Economists Forecast Outlook of Philippine Economy for 1990-1991 by Ronald Yacat

[_ Vol. VIII No. 1

January - February 1990

--'INTRODUCTORY

the complete -

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ISSN No. 0155-9097

NOTE--

transcription

Economists forecast outlook of Philippine economy for 1990-1991

of a

roundtable discussion'conducted by i"PIDS in early January.The main objective for organizing this roundtable discussion is to provide aforum for exchanging notes regarding economic prÂ°spects in the Philippines inthenext 12 to 2# months, particularly among .(nstitutions and professionals engaged in forecasting and plannin b both within and outside the government. PIDS believes that this exchange of notes will be useful for a number of reasons. First, it will give participants (and readers) an opportuniO_to look behind the numbers, i.e., the assumptions, because to a large extent, the assumptions are more iraportant than the projections themselyes. If the assumptions are not realized, then the projections will not PlDSplans do this everyyear, materialize. toSecond, inasmuch paras ticipants (and readers) can look in retrospect and find out how tight or how wrong these projections were; pinpoint unexpected events and identifythe shortfalls in the process. All this would allowforecasfingparties to finetune their techniques which will then result in as good, if not a better, set o[: projections. Finally, the roundtable discussion can also tell paqi/ cipants and readers alike in what areas the forecasters are in general agreement or disagreement,

Government Sector Dr. laser Yap drew his economic forecast from an earlier paper that he

pre_t,nted at the ADB-sponsored seminar on "Asian Economic Outlook" in November 1989. The basic theme of the paper is "Development Issues Facing the Philippines." Dr. Yap is a Research Fellow at the Philippine Institute for Developmerit Studies (PIDS). -: {'_

ince tlaÂ˘ early 1980s, the Philippine government has implemented

vigorously the Aquino administration. The thrust these adjustnumber of by economic reforms, most of which were ofpursued more ments was to eliminate major distortions in the economy and reduce fundamental macroeconomic "_tmbalances.Despite the success of these reforms, the gains were not nurtured and bolstered with further reforms and adjustments such as those relating to income and wealth distribution. After posting a relatively high growth rate of about 6.7 percent in 1988, the economy began to falter. In 1989, the rate of growth of the Gross National Product (GNP) registered at approximately 5.6 percent as against the original target of 6.5 percent. What should concern economic policymakers is that the world economic recession was not as severe as earlier predicted to cause the slowdown. Hence, the deceleration in growth rates can be traced to specific domestic factors such as: 1)

The surge in inflation which is expected to average slightly above 10 percent this year;, The rise in interest rates from an average of 14 percent

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in 1988 to

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: :: The transitlon from con_ ......::reach $2o15B, ahnost twice:that: of: tO :i988:; :HoweVer; with :the: expected iven infl0w:of foreign investments : : :::: : econ0mic expans:ion: .......... towards the latter part of 1989 and i Since ti_e economy has : the restructuring of official loans, ........: been: 0:per:ring at full the balance of payments (BOP)will

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i capacity during the past

i: two years, activi_ i:_creased vestment was in,. in.... evitable. : ........

$500M: The slack on Consump tion was picked up by an increase in invest-

;igi988;:increasingin-:

: flatio:nary pressure was attributed to i: an:::overlieating economy. Com_ pounded in 1989 by anincrease in oil

ment :

prices; tliere was:also a rise in food i priCeS:resulting from the aftermath of successive destructive typhoons, a significant hike in:the minimum wage_ and a slide inthe 'vMue of the peso:: The Central Bank attempted ito:e:6ntain this:rise :in prices bv tightening money supply. Conse:i quently,i interegt rates:climbed, and there was:a time When inter-bank

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CaUloan rates surged: to aS high as _ percentl The Central Bank's high im retest rate poiicy: was also used to stem any: Speculative attack on the :peso

...... : .... : .......... i: ........

expenditures,

of about

In 1989, gros t

i capital formation (GCF) i'ncteasec_ by 15.56 percenl despite high interest rates and inflation rates, The increase in investment, may be misleading and mushowever, t be qualifie& First, the growth in Gross Domestic Capital Formation (GDCF) in the .... first semester was 2'7.4 percent, and interest rates, which peaked during the second half:of the yea r had a negative impact: on investment decisionsl Second, local investment grew faster than foreign investment. However' tlse bulk of these invest: ....ments went into real estate Specula: tmn and expenditures to upgradet I the transport industry. On the posi_ll rive side, the Board of Investments

: ::Ttie dud{ pressm_e on interest : : (BOI) has reported a marked inrate s :caused th e marked decline in crease in investme _tS in export: :: industrial activity; particularly oriented sectors, with textile and ....... semiconductor industries topping martufacturlng; ....... .I.his: translated into a:decl:ine in the Consumption growth the list. However,i these industries rate fr0ni:6_6 percent in 1988 to reinainveryimport-intensive. ..... i:about 5.8 percent:in 1989. in flation ..... These developments coupled ::: also Contributed t0 this decline, and i with the:recent coup attempt had a dampening effect on export presents a discouraging outlook for growth. High interest rates and art 1990. One forecaster: appropriately

..... ....: :i:i ....

a small surplus

unrealistic exchange: rate also con .... as :the ...... tributed to the latter; Merchandise ii:' , ..... ., '.'_,,_._' : : ::exports in dollar ternis lell short of : : walcnworo l : ..... the 8 : .... .................. : 7 " , $_,0B prolected revenue and i : ii : i i:e:ou[ale.d @provmately 12 per: ii lare*Â˘aleneei: .....of c:em: as of October 1989 while tini : interest rates" : : a 24 percent growth, ..... : ii: i i As a result, . the trade balance is ex* ...... ............ : :_ ; *

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called inflation as the "watchword" of 1990 coupled with the prevalence of high interest rates. If the Central Bank tightens money supply, interest rates would contimm to be high during the first haK of 1.990. Furthermore, the entry of new:money during tile first quarte:r I of this year .

......

.........

: wiill e_Courage: the Central Bank t0: : purSUe an Unrealistic exchange: t:ate :: p01ieyi:: Assuming: the .new Centfai : i B:_:i:::GoVern0r ......... pursues :the Same: p61icieS::as the; previous: G0VernOr : the:extenf 0f devaluation would lie::::: abtmt 5 to:6 percent:Partly becatise: ofthis::and the:continued sl0wdown:i: :

:: :

exports: will ris6 to0nly:about

: :::

12 percentl and not: : : :

: and:lndustry;s(DTI) target oflS to 16 percent. GNP wxll thus grow at 5.1 percent;:::i0wer than the PIDS! original figure of 5.5 percent but still .... _igher than the 4 to 4..5 percent

......

