ADB projects higher growth for RP this yr

The Asian Development Bank (ADB) reported yesterday the Philippines is likely to post higher growth this year as the country shows signs of continuing recovery from the regional financial crisis.

"Supported by revitalized domestic demand, the Philippine economy is likely to grow at a higher rate," the ADB said in its Asia Recovery Report (ARR).

The ARR is a semi-annual review of Asia's recovery from the regional financial crisis.

The Manila-based bank expects a 3.8-percent gross domestic product (GDP) growth for the country this year, up from last year's 3.2 percent. The bank attributed the improvement to the positive performance of the agriculture and export sectors.

The figure, however, was lower than the government's GDP growth target of between four percent and five percent.

"Since the government's commitment to fiscal consolidation leaves limited scope for fiscal pump priming, the impetus for growth must now come from private investment and consumption," the ADB said.

The bank is also urging the government to immediately pass pending legislation that would address structural weakness in its banking system.

The ADB said Philippine banks are in better shape than in other countries ravaged by the crisis, but there are still significant structural flaws in the banking system that require urgent reforms.

The ADB said reforms in the banking sector particularly need to be pursued in the areas of prudential standards, disclosure and supervision.

It noted that the Bank Secrecy Law, which the government is planning to repeal, remains a serious impediment to strengthening bank supervision.

The ADB said measures to revamp the legal framework for handling corporate insolvencies are needed to help reduce non-performing loans.

The current law that deals with corporate insolvencies gives the Securities and Exchange Commission the power to suspend debt payments and gives creditors only a passive role in the rehabilitation of troubled companies.

"Overall, the bias against creditors in the legal framework of insolvency is a key factor in the slow process of corporate debt restructuring and settlement," the ADB said.

Corporate failures in the Philippines have not been as widespread as in other crisis struck countries and have not required the creation of a special debt-structuring agency.

Between 1997 and 1998, over 50 companies with total liabilities of P109 billion sought debt payment suspension. In 1999, 12 debts of P19 billion sought debt relief.

The bank also expects domestic interest rates to rise this year in view of higher world crude oil prices, the prospects of higher US interest rates, and possible wage increases resulting from the higher cost of consumer goods.

The ADB also warned against the breaching of the budget deficit target for this year. "If revised targets were to be breached against in 2000, this could exert pressure on interest rates and slow economic growth," the bank said.

According to the bank, the success in achieving the targets hinges very much on sustained economic recovery, more effective revenue mobilization and a restructuring of the finances of the government-owned and controlled corporations. -