RP's economic reforms to stay after Ramos<\/p>\n
By Cecilia Quiambao<\/p>\n
MANILA (JP): A lower than expected growth in the first three
\nmonths of the year has stoked fears of an impending slowdown as
\nthe Philippine economy adopts to free market competition while
\ntrying to avoid the travails of neighboring Thailand.<\/p>\n
Falling industrial output and shutdowns in key manufacturing
\nsectors like clothing and textiles, rubber and basic metals are
\nshowcase roadkills in President Fidel Ramos' drive to attain
\n\"global competitiveness\" into the next millennium with the twin
\npolicies of deregulation and liberalization.<\/p>\n
These concerns have arisen amid the backdrop of a looming
\nuncertainty over the presidential succession next year, as well
\nas the oft-stated concern that the Philippine economy could go
\nthe way of the Thai system, which is suffering from a financial
\ncrisis due to a property glut and lack of confidence in the
\nbanking system.<\/p>\n
Part of the economic malaise can be traced to Manila's free-
\ntrade commitments under the World Trade Organization and the
\nAssociation of Southeast Asian Nations' bid to create an ASEAN
\nFree Trade Area by 2003, pushing uncompetitive industries close
\nto extinction and causing what officials describe as \"transitory\"
\ndiscomfort to the economy in general.<\/p>\n
\"There is no general slowdown,\" Economic Planning Secretary
\nCielito Habito insists in an interview published by the
\nPhilippine Inquirer newspaper. \"It is a temporary phenomenon
\nresulting from a restructuring that has had to happen because of
\nchanging competitiveness in the sectors.\"<\/p>\n
Nevertheless, the figures were cause enough to worry the Ramos
\ngovernment, which ordered a general review of the situation.<\/p>\n
The Philippines' gross domestic product (GDP) grew 5 percent
\nin the three months to March, the lowest over five quarters
\naccording to official National Economic and Development Authority
\ndata. It was dragged down by an underperforming industrial
\nsector, which expanded by just 3.85 percent compared to 6.07
\npercent in the same period last year. Industry contributes about
\n35 percent of Philippine GDP.<\/p>\n
Manufacturing, which contributes nearly 70 percent to
\nindustry, posted an output growth of 2.33 percent in the quarter,
\nwell below the four previous quarters which had a range of
\nbetween 4.9 percent to 6.3 percent.<\/p>\n
Textile output plunged 14.12 percent, clothing and footwear
\nfell 14.4 percent, basic metals contracted 16.7 percent, metals
\ndropped 10.39 percent and rubber retracted 8.96 percent.<\/p>\n
In addition, despite a new mining act designed to boost the
\nsector, mining output was slashed 19.44 percent amid
\nenvironmental concerns. A major copper operation in the central
\nPhilippines was shut down due to a mammoth tailings spill and the
\noperations of three gold producers were disrupted by labor
\ndisputes or their failure to pass rigid environmental impact
\nassessment tests.<\/p>\n
Of these sectors, the clothing industry and related textile
\nproducers were a key concern since articles of clothing and
\napparel are the country's number two export group, behind only
\nsemiconductors.<\/p>\n
The Textile Mills Association of the Philippines said in a
\nstatement that the reduction of import tariffs on fabrics, to 10
\npercent from 20 percent in 1994, \"has completely wrecked the
\nviability of our weavers and knitters.\" With cheaper labor costs
\nin China and Vietnam, the sector has been in a decline since
\n1990, with 15 textile mills closing down between 1990 and 1995.<\/p>\n
Cheaper imports were also the bane of rubber and basic metals
\nmanufacturers.<\/p>\n
\"To some extent, I'm willing to concede maybe some negative
\neffects,\" Economic Planning Secretary Habito says.<\/p>\n
\"But the obvious objective of opening up the economy is
\nprecisely to make these industries competitive so that they will
\nno longer need trade protection through tariff walls,\" he said.<\/p>\n
\"It has never happened that an industry dies because of tariff
\nreductions. Maybe individual firms die, but the stronger ones
\nremain.\"<\/p>\n
Still, the government has adopted a six-point \"action program\"
\nto deal with the situation, including a review of the tariff
\nreduction program, rationalization of tax and non-tax incentives
\noffered to investors, monitoring of compliance to trade
\nagreements, plugging leaks from \"duty-free\" shops which threaten
\nthe local food processing sector, liberalization of inputs to
\nindustry and infrastructure development.<\/p>\n
The fifth plan mainly concerns electricity, which is the
\nsecond most expensive in the region and which contribute to
\nhigher overhead production costs.<\/p>\n
Trade Secretary Cesar Bautista, who prepared the action plan,
\nmaintained that both the government and the private sector
\nbelieved that \"the policy of liberalization of both trade and
\nindustry, the test of global competitiveness, and market-led
\nmechanisms are fundamentally sound.\"<\/p>\n
\"We should not stray from the winning formula. However, the
\nreview should be taken urgently, more to calibrate our actions in
\nthe face of present-day economic competitive environment, than to
\nestablish new direction.\"<\/p>\n
Political scientist Alex Magno warned against the populist
\ntemptation to backslide on the Ramos reforms.<\/p>\n
\"We should draw a clear line on the non-negotiable parameters
\nof our trade and industrial development strategy,\" he said. The
\nbasic thrust of liberalization and encouragement of
\ncompetitiveness ought to be affirmed.\"<\/p>\n
He said, \"we should resist the temptation\" to defend \"the
\nobsolete industries we already have at the sacrifice of more
\nefficient new enterprises that will bring higher value-added to
\nour economy.\"<\/p>\n
The biggest threat on the political front, in the view of the
\nbusiness sector, is the election to the presidency of Vice
\nPresident Joseph Estrada.<\/p>\n
The actor-turned-politician who the investor community hold as
\nhaving a suspect grasp of economic issues has been leading all
\nindependent popularity surveys over the past two years.<\/p>\n
While many reforms are embedded in law, the thinking is that
\nif the composition of the new Congress would reflect Estrada's
\nway of thinking, many of these statutes could be amended to
\naccommodate political interest groups or worse, reversed.<\/p>\n
\"I think that there will be volatility in the market before
\nand after the elections,\" UBS Securities (East Asia) Ltd's vice
\npresident Corazon Guidote said. \"If Estrada wins, we expect there
\nwill be more volatility.\"<\/p>\n
But, Hong Kong's Political and Economic Risk Consultancy said
\nin its latest country report that the Manila economy was unlikely
\nto go the way of Bangkok.<\/p>\n
\"The Philippines is in much stronger shape than Thailand and
\nis unlikely to go down the same road,\" the report said.<\/p>\n
While acknowledging the business concern over an Estrada
\npresidency, \"the reality of the situation, however, is that no
\nmatter who is elected, the reforms enacted by Ramos are likely to
\nremain in place.\"<\/p>",
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