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Philippines could become a ‘breakout nation’ [Copy link] 中文

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Post time 2012-5-29 00:41:47 |Display all floors
This post was edited by 29042012 at 2012-5-29 00:42

Philippines could become

a ‘breakout nation’

IN A NEW economic era of crises and risk-averse investors, not all emerging markets will succeed in sustaining the high economic growth notched in the past decade, a Morgan Stanley executive said.

Only a few will turn out to be "breakout nations," distinguished by their ability to beat widely held growth expectations for their income class, said Ruchir Sharma, head of emerging markets and global macro at Morgan Stanley and author of Breakout Nations: In Pursuit of the Next Economic Miracles published recently.

The Philippines is "among the countries expected to do better than expectations," said Mr. Sharma, speaking by phone from Singapore yesterday, as long as the country focuses on reforms.

To qualify as a "breakout nation," the Philippines has to rise above its 5% growth potential and achieve a higher economic growth average in the next three to five years -- and over a decade.

Mr. Sharma explained that emerging market economies cannot be expected to post the high growth rates seen in a decade ago because the "easy money" that came in the wake of central bank rate cuts, and which drove growth higher, had dried up.

The prior decade was also marked by these emerging markets’ playing catch-up with the bigger economies after they were racked by crises in the 1980s to 1990s.

"The last decade is not likely to be replicated," Mr. Sharma said. "Not everyone will be able to grow rapidly and the challenge is to identify which countries can do better than the rest."

While interest rates in the United States and Europe are at historical lows at present, money is not going rapidly to emerging market economies because of risk aversion.

Banks there are also either "keeping money at home or bringing money back home" to repair balance sheets or comply with capitalization requirements. The situation is compounded by the ongoing euro zone debt crisis.

Indeed, net foreign portfolio investments to the Philippines fell 11% to $4.08 billion in 2011 versus the previous year while data as of May 11 showed "hot money" at a little over $1 billion, roughly half the previous year’s level. Foreign direct investments was at a minuscule $1.1 billion in 2010.

Emerging market economies will have to compete for the slow-flowing foreign capital and those that succeed are those that are able to demonstrate high growth vis-a-vis peers.

In the case of the Philippines, its peers include other lower-middle-income countries such as Indonesia, India, Nigeria, Pakistan and Sri Lanka. Lower-income-countries, based on the World Bank grouping, are those with $1,006 to $3,975 in per capita income.

The Philippines’ other neighbors, Malaysia, Thailand and China belong to the upper-middle-income grouping with $3,976 to $12,275 in per capita income. So do Turkey, Brazil and Russia.

"Indonesia looks good, Thailand looks good, also Turkey and Poland," Mr. Sharma said. "Frontier markets look decent from Nigeria to Sri Lanka."

"Likely to disappoint" are Brazil, Russia and China, whose growth rates have already fallen. It’s a "mixed view" for India, which has room to catch up in terms of per capita income, but whose government has "done little reforms or back-pedaling on reforms."

Increasing revenue and raising investments put the Philippines on the right track, said Mr. Sharma, noting how the country dashed expectations previously.

"It had a very high per capita income in the 1960s, but every other country surpassed it… Korea and Taiwan in the ’70s, Malaysia and Thailand in the ’80s, China in the ’90s and Indonesia in 2009. It was getting to be a joke," he said.

"When I came to the Philippines [in 2010], I saw signs of change with [President Benigno S. C.] Aquino [III]. There was a reform momentum, it was getting the investment cycle going again."

He also sees pluses in the country’s young population and the fact that more Filipinos are living in cities.

"Urbanization is better for productivity," he said.

The government, he said, can hit its medium-term 7-8% growth target as long as it keeps its reform momentum going.

"At the end of my book, I referred to a proverb that went ‘If there is no wind, row,’" Mr. Sharma said.

"The easy global conditions in the past decade are not there, there are no tailwinds to ride on, so emerging markets must invite the capital."

Politics and cronyism, however, can stall the Philippines’ momentum but "hopefully, changes ... [will be] for the better."

At Morgan Stanley, Mr. Sharma oversees $25 billion in assets. Half of this is invested in Asia, of which about $500 million to $1 billion is invested in Philippine assets, mostly stocks.

