Going back to the basics, according to economists, would be the long-term solution to the country’s persistent vulnerability, despite the excitement over foreign investments and the long-term growth prospects of the export sector in the wake of globalization.
According to economist Romeo Bernardo, China has always been a formidable competitor but the opening of its economy and its ascension to the World Trade Organization (WTO) would literally suck in foreign direct investments.
Aside from its low labor costs and relative advantage in terms of infrastructure, China is also one of the two most coveted markets in Asia aside from India, with over two billion people eagerly waiting for Western products and services.
Bernardo said that the 1997 financial crisis had made foreign investors wary of Asia and foreign direct investments were expected to increase only marginally in the next five years.
The limited amount of foreign direct investments, he said, is likely to be cornered by China which would act as a giant magnet for investments, luring these away from Southeast Asia.
"As more and more investments find their way into China, the Philippines will become increasingly marginalized," Bernardo said.
Over the next five years, Bernardo said China is expected to suck in between $40 billion to $70 billion in foreign direct investments compared to a paltry $1.3 billion that is expected to trickle into the Philippines.
"This means that the economy can’t rely on the usual sources of growth," he said. "We need to get back to the basics, such as putting investments on production and improving efficiencies."
According to Bernardo, government’s best hopes were on the modernization of the agriculture sector both to ensure food security as well as to take advantage of the country’s comparative advantage in agricultural production.
There is also a need to stir competition in the services sector in order to bring down costs, especially in utilities. Continued spending on basic infrastructure would also be indispensable if the country is to survive the competition brought about by globalization.
According to Bernardo, the current deficit problem could be an opportunity for government to reassess its expenditure policy and ultimately offload its expenditures to the private sector, despite the growing skepticism over the long-term cost of government contracts with private investors.
Existing facilities, Bernardo said, should also be evaluated with the view of determining more public facilities could be turned over to the private sector.
"Unless private financing is used to fund infrastructure projects, there will be persistent delays in their completion and we could not get the benefit from having these infrastructure facilities," he said.