Uncertainty

The World Bank has further revised its economic forecast for the Philippines, projecting a 0.5 percent contraction for 2009.

That’s worse than the zero growth forecast by the International Monetary Fund, the 0.5 percent projected by Fitch Ratings and 1.4 percent seen by investment bank Merrill Lynch.

Yesterday even the govern-ment’s economic managers, naturally more optimistic about the country’s growth prospects than international organizations, acknowledged the less-than-rosy economic figures in the first half of the year and said they would revise their growth projections, already modest at 0.8 to 1.8 percent (down from 3.1 to 4.1 percent).

Also yesterday, the Congressional Planning and Budget Department of the House of Representatives lowered its original growth forecast of 3.2 to 4.1 percent to a range of 0.6 to 1.8 percent for 2009.

Economic analysts are projecting global recovery by 2010, and both the World Bank and the IMF see modest economic growth for the Philippines next year.

But things could get worse before they get better. The downturn could be longer for countries that fail to do their homework.

For the Philippines, can the outlook get worse this year?

It can. Several of the factors behind the economic slowdown — weak export markets and overseas Filipino workers losing their jobs, for example — are beyond the government’s control.

But an unmanageable deficit and weak revenue collection could worsen the outlook. With elections approaching, economic analysts have written off tax reforms.

Then there’s the unknown factor: political instability.

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Foreigners doing business in the Philippines tell me that they are used to constant political noise in this country. They are used to protest marches, congressional probes of anomalous deals, President Arroyo’s abysmal survey ratings and calls for her resignation.

“People here know this is not Singapore,” a prominent expatriate told me.

But these foreigners expect that despite the political noise, certain assumptions will push through, that there will be some degree of predictability and, as the expat put it, “reasonable things will prevail.”

They also expect continuity in business policies, regardless of who’s in power.

Many foreign observers are concerned less with who heads the government than with the predictability of the system of government. When it’s time for a president to leave office, as stated in a nation’s basic law, he or she has to step down.

At this point they expect the 14th Congress to start its third and final session at the end of the month. All certificates of candidacy (COCs) will be filed in November and the general elections will push through as scheduled in May — whether manual or automated is not the foreigners’ concern — and a new president will be sworn in at noon of June 30, 2010.

The international community knows enough to stay out of a sovereign state’s legitimate political processes. If we Filipinos want to change our Constitution, it’s none of the foreigners’ business.

But even in this process, there are certain reasonable assumptions that must be met. Revising a Constitution, which is required if the nation will shift to a new system of government, takes time; the process took over a decade in Switzerland, for example.

Even simple amendments need careful thought. Charter change, anywhere in the world, is deliberately designed to be a painstaking process, to discourage impulsive trifling with the basic law of the land.

If the 14th Congress manages to revise the Constitution within three months — that brief period left between the joint opening session and the filing of COCs — the legitimacy of the process will be in doubt.

Another move with a high uncertainty factor, foreigners told me, is the declaration of emergency rule or a revolutionary government, which would be linked to efforts to perpetuate President Arroyo in power.

When a head of government assumes emergency or absolute power, the political risk is compounded by business concerns about unfair competition posed by cronies of those in power.

Those concerns are already present in the current situation where major government contracts, especially in fields where monopolies are still allowed, are awarded through backroom deals.

“That’s the real political risk – the competitive buying of advantage,” one expat told me.

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If foreign investors and economic analysts are keeping tabs of the political intramurals for 2010, it is to look for hints of fiscal and investment policies that they might expect from the known presidential aspirants.

So far, the foreigners are groping for the hints. Most of the questions posed to the aspirants during public debates have focused on political matters, and what the aspirants plan to do with President Arroyo once she loses her immunity from prosecution.

Sen. Manny Villar, the frontrunner in recent surveys, told us last week that his economic model for progress was not the western democracies but a country that is closer to the Philippines’ level of development: India. He explained that India is an emerging democracy with all the accompanying political and social problems, it suffers from terrorism, and it’s one of the Philippines’ biggest competitors in business process outsourcing.

Villar and Sen. Mar Roxas are seen to be business-friendly, although Roxas is losing some points (but may be winning mass votes) in his campaign against Big Pharma.

Sen. Francis Escudero, though perceived to be business-friendly, suffers from the specter of cronyism because his principal patron, if he becomes the standard bearer of the Nationalist People’s Coalition, is businessman Danding Cojuangco.

Cojuangco’s estranged nephew Gilbert Teodoro is also seen to be business-friendly, but first he needs a party, and then he needs to rise from his ratings that have remained below water level.

Vice President Noli de Castro, whose ratings rival those of Villar, is tabula rasa as far as economic matters are concerned.

Many foreigners have told me that the worst prospect for the country in 2010 would be a return to power of the still popular former President Joseph Estrada. This, the foreigners said, would be a giant step backward for reforms.

The country cannot afford to continue with business as usual in 2010. While dramatic reforms are unlikely after the elections, it is possible to build the foundations for enduring change. And the way we vote and conduct the elections could determine how quickly we can get out of our current economic woes.