The amount might look small, "but for the size of the Philippines, it’s quite big," he said.

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Post time 2012-5-29 00:50:43 |Display all floors
It is not possible for this to happen in the Philippines as it is not in their cultural or ethnic make-up. People have been there over the last 50 years to get this going and been frustrated by the mind-set there. They are nice people, but they are not culturally motivated as with other nations.

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Post time 2012-5-29 01:00:30 |Display all floors
As you may not be aware. before the Marcos era, the Philippines were the leading economic nation in South East Asia, outperforming even Singapore.

That had all changed during the decade long Marcos dictatorship. Personal greed, corruption had led to the downfall of the Philippines.

This current president is a quiet and humble person, though his achievements are bearing fruits. He had tackled corruption since he is in office, not in a   "B o  x i l a i  -  style"   of course.

The Philippine economy is doing quite well and the prospect for the future is promising. This is not the first time that I have read such a positive assessment about the Philippine economy.
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Post time 2012-5-29 01:13:48 |Display all floors
This post was edited by 29042012 at 2012-5-29 01:17

Emerging Philippines?

January 25, 2012, 3:28am

MANILA, Philippines — Something unusual is happening. The Philippines — beleaguered recipient of decades of scorn for trailing its Asian competitors economically — is suddenly the darling of a bevy of enthusiastic analysts. “Philippines emerges from economic shade,” a headline thundered on the Asia Times website. “Is the Philippines emerging as an investor safe haven against economic weakness in the West and potential turbulence in China?” journalist Joel D. Adriano asked.

Department of Budget & Management (DBM) Secretary Florencio Abad, in a surprisingly restrained tone given the unanticipated fawning, summarized analysts’ surprising but welcome new appreciation for the Philippines. Speaking before the Foreign Correspondents Association of the Philippines (FOCAP) last Thursday he said, “top financial institutions and investment analysts say the Philippines will be among the top performers in 2012, and beyond.”

I’ve lived in the Philippines quite a few more years than most Filipinos have been alive. Over my 30-odd years here, the Philippines has infrequently but regularly approached the cusp of a historic breakout from savage economic obscurity. But it hasn’t happened.

Will it be different this time?

Mr. Abad is not alone in believing that chances are better than they ever have been. “Goldman Sachs said our country has the potential to become one of the top 10 contributors to global economic growth within the decade,” he said. And there was more. “Bank of America-Merrill Lynch said that the Philippines has become the third most-preferred market in the world for global fund managers after China and Indonesia.”

And there was still more good news. “Furthermore, HSBC has extended its optimism to as far into the future as 2050,” Mr. Abad noted, “when it said the Philippines has the potential to become the 16th largest economy in the world.” Unfortunately, speaking on the same FOCAP platform, Asian Development Bank vice president Stephen P. Groff was considerably less enthusiastic for the Philippines’ economic prospects.

“It is tempting to think of the Philippines as somewhat insulated from the global environment because about two-thirds of its trade stays within the region,” he said before pointing out the tradeoff. “However, its export products are too highly concentrated in electronics, particularly semi-conductors. This lack of diversification makes the Philippines quite vulnerable compared to its neighbors.”

Mr. Groff pointed out that about one fourth of Malaysia’s exports go to trade with emerging economies outside East Asia, compared to five percent for the Philippines. “Increasing that share could help the country shore up growth for the future,” he suggested.

Strong private consumption, “robust” remittance inflows from the Philippines’ exported army of laborers and professionals, increasing public investment and gradual improvement in exports may make it possible for the Philippines to grow at a 4.8% clip this year. If so, the Philippines will once again lag growth in the region, as usual. “We believe developing Asia will continue to show robust GDP (gross domestic product) of over 7% in 2012,” he said.

Who’s right? The investment analysts or Mr. Groff?

Mr. Groff says four things must happen for the Philippines to grow as fast as its developing neighbors. First, he believes that although the fast-growing IT-BPO industry is an “astounding” development, noting its expansion into high-value, non-voice services, he doesn’t believe that it can generate enough jobs to bring about wide-spread prosperity. “What’s needed is a stronger industrial base” to create jobs for “growing millions with lesser skills,” he said.