_projeCted by other ec0nomists. One : reason why the growth rate will no t i ::: i: ...... dip below 5 percent is that previous

investments placed'_during: ......the past,_2 to 3 years Will start to be productive this:year Double,dig t .... inflation wili , continue pnniarily due to : the" in .......... " " _

....

: .... Dri josefYap is second from right. : .........i: .... ....

These structm::al _:eforms must be: imdertaken in a milieu that is _l i_,_n t .a n d _,l..r5 n_-t_.riT_a ........ Z_.. h,, _.._ lo_ .eso _ ,.[r.l.e,e more realisficconditionalides,, and a

:: crease in:power rates and: cost of: : i ga'eatly reduced debt burden. For otlierl b:asic services. During th e: :: : example, by NEDA'S calculations

: i: i second half of the year, though; we i ..... estimate the inflation rate toaverage I: :i 10 to12 p:ercent_ : ....... : :.... : : : ly :: :: :: better: E_orts will rise by 1.5 per: i cent due::niainly t0 investments in Dissector during the past years. :in_::: _ationwill decline to 8 to 9perCent,:i:i inducing:: cousumptlon expendi:: tures: GNP:as:a wh01e will grow bv_ ...... i:

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partial dlstrib_tioi_ of eco_0mic opportunities Neverthclc.ss, I:hc thrust of structural reforms should bc 10 cl_' st:rlbute" wealth and income more equitably, a:r_din the: process widen domestic markets. This can be achlevedbydismantlingmonopo!ies and oligopolies that arose mainlybecause of excessive protec_i0n by the government; increasing or undcr_ taldng a genuine land reform pro 2 gram; increasing enforcement of, and compliance with, existing tax laws; and support:ingl wholehear_ tedly a c0mprehel_s:ive population control program, These social

5.5:percent although this is lower rate is because: a higher exchange than the: earlier fOrecast Of 5.8 rateleads tO higher peso equivalent percent, ....... ..... iiii i debt payments, .... BeyOnd these numbersl tiow: ......Evenwith:abetterclithate, the

reforms must be supported by ap_ propriatc structural adjustments in the macroeconomic context, such as a more realistic interest and ex-

ever, is the fact that we will.not reab ....

change rate policy..

nature

of: these structurN

reforms

ize tlie Original aim of the 1987-1.992 stiU has to be de/_ned_ rn thebook by MediumTerin Plan, Le. to regalnthe : : RietiardKessl_r;a staff0ftheSenate 1981 per capita income level by :1.9!)1.... Foreign Relations C0mmiltce of lhe

The above program essentially calls for a free market solution to existing problems. I am reminded of

since this requires percent gi0wthrate

United States, tie suggested a solution tothe age:old peasant revolt ill

a nightmare that an Americatt economist Once had where the

the Philippines and its economic woes. Kessler suggested that the ruling elit e voluntarily relinquish i sonic of its power and Wealth. This

Japanese reformed protecting their business policies, stopped their a m-icultural sector, worked less and consumed more. _n other words, the

an average 6:5 : over the period:Jill

198% 1992:: One maytheask what factor:: or faCtors impeded attainment of ...... : double di_t growth and the failure to ineet thiS m0dest target, The basiC: ........

the: Philippines" financing gap is $4:0B for the period 1987-1992. On the:other hand, theiMFC.0mputed a $2i5B gap for the same period. The latterl figure Was later adopted and this:resulted in tighter fiscal and moiietary poiicles than: were warranted. Relatedly,: one reason why the Central Bank iSheSitant:to allow the peso to depreciate .... at a higher

.....

answer iS :::government's inability to : i..... ofcourSG is easier said than dane A undertake inuch-needed structural literal distribution of wealth is not .... reforms:

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implied hera but rather

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a more ira- :

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Japanese acceded to all American demands. Yet, the twin deficits of (Please mm topage 4)

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{0::the: Phflip'pines_ - is _'restrnctn:red, imports are: liberal: iZect ::ii{i_no_-olies:and oli_o _olios ._' ..... P ", ,g_' P .g.:::= .......: : : :.... d!sm,.mt!c.d:,and land I elorl!l: m_ple.-,

:: : Eve:n:ie the maCroeciin0my .... :

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: ...... ,_1 tall is: seeotlo lrom llefL .... ............ .... .... , . o , ...... i iS.Deput_*D#'eCtOr-Ge_e_ugof_h_ .Nat_ona__cone, m_c : _ " _ .....andD_+lopmentAuthonty ........ ..... ....... : :: : : :

to the absence 0f:: : : : : : e _::: 0r: ]:990;: tihe: initlai es:a cieii>cut industrializati0n pro_ the: GNP : gram: Thus, i.t is important t0:il growth rate :ranges from : develop an industrialization policy 5 to 6 percent :A subi i : thatis supported byasound Science: : sequmit i_ the: :i and t_cM01ogy (S & T)devdow :i range of4.8 t o 6percent. GDP, on .... :...... .... iment program reflecting:the, i the 0fller hand, wonidrangefrom451 :: : : :cotmtry's C0mparative advantagei ::: i : : .... .Fhis . ..... .... .....,., . a, ...... strategy would avmd the i:ollv ot-1 he. range of t.otcoast {o_(_,NI: i:: : the previous regime whicThchose to ...... gr0wtl'_ takes into :consideration: [ [ i :indulge in ambiti.ouS ind.uslrial i: vadous factorsa The:low estimate o.L progaams using :flie iatest l:_tt i iaf> 4 8 pc 'cetlt acc0nnts for the possible of I.hc: :......... : proptiate: tectin010gy:: }iip:iitS:: Ot> : '_" '" :':" : ' ..... ; " ¢ " : : tained fr0m developed : di_one.hl_and assumes higher world ........: : The:iiidustrialization : oll prices and interest rates thmawas

J_x_/:tatio_ ra_e {s expecled to bc in dm range 01::1.I. to 14 perce,_t w_th due consideration Of the effects of the drot@_t. : ..... .... Tl_:era._geofpro}ect:i0n for .... .GNP growth at _his stage is wicle, i.e.; 48 to 60 percenL The worst case : scenario takc:.:,i:_to consideration the effects of the drough,:, the projected l_ighcr interest: ra_es the oil prlccs, .... ancl the adve.rsc c 'Tc.C_s 0. tl._ecoup. .... What the: governme at is trying tO obte@ak'.,.1990 i:.,_ ama cr occon omic balaace whic]'_was one: oi the t_,ags that was _ot well emphasized in ....

