Government keeps growth targets

Despite so many unknowns, the Arroyo administration will not revise its economic growth targets, expressing optimism that barring an all-out nuclear war in the Middle East, these numbers remain achievable.

Bangko Sentral ng Pilipinas (BSP) Governor Rafael Buenaventura told reporters over the weekend that it would be premature to revise the targets. According to Buenaventura, the administration would have to wait and see how oil prices in the world market would affect the Philippine economy as a whole before tinkering with economic growth targets or any of the assumptions currently in use.

At the beginning of the year, the National Economic and Development Authority (NEDA) had projected the economy to grow by 4.4 to 4.5 percent.

Exports, on the other hand, are projected to at least stop dropping and post a zero growth for the entire year as the electronics and semiconductor industry slowly recover from the slump that sent Philippine exports spiraling down to a 16-percent decline.

Inflation rate for the whole of 2002 is projected to be within the five to six percent range while the assumption for the benchmark 91-day Treasury bills was 10 to 11 percent.

As interest rates went down to historic lows, both NEDA and BSP had hoped to be able to adjust the inflation target to 4.3 to 5.5 percent for the whole of 2002 while exports are seen to actually grow by one to 1.5 percent.

"These are conservative targets," Buenaventura said. But he opted to remain upbeat despite the sudden uncertainty tossed into the scenario by the worsening Israel-Palestinian war that fueled the jump in world oil prices.

"Since we were looking at upgrading our numbers, the worst case scenario now is that we will just retain our original assumptions," the central bank chief said.

What the administration is watching for, Buenaventura said, is the movement of oil pump prices. Since less than 50 percent of the country’s energy requirement now come from imported oil, there is also a wide lag between the increase in the world price of oil and the reaction of domestic prices.

"We are the world’s second biggest producer of geothermal energy and on a per capita basis, we are the biggest users," Buenaventura said. "This has helped cushion the impact of fluctuations in world prices for oil; unlike before when the impact was almost instantaneous."

Buenaventura said domestic interest rates are also likely to bottom out as investors slowly shift from the benchmark 91-day Treasury-bills to longer-term instruments and while monetary officials adopt a neutral stance even on the adjustment of reserve requirements.

"I think the 91-day T-bill rate was a bit overdone," Buenaventura said. "Sooner or later, this will have to correct."

Last week, interest rates continued to plow historic lows with the 91-day bill settling at 5.174 percent after going down to its first historic low of 5.488 percent before the Holy Week.

Although Treasury officials said there is still enough liquidity in the system to push the benchmark rate below five percent, Buenaventura said the rate might have bottomed out and the March inflation rate would have some influence on how it would settle during next week’s auction.

"We have taken a neutral stance on our policy rates," Buenaventura pointed out. "For the time being, we don’t plan to touch this anymore, not even the reserve requirements."

According to Buenaventura, the BSP is not planning to do anything as of yet, at least until the leading key indicators were not firm. "We will wait for better signals before we do anything," he said.

Buenaventura said the BSP is no longer likely to adjust banks’ reserve requirements. "Adjusting it is always the last resort because it is really very unwieldy," he explained. "Unfortunately for us, sometimes we have no choice because it is our only weapon."