Tetangco lashes back at IMF

MANILA, Philippines - Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco Jr. lashed back at the International Monetary Fund (IMF), saying that it has “consistently underestimated” the country’s growth by an average of half a percentage point.

Tetangco was reacting to the latest economic projection made by the IMF which downscaled the country’s economic growth estimate to zero from the original 2.25 percent.

According to Tetangco, however, the IMF has tended to be “overly pessimistic” in projecting Philippine growth measured in terms of gross domestic product or GDP.

“In the past seven years, the IMF has consistently underestimated Philippine GDP growth forecast by an average of about half a percentage point,” Tetangco said.

Tetangco said that while the Philippines is not immune to the global economic slowdown, IMF’s flat growth is “unlikely”.

“There are fundamental forces in the economy that would help it to withstand global shocks and avoid a major slippage in growth,” he said.

Tetangco expressed confidence that the strength of domestic demand would hurl the country over the hump of global recession. He said personal consumption, which accounts for more than two-thirds of the Philippine economy, has been historically firm, with private spending resilient across business cycles.

“The only time in the past 30 years that private consumption contracted was in 1985, when the economy underwent external debt restructuring,” Tetangco said.

The IMF did not project a decline in private consumption, however, but resident representative Dennis Botman said there would be a slowdown in growth to about 2.7 percent this year.

Tetangco said private consumption would continue to grow because of the country’s young and economically active population and incomes were at a level where he said the majority of the population has a high propensity to consume. 

On the other hand, Tetangco said the country’s export industry, remittances and outsourcing sectors, while exposed to more difficult global conditions, retain important elements that render them less vulnerable to the world-wide economic downcycle. 

Tetangco said the country’s dependence on external demand is comparably smaller relative to its Asian peers. He pointed out that the Philippines’ exports-to-GDP ratio has gone down to 29 percent in 2008 from 49 percent in 2000.

Tetangco said remittances would also not be as hard-hit by the global recession as widely expected because the number of displaced overseas workers as reported by the Department of Labor and Employment (DOLE) was small when compared to the stock of overseas Filipinos, estimated at close to nine million.

Tetangco was also counting on the continued increase in the deployment of workers abroad even as the global economy braced for the full impact of the recession. This meant that remittances would not decline.

In contrast, the IMF projected that remittances would decline by 7.1 percent, revising its original projection that remittances would register a flat growth rate this year.

Finally, Tetangco said the shift to high-value services alongside the increasing need to outsource non-core business activities in firms in the advanced economies would propel the growth of the Philippine BPO industry in 2009.  

Because firms abroad want to save as much as they could, Tetangco said this would increase the tendency to outsource, despite the call of governments to stop exporting jobs to other countries.

Most importantly, Tetangco said monetary policy has been “appropriately stimulative”, and this has helped support demand and minimize the corrosive feedback loop stemming from weaker economic and financial conditions.