: i:

1.989. The seco_d half oi! 1989 saw i the. growing macroeconomiC im -_

be detailed ex:10ugla to lili,.hliffht ......: seVeral key indnstrie_ : S0me.:i

: : i: eCon:0mists have pff_pos:ed that: i: strUCtural reforms be anchored :ii......... : :this industrialiZati0n p01_Cy:: i would Iiiic {0 era2 :i r

..... i

ipliaSize that the cu,!:re_{: gl0bai::: , c0m_tries :I ':nietam0rphosis in.Volving both Sides 0i! the h:'0n Cm" :ahi

i:ii i i should give an opportunity fo_ the ....... ] .Aquii_0 gover:nment to implement these much needed "efoiTl_s; c0umry and t'he : i at a c:ritical juncture, If .... : ::effOrts aimed at amply mudd ng i

thr6ugh" i

:: :

:: ......

.... :

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1it0 16percm_t;primarilyln durable equipment: investment in duralge equipmem is the most interest ratesensitiVe; investment i_,w_ver,'_ment tf/ftas

lllCtllFe

1s not

ec eel {f_ }ng

"' .7"=,-_ : .7 ",i 2p. : ..... ad_ exsel} aI'_;":' f{cted by sx_ rigs m m .:"-i _ .--'_"" est rates. On th e side of export :;a_dl

: hnP0rts;ti_e atteris expected to pos_ : : al_igli6rgr0wthratetlianthe former, i : The 4.5 to ::5:7 _ercem cs1990 of: the:GDP growtl> : :irate i:udiCate tha_:for agricnlture the : rar_ge _s h'om 2.5 to,4.4 percent and

persiStS and pt0c:rastina: : the, c01ii1[1%/Wilt SI3Fe.III : ly be: 0Vertake:n by harsl_ i_ealltle.s sooner i : . :, than cxpeCt;:d .., ..... ti0:nc0ntinneS;

assumed the: 0i:iginal estimates. : : Gr0ss: investment will grow from

t'o17 m.anufactu_m_; 4.8 to 6.1 _e_..... cent: For the growth: ..... the effect ot interes rates ie:;: ....... .......t4c cr0wdin, .. g- o1.i{....effect have more. impact in the manufacturing sect0r than: on otl"ler sectors.

balance as indicated by ]{arger trade deficits tha_a ini/:ially expecte& Given tbe:__q.a_e, of scarce, fo_-eig_'_e'_ c_mn.ge, d>c dGt'.':ic.it b.rougt_t about. ,

policy ,:esi:>cmse whlch aimed to . .. reduce the {:fade dcfick primarily through monetary means such as in,_ creasing iatere.st rates (which in lure brought about a slowciowt_ in invest_ mere: a_d eco_omies Along with *his, i*fflatlon picked ,.._pi_'_tb.e same period and wiI1be a.m@_r challenge : for t}:e Vovernmcr t i:_'_. 1990. As i_xdica¢ed earlier by Dr, : YaPs the 6 P{.rce_-_ projection for 1990 is lower tl:m:athe inkial target of , .... the N _.{cd_' m.i erm. Pla_ whicli projects a L=-owth•rate of 6.5 percent.: The Cabix_et's approval:of a rednc-

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tlon iti the growth target: for :1_:: recognizes that the c_ident macro-:

i economic imbalance in 1989 has t.o: ::i:i :be:addressed strongly in : at:the cost of a reduction ingrowth: . ...._, that .... ..... .... taLgets, One of the things has to be done to reduce this imbalance ........ . ...... ..... includes tide reduct|on of the rate of : inflation to asingle digit leveiby the

......

1990:

..... : Another step is tO reduce the. deficit : ....... . ....... ,,,, _.,l._ : wmcn was very I,llgn: 111 l_t'5,y; .1lit3 high interest rates in 1989 we r:e:l:,art_: i lydue tothe fact that much of: the: :

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: Ms. ImeldaSmgzon _sthe tdce-Presldent]oz'Economu. Research and Statistics at i the.Philippine National: Bank (PNB). in her presenttation,, she focuses on the

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economic va,lables which PNB, as_afinancial institution, is concerned wi_h. ....... ..... :i :: ...... .... .... ' recovery will _ .....Cconomm ........, : _'4 : con!mue m }_u out wun : GN.t" registering at .... " .... about : 5 percent only'.

co -

strameta oy: a slowdown in invest:merits, and: rising interest and mfiatmn rates, i he trend m mvest_ wmca plogresslvely assumect

i i : F0r 1990,: the target deficit is.lower, II::i through I989, :: : : and equally: important, its financing i 17.2-5:percent; respectively, m con-i :[would:be priinarily foreign: rather: : s{ast tgms: will notbe in ......... ..... lv'3u foreign mvestme t t g in Ms_ Sing_on is at the extreme right. than:domestic: m order to reduce ": : " ....................... particular wiU suffer a setback as a ..... pressure: on interest rates: which, number of foreign investors with : i: : : .... : i : :::w0Uld danlpen investment:levels; ::i ....... plaamed: investment in 1990 have ...... The export gr0wth target m ..... : Part of::the reduction in the deficit: 1990 may not be realized as a result .......... _ opted to delay theh" decisions in the: ..... wlUbe borne by higher gove,'nment _ - - - , of a slowdown in expansion of new capacities, particularly in the nontt!rough: an: _o_ u;t_m P_21;a;Tp_ ...... i :ereaseingovernmeiit!gtax:effort,: : : ' P " 1' t/'adltionalcategories: Aside from .......: i : slow clown economm expans th,s o)_ou d i_ high Cost of money, operating [[ lion and: the pressu:re: on: interesti::: . : ...... . i: ..... : rates ...... ........ :.... ........... ConsumptiOn Spending is ex:.:'its ofofexporters increase as ina _esnlt upward will adjustments pecled to prowde the boost to i[ :the:i:trade i: : ' " utility rates, increased prices of sup....... ___;_`:_ :^ _.:.a._.a **._.. :,- ;a;_;_n, ..... economic:growth in1990 but per_ ..... u_.i,_,t ,_ m_;,-,_*: tu,., ,_ ......... .... .... . : plies and raw materials, and the prospect of another wage adiustto previous levels This is because pur would haven negative:impact on:: : ": " _ ment. For anumber of export cornreserves How : ChaSing power: will: be clipped this i

..........

....

......

