Asian economic turmoil to slow Philippine growth

Asian economic turmoil to slow Philippine growth

MANILA (AFP): The Asian financial crisis will dampen Philippine economic growth this year and next with the authorities expected to pursue a tight monetary policy, an independent think tank said yesterday.

University of Asia and the Pacific (UAP) forecast gross domestic product (GDP) growth of 5.1 percent this year and 4.6 percent in 1998.

Gross national product (GNP) growth should be 5.7 percent in 1997 and 5.2 percent next year, it added.

It will "definitely (be) a slowdown in the economy," UAP economist Bernardo Villegas told a news conference, adding that the regional currency crisis and the "inherent weaknesses" of the Philippine economy will be major factors.

He described it as a "temporary slowdown" caused by the scarcity of capital, which he said should force Filipinos to increase their savings rate.

"In a way, it's been a blessing that our growth rates have been ranging from four to six percent," which shows that the economy was not overheated, he said.

Philippine government agencies have agreed to target GNP growth of between 4.5 to 5.5 percent in 1998.

GNP growth slowed to an annualized 5.7 percent in the three months to September, compared to 6.9 percent in the same period last year.

Villegas said the Central Bank of the Philippines was "giving a great deal of effort to bring down short-term interest rates," but that this would not necessarily mean banks would follow suit.

Banks are nervous because of the situation in South Korea, Japan and Thailand and are sending the message "loud and clear' by keeping prime lending rates at 25 percent, he said, adding that he does not expect interest rates to dip below 20 percent in the next six months.

Villegas said the main beneficiaries of a weaker peso, 33 percent off its July 1 value against the dollar, were the export sector and Filipinos working abroad.

The depreciation should help reduce the country's current account deficit, the university said.

But the think tank said in a statement that "a continued high interest regime and a very tight monetary policy by the (Central Bank of the Philippines) could easily negate whatever gains we made from the peso depreciation."