RP to weather storm – economist

A former head of the National Economic Development Authority (NEDA) has expressed optimism that the country could weather the prevailing ‘economic storm’ even as he projected that the Philippines still has to feel “a period of tightness” in the next two years amidst a persistent downturn in the global economy.

Dr. Cayetano Paderanga Jr., a professor at the UP School of Economics and socio-economic planning secretary during the Aquino administration, said that remittances from overseas Filipino workers (OFWs) “would carry us through”, but noted that the country could have coped better with an improved investment picture.

“Should we worry? There will be pain but maybe worrying too much is too much. We will survive this eventually,” he said during an interview at the sidelines of the mid-year economic briefing  of the Institute for Development and Econometric Analysis, Inc. (IDEA) held the other day at UP Diliman.

Paderanga pointed out that the country has experienced a rather similar economic crunch in 1997 — the Asian crisis, and the country was able to surpass the challenge.

However, he believes that this time around the “global crisis’ shock is sharper.”

Paderanga said that from recorded data on “main growth drivers” such as Services sector, which includes Trade, Finance, Transportation, Communication, Storage (TCS), and private services, for the last quarter of 2007, the Finance sector appeared to be the only one that grew, aside from real estate, from 10.7 percent to 12.9 percent in the first quarter of 2008 mainly due to either increased loans or belt-tightening amdist rising inflation.

As for the expenditure-side growth, Paderanga said that almost all areas slipped during the first quarter of 2008. He said that personal consumption expenditure (PCE) was lower from 6.2 percent in the fourth quarter of 2007 to 5.1 percent in the first quarter of 2008 because of the continued rise in prices.

He said that government consumption indicated lower expenditures compared to 2007, which was an election year. He also said that capital formation recorded a negative growth in the first quarter of 2008 as there was a registered decrease in public construction and other investments, particularly in machineries

Moreover, the Exports sector “slack” in both merchandise and non-factor services while the Imports sector’s contraction was due to “lackluster performance of merchandise imports.”

Paderanga further noted that the country faces a “new set of clouds” this year, comprised of the global economic slowdown, inflation, and impending power crisis.

“The global economic slowdown as due to the US economic slowdown, which started with the bursting of the housing bubble in the US and he sub-prime mortgage crisis,” he explained.

“The inflation is due to rising prices of oil and rice, and the impending power crisis because there is worldwide shortage of coal and the rising oil prices . . . We (also) have insufficient generation capacity, high cost of electricity production due to outdated facilities, and an absence of energy policies that promote competitiveness,” he added.

Paderanga made it clear that even if prices of oil and rice stabilize, it would take some time for inflation to go down. Thus, he pointed out, the inflation rate “can’t go down anytime soon.” He said oil prices would probably not go down significantly within the year, and hence, inflation would continue to hound the country.

Interest rate adjustments, on the other hand, might take time to dampen inflation “because people will take time to adjust their expectations,” he also said.

“Considering external and domestic conditions, the economy is still on a higher growth path than in previous decades. The Philippine economy will survive,” Paderanga said.