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foreign exchange year:compared to previous years that will be related eventuaiiyto ex :: change rate decisions wiUultimately due largely to greater inflationary : depend on government:'s success in pressures arising from the oil price : reducing the debt: servlce burden increase :implemented during the either through further debt:restruc_: :first week of December 1.989 (with :i turing::0i :through debt conversion : full:effects expected:to be felt only :::schemes: with:respeci to the:magail i this year):; and: the: scheduled in: nltude of structural adjustment i : creases ill power and water rates. :

....

the Philippinesi this is not expected tobeatparwiththatofMexicosince : i the:Mexican economy:has::been i i : : : more distorted historically than that : of the Philippines. However, more than:: economic: strnctural reibrms, iii i One inust also look at issues affecting: ii polit:icai::stability and improvement [: : : ii in g0vernment:efficiency" i............. .... _`_a_`!r`_'_.r_:_,_`_e`_._v_`:_,_`_'!".`.:_!._?!:_._'`_:7_!_?!i_:._:_?-_:_.!:`7__::

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panics, the exchange balance ratc, between pcso-d011ar and the the leVelwouldofbeoperatingvery crltlcal.C°sts in.peso terms ..... Developments in Europe Could also adversely affectmajor the country's exports as European trading partners East shift_ their attention to the emerging crn European bloc. In addition, th.e projected world economic slowdown will likewise dampen export prospectsi Imports; :on the Other hand, will grow faster than exports, although at a rate 'iower than the 22 percent growth last year with the

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liberalization program; an increase : :ino! 1 ,rts; and the importation of : :

.... ......

:erialS i

:Communications.: :: ............... : i,_: I

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::::ye_ a/id:would: largely i

:: : : Similarly; the levels of Gr0ss::inter_ draw attention:_

espite the severe blow on investment:dealt by the latest coup attempt, : :: :Gross ::i: Domestic

Pr0dnCt (GDP): will: register a growthof5 percentthis year if the ::goVer_ent reactsp0sifivelyandtm::dertakes ipump:priming activities ihr0ugh:increased::infrastructure i spending

sourced:

fr0m

official

: i

i:i:6ptimi:stic source of: foreign- ex _I..... Change is the large poot of foreign: : from 3.6: to: 5 percent:

:::

for 1.990.

exchange: earnings of Filipino overa lithe best:i case Scenari0, i.e.,i 5 perSeas workers which was estimated at: :cent GDP growth rater is supported $2B ill: 1988. New money from : iby specifie factors that include a cab i abr0ad_i apart from the $650Mea:r.i iii lle r raised by: the IPhilippine

debt

drought.: Additional conand substantml new foreign invest ':: ' : '_ sumption: spending::that may arise ments :::may not be forthcoming _..... ...... • ' from the grant of salary:d,lferent_als TouriSt: receipts are not expected to to government workers would also .... help inuch as tourist arrivals add to " ressures : ....... ...... ..... : will:i:' • : inflation aryp .... . Kee pprobably dechne this year - _ _ i ing inflation levelS d0wn would be a : PeS01:i s expected: :t:o for the Central Bank, i dePreciate:to almos t 71percent, a t i :: andasinthepastYear'itcouldresort P24to$L0 by the end: ot 1990_ The t:0antiqnflati0narymeasures such as : : :peso Wi!ibe allowed to:m0ve:morei:: nlaintaiulng low:levels of liquidity; :: freely as the government .......... ....... rams to ....cor_i: whosel effectS w0uld be to drive inrect:the Coun:try's trade gap: terest:ratesupwar&:lnMarch 1.990, M0reo)er, adecline in the ird]ow of i:i i the Centrai:Bank:is:expected to i,n: foreign:exchange due to: the slow-i : :i: plement :m0pping-up operations in i : :doWn in:foreign investments, ex/: : : c0mplialice with:iMF liquidity tar:: i ports, grants and:aid willput I::::gets ................ ...... : ......:....

....

:i:

culated growtli ........ .in private: Consump: tion of 5.6 percent due mainly to tlae growth of real output, i.e,, of about 4 :...... to 5percent; and aslowdown in :private investment (as a reaction ot' investors to the most recent coup attempt) from an estimated growth of 23...3 percent i, 1989 to only 1:1.1, percent this year, The best case scenario

also presupposes

that the

slack created by discouraged investors will be taken up by the government through increased public : investment in the form ofinfrastruclure spending. This assumes that the ...... government respondswith higher efficiency in the use of ODA funds. gap of about P19B can be funy financed froni existing levels and : sources of revenue. The possible drop in corporate and personal incomes, and the pending House bills on addkional taxes on cigarettes and liquor, if' unacted upon, would :reduce potentially available government revenues,i For 1990,. the government !1as no recourse but to fired its deficit tlarough domestic I borrowings. Thus, Treasury Bill: rates may rise during the first and : second quarters of i990; perhaps averaging at 19 to 20 percent. Consequently, nominal lending rates :is forecasted to remain at about 21 tol

additional pressure on:.the peso The-'........ : i : i::ii i iThe approved budget:f0r 1990 i larger: depreciation thi s year would: i is:P245Bi of which:about P19B is a :i ii:i ::i allow: exporters to become imorell: mininmm: timate :of: the budget :: ::i: comPetitive despite high interest: notinclude rates and o eratlng costs " P ....... ' : : :: : allocations: for pump-priming aci Inflation rate is estimated : ti_ties;:aild_llihereforebe ot;little

22 percent in nominal terms. ..... Economic realities in 1990wili largely depend on events associated i with the country's politicalsituation. In a sense, directions and scenarios : :i made out at this point could be very volatile and: are expected to change : ...... according to the political perce W i in late i989; the Scheduled increase : :: bndget::iS::conservative:i :iihere iS fions ofpcopie who mak e and imple_ in utifity rates; and the expected : : doubtwhetlmr the estimated budget ment investment decisions. []

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i:,ii. ::. : : ::

)::::iiII) :

:: :Thus;: public investment Wiii im :: i: growt:h of pUblic inveS:tmetatremains :crease from an estimated growth 0f ::: at ll perCenti In agriculture, despite 1! percent in 1989 to 16,0 perCeni : the:expected:growth of about 4 to 5 : :this:year, Moreover, imports will in=: percent in: real: terms, the slack i : Crease:by only, 15 ' 9 percent due to: ..... created by :discouraged..... investors ' .... the slowdown in econo'mic activity togeflier:Wkha passive:response by ........ : .... :: : ..... .... while prices the government MII: result .... are expected toincrease, :) .... in a mild compared . ......... decline private : conSumption from,..... : : byllpercentflfisyear, - . ....... in.... :: i0!6 percent in i989, :This: increase ani::eStimated: growth of 5;2: percent : willbe due to the25 .percentlncrease This in 0il prices, art increase in:the min_ : :: of :: imum Wage:(of about 40 percent);: : higtmr: loan rates, constraints: in : for : ...... : - ....... i:

as-

th_cpeso:dollar exchange rate; from :: : s_i:NeS ::thafpriVate::inVestors are P21!:7 to US$1.0 in :1.,)89to P22,7 to : nl:ore:irisk/averselthart isassuined in US$1.0in 1990: ....... : ithe previous scenarios;Private in:

i : : ..... .... :

The:

forecast:rangefor

GDP growth as:2: : : sumes that th:e governmeut:does not:

.....take up:.......... the: slaek::in private invest- .... me:at; i:e:; it ren_alns inefficient in the: : utiiization ofiODA funds: Thus,: ¸.¸:¸¸¸%

.............

