IMF conducts bi-annual review of RP economy

As the Arroyo administration claimed resolution of its fiscal problems, the International Monetary Fund (IMF) arrived this week to conduct the last of its bi-annual reviews of the economy.

The IMF mission headed by Philippine mission head Masahiko Takeda arrived last Tuesday to meet with senior economic and finance officials and discuss the progress of the government’s tax reform program and fiscal situation.

The IMF mission was also expected to scrutinize the reforms and immediate steps that the Arroyo administration was taking to deal with the imminent power crisis as well as the disposition of the National Power Corp. (Napocor).

"This visit is part of the regular Article IV and post-program monitoring discussions," IMF resident representative Vikram Haksar said. "It’s part of the usual surveillance that we do."

Haksar said that the country’s fiscal, power, and financial sectors are the top concerns of the 184-nation multilateral funding agency.

"These have always been our three areas of emphasis," he said.

According to Haksar, the IMF team also planned to look at the proposed bill indexing excise taxes on so-called "sin products" to inflation.

"It is a very important piece of legislation that should deliver significant revenues for the government," he said.

At present, the Philippine government still owed the IMF close to $1 billion in loans that the Bangko Sentral ng Pilipinas (BSP) used to stabilize the exchange rate in the past.

Because of this, the IMF is still keeping the Philippines under close monitoring to ensure that it would not slip back into crisis situation that would necessitate fresh borrowings from the IMF.

Officials explained that as long as the Philippines was getting marks of good housekeeping from the IMF, it would be able to use this as a leverage for obtaining more favorable terms for its borrowings in the commercial market.

Earlier, the IMF upgraded its 2004 economic growth projections for the Philippines from 4.5 percent to 5.2 percent but the momentum would not be sustained in 2005 when growth was expected to slow down to 4.2 percent.

In its September World Economic Outlook, the IMF said Asian economies in general were expected to be strong this year, although the Philippines lagged behind Thailand and Malaysia in Southeast Asia whose growth rates were expected to reach 6.2 percent and 6.5 percent, respectively.

Haksar said the projections include one-time factors such as the surge in agricultural production in the first half of the year owing mainly to good weather conditions and the delay of the harvest season in the last quarter of 2003.

However, Haksar said that by 2005, the growth momentum would slowdown to 4.2 percent in the Philippines while Thailand and Malaysia were expected to grow by 6.4 percent and 6.3 percent, respectively.

The Philippines would outpace Indonesia this year as its economy would grow by only 4.8 percent but by 2005, Indonesia would outpace the Philippines with its GDP projected to expand by five percent while ours would slowdown to 4.2 percent.

"Part of the reason is due to the fact that Philippine growth accelerated faster in 2004 and there is a higher base effect," Haksar explained.

The other factor, Haksar said, was the country’s dependence on imported oil which made it more vulnerable to the wild fluctuations in world oil prices.