Second, Mr. Groff argued that inadequate infrastructure impedes growth, and that greater investment will create jobs and improve health and education services. Third, the Philippines should take better care of its natural resources to reverse damage to coastal and marine environments, farmlands, and forests. He noted declining air quality in cities, saying that nearly 5,000 premature deaths annually are due to exposure to dirty air.

Fourth, the development banker said better governance and political economy can improve perception of the Philippines, and thereby enhance its ability to eradicate poverty. That piece sounds a bit like a well-known campaign slogan. But Mr. Groff is serious. “On broad-based international indices, perceptions of the country’s quality of governance have been deteriorating,” he said.

Mr. Groff does see some signs that things are turning around. “There are indications that the current government’s reform orientation and commitment to good governance is beginning to increase investor confidence. Is Mr. Groff agreeing with the analysts after all?

Gee, after 30 years, I certainly hope so. And if so, I hope they’re right. I hope the Philippines emerges. I hope it emerges definitively. I hope it emerges for the long term.
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Post time 2012-5-29 01:16:22 |Display all floors
This post was edited by 29042012 at 2012-5-29 01:17


Philippines emerges from economic shade

By Joel D Adriano

MANILA - Is the Philippines emerging as an investor safe haven against economic weakness in the West and potential turbulence in China?

A Bank of America-Merrill Lynch survey shows global fund managers have increased their "overweight" investment positions in the Philippines, making it the survey's third-most preferred market in the world trailing only China and Indonesia.

A series of sovereign upgrades last year has boosted investor

confidence in President Benigno Aquino's administration, which rose to power in 2010 on a reformist platform. Financial analysts here predict that the country will likely be upgraded to investment grade later this year, opening the way for institutional investors now barred by their in-house operating rules from allocating funds on the local bourse.

Fitch Ratings raised its credit rating for the Philippines to BB+ from BB last June, just one notch below the credit rating company's investment grade. Standard & Poor's, another credit rating company, raised its outlook to positive from stable last November, citing the country's strong external liquidity and improved fiscal position. It indicated in that assessment that another upgrade could come soon.

The Philippines has been a byword for economic underperformance and has seldom warranted a second look among international equity investors scouring global emerging markets for the next big thing. Those poor perceptions are starting to shift with improved economic fundamentals and prolonged and potentially worsening economic weakness in the West.

Jim O'Neill, chief economist at Goldman Sachs, who in 2001 famously coined the acronym "BRIC" when considering the grouping of Brazil, Russia, India and China as up-and-coming economies, now includes the Philippines in what he calls the "next 11", a designation of economies that have the potential to make fast leaps in the decades ahead. (The "next 11" also include South Korea, Mexico, Indonesia, Turkey, Egypt, Vietnam, Pakistan, Nigeria, Bangladesh and Iran.)

Cash-rich Middle Eastern countries are driving the trend in the Philippines. A ranking official from the Department of Trade and Investment disclosed that Qatar will invest US$1 billion, mainly for infrastructure projects, over the next few years. A Kuwaiti firm recently committed to invest $500 million on top of its $200 million investment in a consortium building a $2 billion logistics center in Clark, Pampanga.

At the start of 2011 - and for the first time in the country's independent history - gross international reserves eclipsed external debt. Foreign reserves increased by 20.5% last year to $75 billion, up from $63 billion at the end of 2010. The Philippines' debt-to-GDP (gross domestic product) ratio is among the lowest in Asia at under 50%.

Despite global economic difficulties, the Philippines is on course for another year of relative strong growth, according to local and foreign economists. Miguel Varela, president of the Philippine Chamber of Commerce and Industry, believes the country's improved fiscal position, strong bank balance sheets, and manageable inflation will lure new investors, including in the manufacturing sector.

Even so, some believe Aquino's fiscal prudence has held back growth. Central bank governor Amando Tetangco Jr at a forum this month faulted the government for under-spending in 2011. He argued that restrained government outlays pulled down GDP growth to 3.6% over the first three quarters of 2011, with growth in the third quarter hitting a mere 3.2%.
Financial upside
The financial upside, however, was that the government was able to dramatically trim the deficit to just 96.25 billion pesos (US$2.2 billion) in the first 11 months of last year, down from 267 billion pesos in the same period in 2010. Spending was also way below the full-year target of 300 billion pesos, or 3% of GDP, and undershot the record 314 billion pesos, or 3.7% of GDP, spent in 2010. The Aquino administration has committed to trim the deficit to 2% beginning in 2013.