Vea:men_ wilidecelerate from: a high: in i989:in real terms Furthermore, it i is agsunied: thai ithe::g0vernme:nt is passive and is thus unabie to take up the slack left by discouraged inves-

: ....:

......... -.5 6 P ercent growth m. ]'_ consumer Spending was i /;,,._ felt very s:trongly in ]989 .]L :acroSS::in:dustrics and : high levels of: m:e.iictiandise saleSi::The Sources of:

to in 1990, The rise inflation rate : willP23.1 correspondingly to reach: 12.4 percent in the current year. In ..... .... .....

: ::::::Ms,:Aiia :Maria L:Jacinto is"with _he Corporate Planning Department of the is the co-author of .Dr. l/kbmie Constantino of the i paper [ rospects for ttw Philippine Econom) in 1990 _ _: ' : : i tural:seCt0r is projected t0 grow by economies of some reglons: DeSpite about 3: percent at best case, the delays in establishing the RICs, : Weather-related:pr0blems Such as the private sector in these regions, : i the:drought, whiCh:seriously af(i.e., Cavite, Laguna, Batangas and

: gr0wth::could be:attributed to the fectedthrecraajorareas(i:e,,Panay, : increase in the ininimum wage Cagayan::aud Central Luzon),could ............. _uu _4 _t,,._y._u__"'_., _"....... , nd, _'_.,,.... ,sl,,, ......,e ........ severely skeet, _ . the ,sector's, _rowth,_. . P ,,e._ ........ increase in gross farm incomes of ln other areas such as Mi,danao, the fin,al household's : drought :willbring in wiudfall profits :i ...... .' :-£.x :i:: for" farmers also .... :.... : m l:J'Jui however, tneagrlcul_ . ..... Copra farmers .... :: ...... :stand: to:loSe heavily this year be.....

....... i::: .... .....

:::

ii : ........ :: Ms,

.....

foreign investment will. contribute: significantly to the expected BOP deficit that wiU. trigger a depreciation of the peso from: P21.7 in 1989

....

Pri, vate: Sector .....

tots.: .... this perce,ved govermnmi't mactionwillresultinareductloaofnet foreign investment by $100M. The significant slowdown baI oriv,a te i11 " Vestment, with a -, ° coupled _ ..... m pubhc m ves, t m cut . will: " reduction " a de"crease m " r_ irate'_ conresult m p" theexpecte sump ti on d eslte .... td _ood performance of the agricultural Sec-: tot Private cons_mption will only :: inc;ease by 4 5 percent in i990 and i will contribute to the worst case scenarioof3.6percent GDPgrowth. The reduction in net direct

point during

cause of expected declines inworld ..... prices of coconut oil, More disturbii iii: ing is:thc:abSence°f a comprehenSire :prOgram:for agricultural !deveiopment; while the private seci:: : :t0r:hast_Sdealwiththeuncertainties : :i: :posed:by:the Comprehensive Agrarian Reform Law (CARL), : :iiii:: The:su:ccessofiheregionaiin: ..... l::: : : du:strial centers: (RIGS),: a program t0 be funded: by the Philippine

Aid

Rizal (CALABAR); Cagayan de Oro and General Santos in Mira danao have initiated the kind of investments envisioned by the government. There:are;: howeveri unfortunate adverse effects from the increase in farm prices. First, high crop prices are inflationary. Because of this and the depreciation of the: peso, inflation may reach close to 13 percent this year. Second, the uneven pattern of growth in rural markets will skew income distribution further; This inflationary situation, coupled with disparities of income within and between regions willrequire

a strong policy response

/(i

: _i:[i[i)iii_i:[[i[[7 _I! i:;i:i)(:Y):ii!ii_14!::i_i_/4:_ _.):([( _))17) 7:1 _)71L7::+ ........

....... .........

: :: Mr: Alexander ....... . ........

[ i: [ : ::

....

siphorfing p:rocess :will be sm00ther and do not bring up interest: rates higher thanneeessary. The bottom-

:I do notl c0n:. _t i t ute a o f ficial:: ; i::: forecast but m_ 0piniom :: : :a ;iudgment based on: tile2 as-: i ::: slmip[ii;n:: that we prepare f0r the: w_;!s_bi:i hopefor the best a.ndwork i : towa:i_dS:it. The IMF Letter 0f intent i 2 (LOI)I indicates the e.:coi_omlc tar z

' line of financial, or market developmeat is that whenever there is a trade,off between st.abilization and : .gowth, Stabilization measures will: have to prevail. AlmoSt 10 years ago, .... there were some long-term monetary reforms geared towards: :financial development. The usual el.'.-:..... forts included savings mobilization

getsup 1991_i:Growth willbe con_:i s/!r:aine:dt0:by ttie stabilization and : : ac[justme:nt progn'ams expressed: in

and of savers to: investthein encouragement the long-term through posi-: tire real rates cf interest, "1he Bank s

the: LOL Th.e year: :1990should be approadied with Cauii0uS optimism i since the pitfalls and the constraints ...... [ are:well known to us.

.......

