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."