The government expects economic growth to accelerate between 5% to 6% in 2012, driven mainly by government spending on infrastructure projects and household consumption, which combined make up 70% of the economy. Domestic demand is traditionally boosted by overseas remittances, estimated as the fourth-highest of any country.

Overseas Filipino workers sent home $16.5 billion in the first 10 months of 2011, up 7% from the same period in 2010, Central bank data shows. Remittances are projected to increase 8% this year as demand for Filipino workers abroad remains high, including a growing number of online-based, cost-competitive Filipino workers.

New York-based Moody's projects 5% growth for the Philippines this year, while the London-based think-tank Capital Economics Ltd wrote in a recent report that the Philippines could achieve growth as high as 8% if its business and infrastructure spending targets are hit. Government economic managers have promised to frontload many of those projects.

A recent HSBC study projected that the Philippines could become the world's 16th largest economy by 2050 due to its "strong fundamentals and powerful demographics". The study forecast per capita income would rise from $1,215 at present to $10,893 by 2050. The International Monetary Fund ranked the Philippines 46th in the world last year by nominal GDP and 32nd in 2010 according to purchasing power parity.

Approximately 14% of this year's 1.8 trillion peso budget is allocated for infrastructure spending and already 70%, or 99.3 billion pesos, has been disbursed. The Aquino government has also promised to make up for lost ground on its long-delayed infrastructure projects under its public-private partnerships (PPP) program. The program is the cornerstone of Aquino's strategy to achieve annual growth of 7%-8%; this year his government aims to contract out 16 projects worth 154 billion pesos by the second quarter.

There are plenty of downside risks. Central bank governor Tetangco admits that the escalating debt crisis in Europe, continuing economic weakness in the US and a possible slowdown in China are all clear and present risks that could weigh significantly against Philippine growth. The three regions account for half of country's trade, though the Philippines is less reliant on trade and has more diversified flows than many of its more trade-geared regional neighbors.

Shifting economic currents in China could actually boost the Philippines' export sector. Local economists note that China's gradual shift from serving as the world's factory floor towards a more consumer-based economy could be a plus for many Philippine exporters, particularly for food manufacturers and agriculture producers. They note that rising labor costs in China could soon encourage more manufacturing investments in the Philippines.

At the same time, a bill now pending in the US Congress could discourage American companies from outsourcing call center operations to foreign countries. The Philippines is the world's second-biggest destination for call center services after India, with industry revenues reaching over $9 billion last year. Any US ban on outsourcing would likely hit the local call center industry - one of the country's brightest economic spots - especially hard.

While Aquino has sounded all the right notes on fighting corruption and improving governance, some analysts warn that intense political wrangling over high-level graft charges, including against outgoing president Gloria Macapagal-Arroyo, could distract his government's needed focus on the economy.

But there is a clear market consensus emerging that Aquino's economic program is on the right track, one that could see an unprecedented influx of capital to the Philippines in 2012.

Joel D Adriano is an independent consultant and award-winning freelance journalist. He was a sub-editor for the business section of The Manila Times and writes for ASEAN BizTimes, Safe Democracy and People's Tonight.

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Post time 2012-5-29 01:19:35 |Display all floors
The fact that it even needs to be discussed after so much time is a pointer to the empirical evidence that the people's of the Philippines and I mean men, would rather stay in a bar and send their women out to work. Of course, that is only a personal opinion of one who has been there many times. I do not see the spark there that will take them away from the bounty that the land provides even if you only farm it only occasionally.

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Post time 2012-5-29 01:39:42 |Display all floors
Almost every people on earth have been labeled with some kind of characteristic, good or bad.
I do know the Philippines - and a lot of other places - I have given up to judge them this way or the other, since most attributes are simply hearsay or parroting nonsense. The fairy tale that Filipino men are lazy and let their wives work, is such a stupid assumption. There are at least as many Filipino seaman, engineers, software specialists and doctors abroad as there are female domestic workers.
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