__......... " ....._

C E_cuct_a is....... :_;?Ce:Presldentfi:br Co rporate Plasutin g as_d

The abi ityof the....economy to g_!ow faster based on consumption:

i :: i

ftmdsre'serve requirementSalso lowered.属nlong-term..For Pro'" were of th_s yem s goal, the reserve: poses ' "' requirement is now aligned and

: ..... Mr, Eseueha: presents his views.

there is no distinc._ion between short: 17nthe end, this means and that:long-term. the market dictates its

.... ii .... :

groWth::: will inflation target_ This may entail the ......:: hopethat under th c,LOt feamew0rk; :[[:limiting: of the extent of peso : the pattern of growth will change: 1: depreciation: Although certain ini: ifr0m eo_sumpti0n t0 inVestment, i ::dicators miy put pressure onNrther .... : The ttieme is stabilization Ver:sus devaluation, oneof thekey events tO i iii groWthand there aresome items: ..... watch out for is whether the _ : that are of particular con cern. One monetary squeeze which occurred in. .......... " ....... iS: the .inl:]ati0n rate initially ta> : September 1989 willhappen againin ..... ...... i: gettcd at:8: percent, in 1989 and : March. 1990, The former was a :.... declining to5 percen:t in 1990 and peri0d of reCkoning:whiCh high1991. Weexpect inflation tO be way [ : lighled a set of performauce Criteria [: above !hese targets, as ithit d0nble-: .... :wliile December:1989 was anindica_ : : : digit level: by Decmnber 1.989 The :tive benchmark period. As you .... other key item is the target: 0f15 know. the monetm'V authorities perceiit: eXport growth, with actual: : are supposed to hit the IMF LOI i gr:0wthiat only about i0 percent, ceilings on::reserve: money..As the .... Certain economic indicators were: target date: nears, we see a perfar from target: For example,:im-verse situation where interest rates :

: .... :

ports: actually grew :by 22 percent i:shoot up because the market is liqo, (versug 10 percent target),!whieh is uid,: because the authorities ha to i i:tolerable c0:nsidering the economy:'s offer: higher rates: on government :iimport-dependent and imp0rt:sub-: securities to Siphon :offthe so- called ...... stitufing structure. The trade deficit ...... excess ]iquidit'v I expect this twice: 0f::$2.2B for the first 11 months is i: a-year:phenomenon :to occur again already twice the tar_e :and possibly in March; but I'm very interested to may induce: inflation: As:gathered, [::Se e: iiwhet he r [ t h e.: monet ary the overall target of the new Central authoritie s haw: learnedtheir lesson

:_i:i[i i:ii::i[_: _i:i!i'[iii=: i:ii!i[::i

:i_:)i i[

iii:::ilill /)i iIi:i/ :!ii ii::i_i i

some of................... the fina, cial development indicators that have been. cited. After the coup; there was an immediate:expectati0n thatalotof issuers would stop fisting their issues : because of the volatility in the stock market, As we see it, however, the market is Still quite active.[] [

[ ::

[: :

....

:: 存存:........ ....,:,

:存 "

...... _..........

"::"".....

!:! i:::: :::::: :_!:;i;!i ::_:: :::: :il: :::: ::::::::::: !:: :::::!:.

_>_ 7 _:_ _...... _........

5::(::::5/://_:

i ::'!::::::::::_i_:/! :)7: :; _,:': ,::::: -;::;: ::?: , ._::;::,::._ ::_:_::_/:( :__/(:'?:/:_!: ::_ :_5:_:::::,:,::...... .... <:: ::_., _:.:::_ ::::: :: : :

.........

::,Dr, ViilamOi:: PTtal _S vice.,.President:,/'Or Reseai:Ch at the FirS_ Pacific seci_:ritie,s_ : : .... : ....

: ........

market

........ : : i: .......

: :

of the: Stock cannot be

divorced:from economic: ..... arid political develop: ments.: in fact the rate and nature of .... economiC: actMty provides the driv:

be expected in 1990 and more S0: in 199LSuch would lead us 0nwaM tO sustairted recovery and greater economic and political stability ila'the 1990s.. Listed below are some:of the

.....

: ing forc:e .... in lhe supply and foi stock maike.t st,a_e.s, wxl.h _ts m: fluencein market pricing, and in the

Could:go wrong for the Pililipplnes in 1990 and 19911: ii L :Traffic and iralaspor[ . .... : ... ', _ ...... pFOD/GI'I:_S cle[erlora{e. ...... ttnS::wfll n0t occur fl: ,mve,stors con-: :..... ::...... .... :, DL Vital stre.,ases a }_,t_t_ato ; .... ...... Ulalus q11o....remains xrt :: level and:flow of as savings ,, •noe:nce:rs aoscnt Win{i[nHowever appcneo : :: ....... :, ' .... ....... .... : ' m 2!". 1984 the telecom _ , ;::: t0:L 98_.6 _ hen the count:ry :" " " " industry . .s .... : :i E,wvit:c_me_t a_¢1* .... ex p e r ielse ed a Io t 0 f .r.,5 olit i c a 1 i :: 3i: : TInC P()wersitu at_on fur: :: : : N a t _ r a I R e s 0u r c e s ....... upiieavals. : ....... : [her deteri0rates_ The :i: (DENR) Tl'_e govern.. : ,,,-,,. ;__2 .... : poll[lCa_ : two respon.: .... ment r_ceds a eom.dncing vvll, n l{iv-:cllrrent , •..... agencies --: : scena,'io; a summary chatlen_ze is: :s bte :1:oi pow¢ _ g<ne _: ....a_ : i ::ii cleanoup terms of a : posed:bef0re:the tmn and : &str_but_on; reduc:ti0n of graft a._ad ....... th_ ..... : prove:itself:ha terms of service: : Nat,onal !"" :Power.. (2__r , corruption hff,h_en.ce (NPC)".._: and lho ., .....: : power arid water: : ....pmatlon • • _ peddling,, a.nd o_3e_ cen......

.......

slowd0wnin productio:n: or domestic i ::: dernand for i990i postponen'entof :......... hivestm:ent plans; reduced capital :formation, and a higher trade de "Mt : resulting in a higher than expected:::: balanceofpayments deficit. In turn,: : pressures on inflation and interest

:: ..... :....... : ..... .....

rates are:expected

....

: :

:deteriorates-critical rates, : e:g::power and water: consumption rates incre:ase,: produc-: tion Slumps;: capital flight :ensues, and tlae

to Continue; This

: The Swing factors t0 consider : .... andwatch .... for in1990 would depend : on Whether the set of events are clas-.

tikc Zumcl and .... HonaSan. 3. Inflation:targets :are achieved, i,e. below 1.0 : percent, and external financi.M assistance

the. military

: ::

in the govern:: ......: : mentinvolvingtheagen-: ....... cms of the Department : o:f Trade: and Industry

....

further deteriora: is expected: :

Howeveri:if the; favorable set of: : events:pi'edoniinateS, some im::

: i :flows irate the country as

.... .... ........ .....

Philippine s (m 199Oand '_1991in-: clude: ......... ..... ..... : i;.: Of

" * s i fled rote what could go right (or :' would prove to be: favorable)and : : what could:go wrong (m un ........ : favorable): if the:unfav0rable set: :.

