Deutsche Bank sees 2.5%-3.5% growth for RP this year

Global financial institution Deutsche Bank believes the Philippines can attain a growth rate of 2.5 percent to 3.5 percent this year if the Arroyo administration is able to address key economic issues such as the yawning budget deficit.

"The new government must first fully restore all important political and economic measures to restore confidence," said Hubert Neiss, chairman for Asia of the bank.

Neiss said the Arroyo administration must immediately initiate fiscal consolidation to put a stop to the ballooning budget deficit.

The National Government projects a P145-billion deficit this year although some analysts believe it will reach P220 billion owing to the government’s inability to hit its revenue collection targets.

According to Neiss, additional controls over the foreign exchange market can be counterproductive. During the 1997-1998 Asian crisis, the Bangko Sentral ng Pilipinas (BSP) refrained from implementing new controls were the forex market and the move proved effective. Malaysia, on the other hand, implemented forex controls which later on backfired on the economy.

The Deutsche Bank official said the international business community also wants government to respect and safeguard the independence of the BSP.

"The independence of the institution should not suffer. The Philippines must be able to separate the institution from the personalities," he said, adding that the financial sector – both international and domestic – may have the impression that the BSP is prone to political and external pressures.

Neiss also urged the Arroyo government to pass the Power Reform Bill which has been perceived as the "key" that may unlock a package of foreign investments and official development assistance (ODA) funding. It will likewise privatize the National Power Corp. (Napocor), the government-run corporation which accounts for nearly 20 percent of the country’s debts or approximately P800 billion.

Meanwhile, Neiss pointed out that the slowdown in Asia and the US will have a profound impact on the country’s exports. Thirty percent of the Philippine exports goes to the US and another 15 percent goes to Japan alone.

Neiss also warned that over-dependence on the electronics export sector has short-term benefits for the economy but in the long-term, it would result in a one-sided development.

Electronics and electronic products account for nearly 60 percent of the country’s exports followed by the machinery sector with about 16 percent. Experts have already warned that the semi-conductor sector is likely to turn in a weak growth rate this year.