RP economy slips back into a coma

RP economy slips back into a coma

MANILA (DPA): The Philippines has once again become the "sick man of Asia" with the economy slipping back into a coma amid the country's worst political crisis in years.

The Manila-based Asian Development Bank (ADB) said the country's gross domestic product (GDP) was expected to grow by only 3.8 percent in 2000, one of the lowest among Southeast Asian nations. In 2001, the ADB said GDP growth would slow down to 3.3 percent.

"It could be worse," said ADB senior economist Ernesto Pernia. "The 3.3 percent is probably on the medium variant. It could worsen if conditions worsen."

While the Philippines was least affected by the financial crisis that plagued the region in mid-1997, the country's economy failed to recover as strongly as was expected and even began to slide when President Joseph Estrada assumed the top post in mid- 1998.

Analysts said a lack of confidence in Estrada, who has faced one scandal after another during his 29-month rule, was a major factor in the economy's deterioration. But they noted the problem goes beyond the political scenario.

"Political factors do tend to temper enthusiasm," said economic analyst Antonio Gatmaitan. "But if there are opportunities, investments will come in and the economy will move forward."

From the very start, Estrada's "take-away from rich and give it to the poor" Robin Hood-rhetoric had made the private sector uneasy. The business community also doubted the former movie actor's morality and leadership skills.

The "confidence crisis" worsened in early 2000 when former Securities and Exchange Commission chief Perfecto Yasay accused the president of intervening in a stock manipulation investigation to protect a friend.

A major military offensive against Moslem separatist rebels, a wave of bomb attacks in the southern region of Mindanao and the capital and a hostage crisis involving foreign captives did not help boost sentiments.

But what brought the house down was the accusations in October by an estranged friend that Estrada collected more than US$8 million in illegal gambling payoffs and pocketed more than $2.6 million in kickbacks from tobacco taxes.

The controversy - which led to the impeachment of Estrada, who is now on trial before a Senate tribunal - caused the peso to plunge to a historic low of 51.95 to one U.S. dollar and the stock market to fall to two-year lows.

"The impeachment trial is the culmination of the undercurrent of disagreements the private sector has had with the government," said economic analyst Antonio Gatmaitan.

With many business groups calling on Estrada's resignation due to the scandal, Gatmaitan said the political instability has made "priming the economy" a more difficult task since the private sector has abrogated its partnership with the president.

"We are in a private enterprise system," he noted. "We count on the private sector for most of the initiatives in establishing the capacities that we need - the kind of industries that we need."

"The challenge to the government is to make sure that the private sector is satisfied with its own gameplan," he added.

But Gatmaitan stressed that the Estrada debacle was not alone to be blamed for the country's failure to extricate itself from the boom-bust cycle that has characterized the economy since it was granted independence by the United States in 1946.

"We don't have a strong foundation," he said. "Our growth figures are still very much dependent on what happens to agriculture. The modern sector of our economy is still small in contrast to the overall picture of what a modern robust economy should be."

Gatmaitan cited poor infrastructure, lack of manufacturing capabilities and undeveloped or underdeveloped "strategic" industries, such as petrochemical, steel and construction.

In its annual Asian Development Outlook in April, the ADB noted that the slow growth in the Philippines' industry sector "has been symptomatic" of the country's economic performance in recent years.

"The industrial share in GDP has shrunk from more than 40 percent two decades ago to around 35 percent in 1998, in contrast to the strong industrial growth in neighboring countries, such as Malaysia and Thailand," the report said.

The report also lamented that the Philippines has lagged behind many of its neighbors in physical infrastructure to support the industrialization and general development efforts.

"Poor roads, inadequate port facilities and expensive power have increased cost and reduced economic efficiency," the ADB said.

Gatmaitan said the government also needs to come up with a more comprehensive economic plan that would serve as a roadmap for foreign and domestic investors. He noted the government's current 5-year medium term development plan needs a lot of re- work in the face of the current developments.

"There are still a lot of backward things," he said. "As we modernize, our economy must be dependent more on modern industries and high-value services."