RP's economy recovery still fragile

RP's economy recovery still fragile

MANILA (AFP): The Philippines looks well on the way to sustained economic recovery, but this could still be derailed if the government uses the breathing space as a reason to postpone key reforms, an International Monetary Fund (IMF) official said yesterday.

"We must not lose sight of the fact that despite the progress and the good performance to date, there is still an unfinished agenda of reforms on the table relating to the government's medium-term program," said the IMF resident representative to Manila, Howard Handy.

"Indeed, some of the key impediments to growth in the past still persist," he told an economic forum here.

The Philippine gross national product (GNP) grew by 5.1 percent last year, the Central Bank said. Officials say Manila has gotten over its boom-and-bust cycle of periodic high growths which are later torpedoed by high inflation or balance of payment crises.

"One of the critical weaknesses that has undermined the growth performance and potential of the Philippines has been its chronically low saving and investment rates," which averaged between 17 and 20 percent of GNP over the five years ended 1993, Handy said.

These have remained well below the levels of other fast- growing economies and roughly 15 percentage points below the Southeast Asian average, he added.

He said that despite the improvement in the budget balance, until programmed reforms in revenues and expenditures were in place "the budget will remain vulnerable."

He cited the domestic oil industry which remains highly regulated and the huge financial problems of state corporations like the National Power Corp.

"The countries that have achieved high rates of growth over an extended period -- in Asia and elsewhere -- are those that have won the war against inflation," by reining in budget and monetary growth, Handy said.

This was "all the more important now that international investors and financiers are looking at emerging markets with a more critical eye," he said.

Handy cited Manila's professed commitment to a "strong and comprehensive program" of reform that stresses a stable macro- economic environment, structural policies that will enhance growth, and a liberal trade and exchange regime.

"The foundations of many of the ingredients of sustainable growth are already well established in the Philippines," the IMF official said.

But he said this strong performance "must not be viewed as a chance to postpone reforms but as a golden opportunity to set them firmly in place."

The Philippines obtained a US$650 million IMF loan last year that requires it to meet key economic targets for the loan trenches to be disbursed.

However finance officials have recently floated the possibility of getting out of the IMF program.

Handy said that provided "the momentum of reform is kept up," Manila's GNP growth target of between six and 6.5 percent this year "looks feasible and attainable."

He said the inflation target of 6.5 percent and the reduction of the external current account deficit to near four percent of GNP "appear realistic."