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to bridge foreign exchange shortfalls caused by the trade deficit and that these funds and investments could easily be withdrawn.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.