IMF, ADB lower RP growth forecasts

The International Monetary Fund (IMF) and the Asian Development Bank (ADB) have lowered their growth projections for the Philippines due to the prevailing political crisis which has adversely affected the economy.

IMF research director David Robinson said they are projecting a growth of 3.8 percent in the country’s gross domestic product (GDP) this year and about three percent next year.

Robinson said the IMF had originally projected a growth of four percent this year and 4.5 percent in 2001.

ADB economist Sailesh Jha said they have scaled down their GDP growth projection for the Philippines to 3.3 percent in 2001, from a forecast of 4.3 percent announced last September. But, he said they have maintained the 3.8-percent growth projection for this year.

Jha said they have lowered their growth projections because private consumption and investment figures fell below expectations.

"The private investment growth we have initially seen seems to be going down due to some political uncertainties," Jha said.

However, Jha said they will be reviewing the new figures as necessary. "If this year unwinds in the next two quarters, then we have to re-evaluate the situation in the Philippines," he added.

ADB lead economist Ernesto Pernia, meanwhile, said the 3.3-percent growth for 2001 could be revised if the political situation stabilizes.

"It could be better if political uncertainties are gone, but it could be worse if political prospects dim," Pernia said.

According to Pernia, the ADB growth projections have taken into account the increase in oil prices and the impact of a soft or hard landing by the United States economy.

Hongkong and Shanghai Banking Corp. (HSBC) chairman David Eldon who is visiting the country said the bank is still optimistic on the growth prospects of the Philippines.

"And as the region embarks on another period of growth, we continue to seek opportunities to expand our business," Eldon said in a speech titled Asia: Caught between a recovery and reform process.

"Here in the Philippines, for example, we have signed a sales purchase agreement to acquire 100 percent of PCIBank Savings Bank for $22 million. This acquisition will allow us to expand our retail banking capabilities with the addition of 16 branches in Metro Manila," Eldon said.

Without making any comments on the current political situation, Eldon said "much work remains to be done." The HSBC chairman cited various areas that need to be addressed. He said the pace of debt reduction has been mixed.

"Bankruptcy laws are still inadequate or largely untested in many jurisdictions. Accounting standards need to be raised. More transparency is needed. And corporate governance must be strengthened in order to maintain the confidence of investors," he said.

ADB’s Pernia warned that unless structural reforms are put in place, the country’s economy could sink further.

Though ADB sees some improvements in the GDP growth of developing countries in Asia, from 6.1 percent in 1999 to P7.1 percent in 2000, Pernia said growth projections for other Asian countries have also tapered down. "The 2000 growth rate was a quick rebound from 1997 and 1998 (crisis years). Some of the Asian-stricken countries’ economic growth are expected to taper of a little bit," he said.

Based on the ADB’s Asian Economic Performance report, it said GDP growth rate of Malaysia is likely to go down to seven percent next year from an estimated 7.5 percent this year.

Aside from the Philippines and Malaysia, other Asian countries such as Indonesia, Thailand and Vietnam are expected to post a modest GDP growth of five percent, 4.6 percent and 6.5 percent in 2001 from four percent, 7.5 percent and six percent in 2000, respectively.

The ADB report said the currency markets declined in 2000 due to political uncertainties in Indonesia, Philippines, China and Thailand and rising oil prices and interest rate concerns in the US.

It said consumer spending was the single important contributor to growth in 2000 in all the crisis-affected countries except the Philippines as households adjusted their savings behavior from precautionary to neutral mode.

In the Philippines, it said even though consumer spending growth was positive, it was the only country where private consumption was actually contributing less to growth in 2000 than it did during the crisis.

"This is possibly due to consumers turning back into precautionary savings mode to hedge against political uncertainty and expectations of negative repercussions on economic performance," it said.