RP economy ends year with stronger financial position

The Philippine economy ends the year 2003 with a stronger financial position, having posted a $1.85-billion surplus in current account and dollar reserves of $16.8 billion as of November.

This means even if no foreign exchange enters the Philippines in the next few months because of uncertainties associated with the 2004 presidential elections, the country will still have enough dollars to cover 4.7 months of its import requirements and 1.2 times its short-term debt.

Bangko Sentral ng Pilipinas Governor Rafael Buenaventura said the country’s current account, which is the net transfer of real resources between the domestic economy and the rest of the world, was even expected to go up by the end of the year, as he expected exports to grow by seven or eight percent in December.

Export of goods and services from January to September reached $27.79 billion while imports totaled $28.86 billion.

"As import drop outpaced the contraction in exports in the third quarter, the resulting trade-in-goods deficit of $66 million was significantly lower than the year-ago deficit of $178 million," Buenaventura said.

He explained that the reduction "failed to match the large deficit of the first semester following the frontloading of imports during the Iraq war. Trade-in-goods deficit for the first nine months widened to $1.38 billion from last year’s shortfall of $62 million."

Income reached P3.86 billion and current transfers which involve personal and institutional remittance from abroad, including the dollars remitted from migrant workers as well as aids and grants, were at P463 million.

Foreign remittances also helped boost current account. Dollar inflows from overseas Filipino workers reached $5.66 billion in the first nine months of the year, which is 5.1 percent higher than last year’s level.

The peso-dollar exchange rate averaged P54.17 to a dollar from Jan. 1 to Dec. 17, 2003 declined by 3.1 percent from last year’s P53.85, making the local currency more competitive compared to its major trading partners and its competing countries.

BSP managing director for research Diwa Guinigundo said the balance of payments which is the total of economic transactions of the country with its residents and the rest of the world, which was at a deficit of $167 million in the first nine months of the year, was still higher than 2002’s negative $978 million.

He explained that the lower capital financial, which includes payments of capital transfers and acquisition or disposal of non–produced and non-financial assets, resulted from the plunge in foreign direct investments and portfolio or short-term investments.

Foreign direct investments plunged by 310.3 percent from January to September 2002 to the same period in 2003, while portfolio investments declined by 98.1 percent.

"While the number of Philippine companies have joined the rest of global investors in establishing their presence across Asia, inflows of equity to the Philippines have been minimal as investors waited for firmer signs of economic recovery and for political stability to be restored," Buenaventura said.

Buenaventura said despite the economic recovery in Japan, the United States and Europe which could increase economic activity in other parts of the world, uncertainties were seen limiting the flow of foreign direct investments into the country to $1.093 billion and of portfolio or short-term investments to $3.299 billion next year.

He also projected a $1.136 billlion surplus in current which is the net transfer of real resources between the domestic economy and the rest of the world.

Despite the uncertainties, economic managers still see a better 2004, with exports seen growing by 10 percent and the information and communication technology sector likely to remain unaffected by the political noise.

In a recent economic briefing at the Bangko Sentral ng Pilipinas (BSP) building, Trade Undersecretary Gregory Domingo said whatever the outcome of the polls may be, IT companies are expected to grow in 2004, and could even exceed the target of 100 percent.

He said even exports are not likely to be affected by the 2004 elections, considering that historically, there has not been any major shift in investment policy over the years.

"From the time of Marcos to Aquino all the way to Estrada and Arroyo, exports have grown," Domingo said.

For his part, Buenaventura explained that the reason for the continued growth is that the previous administrations and the incumbent one, have always been supportive of investments.

"We have not had a radical presidency, radical meaning extreme left or extreme right," Buenaventura said, explaining why there has not been any major shift in investment policies over the last administrations.

Socioeconomic Planning Secretary Romulo Neri, on the other hand, forecast that election spending by candidates from the presidential post down to councilors, would contribute two-thirds of one percent to the gross domestic product of 2004.

Neri projected a GDP growth of 4.9 to 5.8 percent for 2004, higher than this year’s target of 4.2 percent.

He said the government expects candidates to spend at least P30 billion for the May elections.

However, he pointed out that this form of spending is not very productive since its effects on the economy could only be short-term.

Because of increased spending in election-related sectors, Buenaventura said inflation would experience an uptick from March-April but this will begin to taper off once the elections are held.

Neri said contributing to next year’s better growth outlook are the expected recovery of the global economy, more favorable weather conditions for the agriculture sector and stability expected to reign in the second half of the year.

Economic managers had also projected an increase in gross national product (GNP) of 5.2 to six percent; a debt to GDP ratio of 4.2 percent; and in interest rate of 1.6 percent higher than the London Inter-bank Offered Rate for six month loans next year. – PNA