:: predo_nates,:

s_.,:reof po]iticiar_s who, by wo:rd o,,: action, m> ........ of a .... ......... co_rage the sta¢i_g .... co,zev d'daL .....

is fiirttler exacerbated with the: forcesi0in the next:coup : present level of i:uternati0nal rese> :: ::i :: :i: d'etat.: : : : vesandbytlie pesoLdollar exCt!a.nge i: i :Onlheotherhand,:some0ftl_e rate .......::: .... things: that could go right for the

::::

:: Mamla Electric Corn: panv (MERAI k O') a c .. " " '-' " . -: ,emedv :" unable to : "" • "-,. th,. " = 81 tt_/t on : .... : ::' ''_ .... :

iii::infraStruCtu.re, and Uniting the: : millta:ryi •l'he:ec0nomic implications of an inlpending cotip may mean. a

: :: :

: :

(DTI) and theBoard of investments (BOI), the i Office: of the President; ...... and the Department of

i::}::: i:¸:::;:ii [,:;: ¸:I:I :::(::::::::/:':/::( :i:¸:::::;:: C :::! ::: !:: :::;ii::: ::5::):://:):/':: : :::/ i::¸¸¸¸ ::¸

previously expected, 'Le_., inflows from t;_e Philippine Aid P}an (PAP), debt rcliC.[ axed foreigm

investments .... Signs of success in the : new thrusts, i,c., :: eotmtryside axed smalland medluin-scale in.dustry {.SMI, develop°.

....

:111ent,

......

reas0i_abie recovery of the Marcos' and thek cronies' wealth.

....

i.il_gotte_ .....

..... : ...

ba a, ce ofpavmonts win

: pr0fiieilf0r !l.99il;;:tlie foll0wirtgmav:

::i : ioCCu:,i

worsen:

: : ............ :

.......

i i i ii: I

::: :

............... ....

:: ii

l:lul,ppmes. Filipino ,b0at: pe0pte"

ternational

waters

iexc!_an.ge

,'ate

inter:eSt rates ao over .... percent per annum • ...... the: Free financial :market:::

However, it things go right m front: the follow ne,_ " events may oCCU Ifaneieeti0l_takeSplacc

: i

.... ii

: : :1 :

'will : ::....... :...... ....

: i: ........: 1

::i ......... ii

Long term productive :..... iactivities will be sup.: planted by illegal ac±i i : tivities: ranging fronai: racketeering to pros_: ...... titution to: drug pushing: i i

2: i :....i: Sporadic panic buying i ....... will be commonplace with wild inflationary swings from 50 pe'rcentl to 300 percent : 1 :31

Divcstlnent

::::: :: ::

flight will occur.: : ::

....

i formation (GDCF) growt.hofat:ieast30per: : cent per year. Conse.... :: quently, there would be ii: : an nptrend in property ....i : i development. 1nvesb ment in durable equipi: ....

i992;:

impo'ts ofcapitalgoods, will eventually be: : : baialiced by an increase: i= exports. In the end, ..... ...... there will be a BOP ....

surplus which crease with the will rise inin :: : the level of international .... : re serves above:

.....

President

c ehvery of pu__l c ser.... :: ............. :3_: :A m0re c0nstructivc political 0ppos t o a will : be the product of a ma:ture democracy.

i ment will lead capital formation:vrowth while ..........the balance of trade; :: though initiaily posting a deficit due to increased

US $3.0B.i inturn,

the:

peso...dollar exchange :: rate will :stabilize: i : Together: With the upi: turn in the economy and: i : a healthy level of reser:: : yes, there will be a: .... dramatic reductior_ in: ....

VlCCS....

: ......

foreig_a debt, perhaps tO: .... reach below ..... US $20.0Bi The I ecoza.omywill experience: an inflation rate below 8: :percent. Interest rates

The demoCratic process takes ro0t and *'nature : ee:onomiC front, a Second round of:bo0m: may start in 1991;: provided certain: events such

...... on loans will go down: : below 16 percent. Jibe scena_u.o for the Stock mad<el will have to take into account: the effect of the coup d'etat(:_') that:

:as thel f01ioWing occm_:: :

was inflleted

at_d :capital:

:i:

The. GNP growth rate in .... ...............

i;i i

2, : An invest-i mere:upsurge occm's, inwith real. gross domestic capital

.....(o $1.00 in the free f0 rci gn excla a n g,c' : market : : :

be commonplace. :i get a ................ ............. : : :ii :i;i: : i sec°rldterm, lhUsposi:ag...... lnthe:ec0n0mlcfr0nt; a:crisisl .... a defeat lbr the opposlw0r:sethan that of _1_983:1985 will : : lion: : :enSue. AmOng others, there will be: :1:1121:1: will be 1 :Closure 0{" : factories efficienl and wil.[ .......and massive:l_" offs : be more visble -t the

.....

fordgn

Intemati0nal reserves : sllp below the US$100M leveli and the pcso-dof lar

:: : .... i ::

i (like fife:experience of :the IVietnamese) m m-

: ...... :

d'etats take place, i : :17: .... 3, A poss ble c_vilwar : ...... " ...... .... The::U_ited states: i pre:pai'esto invade:tile ..................... :

:52

°nits

obligati0ns;resulling a a Crisis II..... in tlhe Phiiippinesl, extc'.rnal

: :..... :

'): The military becomes :: se.verely factlonalized, and SUCCessioa of coup ::

proposed: :[991: elecli:oi{: :does not! :iake p:iace::A::ii:: sham eleCtionmav:later i :: held withprcdeter.: mi:nedwinners .... .....

...... ...... .... i:: .... ii:

:reneging

Ji::: Dem0cratic:g_Vernme_t: i ....... iii: :::iii ::is supplanted:by:an :::i::i:: i:::::: au:tlhor:ita:iqan:re_gin_e : : and: i: :the ::: :S:e:nate: ::i:

IIIIi

The: iconntrV ,viii :slart

ii ilcal:J:r0nt!::i::: i :I ......

p,','entperyear.

.... "

i:: :iii

i i

............. ,

:: i

on the Aquino

:...... Pzeas'etum to page e5 .

iii:

: i:

a& :

:¢ii!i{{i{i{i}2;[i{{i! i i!_£:ii{i

ii_

.... :i:

i ..............

(:_i[i:[i: ::i:_i :F<(I _i17:: ! _IJ!_ _I _I

.... _ _ _ ._ _ _i _,

_. _i:71_: :5:2 <(>.i __(:'_ ,_2_:............-_ _'_:_/_: _<_"

_i!ii

iii i _i_ii:

iiii:i : Alex Reyes : : ::Wiiat i :: i (Bttsi:ness:World)reforms ............... :

....

