In a paper presented before the 26th Philippine Business Conference, World Bank vice president for East Asia and Pacific Region Jemal-ud-din Kassum noted that the Philippines has been consistent in its efforts to liberalize trade and create a favorable environment for capital flows.
As a result, Kassum said Philippine industries have been able to penetrate new markets, made domestic industries competitive and built a skilled labor force.
"The Philippines has successfully faced and overcome much better than many of its neighbors, the risks arising from the East Asian financial crisis", Kassum said.
However, Kassum explained that given this record, the country should also note the risks brought by globalizaiton, especially on developing countries and their poor.
"Globalization presents not only opportunities but risks and the key risks are instability and disparity," Kassum said. "For instance, the globalization of financial markets has contributed to the instability of currency markets as witnessed in the East Asian crisis as well as the recent weakness of currencies such as the peso, euro and the Australian dollar."
According to Kassum, foreign investors are shying away from countries where perceptions of policy inconsistency and governance problems exist. "This is true to some extent in the Philippines," he said.
For the business community in the Philippines, Kassum said the challenge was to manage globalization to their advantage. "If you accept the notion that the Philippines has so far managed globalization to its advantage, the next question is what businessmen can do to make globalization work for business growth," he pointed out.
According to Kassum, one of the more dramatic lessons coming out of the East Asian crisis was the need to shift from a disproportionate reliance on bank lending to a greater role for equity and venture capital financing.
"First, a shift from heavy debt to greater equity financing will provide a necessary cushion against business and financial shocks," Kassum explained. "Second, equity and venture financing will lead to more productive investments and third, venture capital may play a catalytic role in promoting the development for small and medium scale enterprises."
He said venture capital would also broaden an economy’s productive base and leave political leaders less vulnerable to the success or failure of large corporations.
"The Philippines, with its long established stock exchange, is well-positioned to encourage increased equity investments in corporations," he said. But he added that this would require yet more changes in exchange governance in such areas as accounting and auditing of public companies, independence of the stock exchange and the Securities and Exchange Commission.
"At the end of the day, countries like the Philippines must make sure that they take the necessary steps to take full advantage of globalization," Kassum said.