How Phl can weather global slowdown in 2012

MANILA, Philippines - As it forecast Philippine growth at 4.8 percent this year, the Asian Development Bank (ADB) gave some advice on how the country can address the challenges that a global downturn may bring.

Asian Development Bank vice president Stephen P. Groff said yesterday 2012 is shaping to be and “interesting” and “challenging” time for the Asia-Pacific region.

But despite downside risks and potential spillover effects from economic difficulties in the West, the ADB sees developing Asia’s gross domestic product growth at over seven percent in 2012. The Philippines is seen to grow by 4.8 percent this year.

“Strong private consumption backed by robust remittance inflows, increasing public investment, and gradual export recovery, will support the Philippines’ economic recovery in 2012,” Groff said, in a speech at the Foreign Correspondents Association of the Philippines’ forum “Prospects for the Philippines.”

However, the Philippines has been too reliant on exports of electronics, particularly semi-conductors. Electronics exports showed a steep decline in 2011.

“It is tempting to think of the Philippines as somewhat insulated from the global environment because about 2/3 of its trade stays within the region... This lack of diversification makes the Philippines quite vulnerable compared to its neighbors, where exports continued to grow despite the global slowdown,” Groff said.

The ADB official said the Philippine government should increase its spending in order to cushion the impact of the deteriorating global economy. Last year, the government curtailed its spending as it tried to improve governance and transparency in public projects.

“But let’s not forget that external funding is likely to become tighter in the wake of the spreading crisis in Europe. The question for the Philippines is whether its own banking sector – which is in a healthy state with ample liquidity – could step in to fill these financial gaps,” he said.

The Philippines is also being urged to expand its market in other emerging economies. Groff noted Malaysia’s trade with emerging economies outside of East Asia represents one-quarter of its total trade last year, while the Philippines only had less than five percent.

“Increased trade integration with neighboring countries could also lessen the impact of external economic shocks,” he said.

The ADB said the country’s long-term prospects depend on how it would be able to address its persistent problems, such as unemployment, inadequate infrastructure, environmental degradation and governance.

The government’s employment strategy needs to be rethought, especially since four in 10 employed Filipinos were considered as “vulnerable” (either self-employed at menial jobs or unpaid family workers) in 2010.

While the country has made significant gains in the business process outsourcing industry, Groff noted it only employs about one percent of the total labor force and only employs skilled workers.

“For the growing millions with lesser skills and fewer prospects, what’s needed is a stronger industrial base that allows the economy to ‘walk on two legs’ – both services and manufacturing,” he said.

The government should also tackle inadequate infrastructure that has prevented sustainable growth. “For the growing millions with lesser skills and fewer prospects, what’s needed is a stronger industrial base that allows the economy to “walk on two legs” – both services and manufacturing,” Groff said.

However, the issue that underlines all these challenges is governance and political economy.

“This issue is inexorably linked with the country’s low competitiveness rating and inability to translate growth into poverty reduction,” he said.

Groff noted broad-based international indices show that perceptions of the Philippines’ quality of governance have been deteriorating.

“However, there are indications that the current government’s reform orientation and commitment to good governance is beginning to increase investor confidence. For sure, continued, strong commitment and progress will be required if inclusive growth – that is, prosperity for all Filipinos – is to be achieved,” he said.

These challenges may be daunting, but the ADB noted the Aquino government appears committed to addressing these, as seen in the Philippines Development Plan for 2011-2016.

“We realize that the challenges facing the country are daunting. But with careful planning and strong political will, there is potential to turn challenges into advantages that capture the benefits of growth for every citizen,” Groff said.