: ::i

13:....... : : :

: 3

:::

: .........

..........

....

:..... : ........... .... :

an aiysis

:: ......

: ',i_

::plaCed :: : i

: .... .......

: :ii

: :

levclsarclowcr than what we havewhen interest rates started to climb somctlme This is because, the govern-:

merit saw the :adverse effects of the liquidity mopping-up operations of the Central Bank last year. In March "1990, aperformance reviewby al Monetary Fund (IMF) higher degree of' caution i;1the recommendations not to npset the balance levels in the market.

_ =. __i

i,_

_}'!:": _...... }ti_

Alex Eseueha :

iii

ii :i

......... .....

:i:iiiI

_:: ,..... Â˘:,

_! Ilmlmlim=

_,_

:::::i::tiVeto saVel0ngi:t:erin in_:: __* terest rates will be: oKered [in ihe hltur@ : :" i:: DORIA (witti the microphone'): :

:::

the Internationwill be made. A will be apparent of the IMF so as in interest rate

i11

iilglier:ihan : :"'>_!_J_ ..... .... , : ........ _,,i_,:, := .... ........................thatof lastyear Moreoveri eoplewOuld ....... {?_ .... be encouragedt0:place::{heit::saVi:-_,_in: :: ::' : dollar: rather tliai_pesO: det._osit:s:because : ___{!i

:i:

: :

mld-l. 89." 9'

....

:ii i

Interest rates are expected to .remain at around 21 tO 22 percent. Basically, these

..........

_ kP I ........ hke School of: Economics and PIDS, ia fact; a paper released a month : ago pointed to these _eforms, b0th short-: term and intermedlatc,: : with import 33:3 iib:eralizati0n;: dgv:al:n::ati:0n: and: land ,-"

toget

i:::

:: !!

:i: Iinelda Singzon (PNB):

: structm'al _ieforms that: I reterred have been presented byvarious groups

:3:::: :::

.....

!_i:i!iii ( _(i:

:gr ow by6:5 percent antu Ially so that: the level oipercapitaincomewilimatchthat : These

Dr. Josef:I/ap ............ i

i :i _ i (

:are: tiie: ieconomic: Structurai needed: to make the economy

...... ....of 1981?

i :

........

ii i

: ....

AS early as 3_986;:the banks:asked for a lower reserve requirement to lower lend_ ing costs. If curre_.t monetary policies affect 111 e banking system the salne way it did in September 1989, increasing interest rates will give rise to higher lending costs. But at any level of interest rates, a lower intermediation cost would mean Iowerintcrest

rates for borrowers.

ii :: i

:: :

:; LOPEZ (with the microphone)i: ........

NitoDoria :: : : (llouse of

Tlie f0recasts presented by the panelists have been very cautious a_cl I suppose

Representatives)

they have been constrained :

....... _

...............................

,,,_,,,,

bythe

usual i

hazards faced discussion by forecasts. onI wish were more how there the

,, ;:Â˘:x-:v_a_r*vza:a_:_,,,,._.a_,:,i_*a:c,,,,:a .....

,_:_aa;a:;_ai:ea:_;, ,::,

21,.:_i_ieeE;2,{i_:ii:,:::_ :: 2_::_xi;ii'_iilt_Ei;:::! :

1 1

[ _i_ _ _Q_

!i: ! : :

i ii : :

: : eConom)could:be

: : .....

: ....... : :i:

should be tmdertakcn

i :I

:::

: :

: : i

: : :

..... 7:

I would tike te poii_t out that [he 6:5 per-

intal, Jr.

cent growth rate of the Plan is an average

:i (NEDA)

i :

growth target for 1989-92.

it_:t986, as mentioned by 0ne of : tl_<.:pat,e/ists, madegreat strides because

: i: i:

0fthe high level of Consumption especial-: tv ir_: and tt_e.increase: ir_

: i:

Under

that

: i

growthpovertyincidencewilldectine aboutrate' the presumption tois that the42 percent by 1992. The Aquin.o gover,> mentconsiders 1990 as dift'icult yearfor

adustraent.H0pefully, the plans and policies ,are going to be implemented and the damage brought about: by the drought will not be as severe. By 1992, we expect

i :

i : :

: the growthrate to tx;.dose to '7 percen_l [ Over the whole period, however, th_

in a countt!y: witli limited consumption : :p0ssibilitles because of massive poverty. The problem of the :economy is ihe exisb : :ence0fmassivepoverty. Massive poverty

by Ilm:govcrlmmnt

ii :

Dr. l_0nClmm

wages_Smceeconomicprogresslsalways consumptionqed, there is no reason why: investors Stiould be interested in investing

:ii .....

::i[: :

weakh,.t!° correct the: lopsided: distrlbnli0n of: [ mentioned :tl_at th e 0nly:: motive for : : production: is c0nsumption. The I

: ;

: !

Yap ii_dlcated: fllat soclal restructuring

........

more :aSsgi.tivc: Dr.:::

.... ........

:: :

restricis i:tics;: : ::[:[[:: ::i:::::: ::::: ::::i:[th o ugh: o ne:may: also i66k:a [::0tile r:fact:ors:

:: : : : : ................. [ [i :::

: ........::i

: :: :whiCh:_ 6:catise:0f i : p0ver{>: is definitely 10w:ireal:Wages;: not: :: file ......... motley wage whiCh: can bc:_increased : :i ::[: at tli:eieost of inflation,: ii_.turn;[l:6Wwages:': [ is a product Of Ihe :: : ............ iI:: i::i :: : sys t em, We'_ithe:re fore may iie.'.e d::t01:oOk at: i this area of rd!orm in order t6::solvC the

::[:: ::i

: :: :

:i: : ::: :co,isamptionpr0blem:: ::[:

.....

ta, g_,t

: .....

: ::: .....

:i i

ix_cide_.ce i_om ahigh of 59 percent of the population, Can youdiScuss the implica= : : tlons of the failure to reach the 1981 income level on poverty incidence? :

....

: ........ [

:: ....

Dra::J0sef Yap

: ::

: i :

Actually',

I wouMn't be able to translae

:: i : figur_,,s[in terms of poverty cidence]ih_ of effect the inability

: percent for 1992. A ?ore:: mlportant [ issue to address is: tlie: quality of that : g_:owth.: The prew%_ing idea is togive emphasis to the:regions , and in small:and medium-term industries. The

: :

....

.......:

[ i

:[:[/: :':/::_:::'</%1//::i: :([:v/:)[. i:i:< :>':_:F<:>::'%):/17: i [([:[:[: [:![[!i:()i:::[ ¸I):ii ