20% at the start of the year to 13.5% last October.
Government economic advisers said the administration is looking at new borrowings this year to cover a projected deficit of P40 billion.
Mr. Medalla said the projected deficit could increase if the government does not improve on tax collection efforts.
He added Malacanang should junk the proposed tax amnesty program and should, instead, expand its tax base.
Despite its tentative nature, the government is banking on the $ 30- billion fund proposed by Japanese Prime Minister Kiichi Miyazawa to assist crisis-hit Asian countries. Mr. Medalla said the fund would assist the country in achieving a 3% GNP growth in 1999. The government is eyeing from $1.5 to $2.5 billion from the fund to institute reforms in the banking and power sectors.
Mr. Medalla said Congress still has to pass the reform bills so the government would be able to draw $2.5 billion from the fund. “Normally, no ODA (official development assistance) donor gives something without anything in return. It’s just that we don’t want to commit any reforms which we cannot deliver.”
Another sector seen to rebound is agriculture with the implementation of the P120billion Agriculture and Fisheries Modernization Act.
In a paper, University of Asia and the Pacific dean for economics Bernardo Villegas said agriculture continues to register a low productivity. While it accounts for 40% of the labor force, the sector contributed only 20% to the GNP.
He said improvement in weather conditions this year will see rice production growth at 15%, a dramatic increase from the estimated 10% contraction last year. He added a 12% growth is attainable for corn production next year.
With the manufacturing sector posting one of its worst performances in 1998, prospects for recovery this year depend on the amount of restructuring. Poor productivity, the advent of liberalization and the financial crisis forced many firms to close shop last year.
While off to a good start in 1998, the poor performance of industries during the second and third quarters led to a contraction of the sector by 0.2% as of last September.
National Statistical Coordination Board ( NSCB) SecretaryGeneral Romulo Virola said the