Philippines must take steps to avoid Mexican crisis

Philippines must take steps to avoid Mexican crisis

MANILA (AFP): The Philippines must act on its fiscal position
and trade deficit if it hopes to avoid a Mexico-style currency
crisis and enjoy East Asian growth rates, economists said
yesterday.

Emilio Antonio, director of the Institute of Economic Policy
Research, warned at a forum called by Philippine exporters that
"a change in perceptions of foreign investors could precipitate a
Mexican crisis."

Antonio, whose agency is part of conservative private think-
tank the Center for Research and Communications (CRC) said the
country's present economic rebound was anchored on political and
economic stability that had restored the confidence of foreign
investors.

But he said this recovery was strongly dependent on foreign
funds and on "volatile investments" to bridge foreign exchange
shortfalls caused by the trade deficit and that these funds and
investments could easily be withdrawn.

"We are not yet Mexico but we are going in the Mexican
direction and away from the Asian direction" of growth based on
high domestic savings and trade surpluses, he said.

Victor Abola, executive director of the Hong Kong-based
Philippine Research Center, meanwhile warned that the country was
failing to emulate the other fast-growing economies of Asia
because of its slow export growth and difficulty in raising
revenues.

Abola and other economists at the conference also said the
country's foreign exchange rate was uncompetitive and resulted in
both lower revenues and higher trade deficits.

They belittled the 18.11-billion-peso (US$754.6 million)
budget surplus posted in 1994, saying this was brought about by
privatization of state assets, which was due to run out this
year.

Abola also said the high trade deficits and strong Philippine
currency showed economic growth was import-dependent and was not
filtering down to the masses.

Finance Undersecretary Romeo Bernardo admitted at the forum
there was a need for tax reform to increase revenues, but added
that "privatization, at least, will buy us time."

He said government was trying to increase savings and actual
investment rather than portfolio investments, noting that
"capital flight is not a far-fetched scenario."

But he insisted the Philippines was different from Mexico
since it had a free-floating exchange rate.

"There is still time to adjust. We are not anywhere near a
Mexican-type crisis," Antonio added.