Transcript Philippines - University of San Diego Home Pages

Country Study:
Philippines
An Overview
• Philippines is known as the ‘poor man of Asia’
• Even though it could reach the level of South Korea
or Singapore, actual economic performance has
remained poor
• Unequal distribution of income and corruption are
major problem
• In 1898, Philippines was ceded to the U.S. following
Spanish-American war and attained independence in
1946
An Overview (cont.)
• President Marcos ruled Philippines for 20 years.
People power movement forced him in exile in 1986
• Ramos’s administration brought more political
stability
• Current President – Gloria Arroyos faces many
challenges
An Overview (cont.)
•
•
•
•
Population – 98 million
Working age population 61%
High population growth rate 1.98%
GDP per capita $3,300 (compare with Thailand
$8,500)
• Agriculture
14%
• Industry
32%
• Services
53%
An Overview (cont.)
• High unemployment rate 7.4%
• Gini coefficient 0.46 and inflation rate 9.3%, 40% of
population below poverty line
• External debt $54 million,
FDI $20.78 million
• Filipinos working abroad
Development Model
• Import-substitution policy and overvalued peso
during 1950-80, diverted resources away from
agriculture to import-substituting manufacturing
• Heavy regulation – in 1970 Price controls on rice and
other agriculture products
• Reliance on agriculture as engine for economic
growth
• Centrally planned economy with heavy involvement
of government
• Overregulated economy
Development Model (cont.)
• During 1990’s, role of state was reduced,
Privatization Program, Mixed-economy model
• 11 million Filipinos work abroad (11% of population)
• Heavy reliance on remittance as a source of foreign
currency, surpassing FDI
Development Model (cont.)
• The remittances stand at $15.9 billion in 2008,
representing 15% of GDP
• Government is taking steps to protect overseas
workers (from illegal recruitment, mysterious deaths)
• They have been working in Japan, Hong Kong,
China, U.K., Spain, New Zealand
Development Model and Outcomes
• Tax Reforms – Philippines has a very high level of
corporate business taxes. Recently, the debate over
Value Added Tax
• Slow growth rates – In 1960’s Taiwan and Philippines
were at the same level of economic development. But
today, Philippines is way behind the Asian Tigers
• Philippines’ economic policies have not fared well in
terms of poverty reduction
• In 2007, the growth rate of 7.3% was the best the
country has had in 30 years
Outcomes
• High cost economy plagued by inflation,
bureaucracy, corruption and inefficiency
• During 1970-90, inflation rates averaged at 13%
• Philippines has lowest saving rates in ASEAN
nations (22% in 1992, 15% in 1994)
• As a result, high Philippines depends heavily on
remittance & foreign debt ($59 billion)
Outcomes (cont.)
• Philippines business environment is not conducive to
attract foreign direct investment
• The performance in poverty reduction is very
disappointing. It has lagged behind East Asia and
South East Asia
• In 2006, 32 percent of the population lived below the
poverty line. The number of poor people (27 million)
rose to its highest in 2006
• Kuznets Curve – Even during good economic times,
poverty levels increased
Outcomes (cont.)
• Vietnam & China started with higher poverty
incidence in 1985 but their absolute poverty levels are
lower than in Philippines (2000)
• Regional disparities in Poverty. Western Mindanao
and East Visayas had four times more poverty than
metropolitan Manila. Poorest regions account for
33% of the total number of poor
• Philippines has a high population growth rate (2.3%).
To overcome poverty high and sustained level of
economic growth are required
• Pro-poor program such as credit to poor, food
subsidies benefited non-poor and politicians. The
character of growth and quality of institutions is
important.
Government Policies
• Poor government policies – international trade, fiscal
and monetary policies
• Tax evasion is an important issue, compounded by
corruption and mismanagement
• Public sector fiscal deficit has remained around 5 to
6% of GDP. Government relies heavily on direct and
indirect taxes (VAT) Government expenditure
account for 20% of GDP
• Debt-servicing burden is very high – about 45 to 50
percent of national budget went for debt-servicing
Government Policies (cont.)
• In 1990, Japan and IMF froze loan disbursements to
Philippines as the targets for public deficits were not
met
• Resource gap due to low saving rate
• Monetary policy – High inflation rates resulting in
negative real interest rates, deregulation of financial
sector in 1980’s
• Monetary and fiscal policies resulted in high
intermediary margins in 1988 (loan rate 16%, deposit
4%) Reserve requirements were also very high (20%)
raised in 1990’s to 25%
Government Policies (cont.)
• Government levied a tax on bank! (5% on gross
receipts and 20% of deposit earnings)
• Supply shocks, dependence on agriculture, high
levels of tariffs, protection of sugar industry (and
others)
• Overruled Philippine peso in early years, and major
devaluations in 1962 and 1970
Reason for dismal trade performance
• Overvalued Peso, a series of devolutions did not
stimulate exports and curtailed exports (in preindependence era P2=$1, in 1990 P28 = $1)
• Higher production cost
• Protection to encourage import-substitution
• Electric equipment and garments had a high import
content
Current Development and Problems
• Philippines faces problems on almost-all the fronts
• IMF and World Bank loans for restructuring
• Super regions
• Second largest economy for outsourcing in Asia
(after India)
• Cut in corporate tax reform from 35 to 30%
• Privatization for electricity and energy sector,
underdeveloped regions of Luzon and Visayas
receiving benefits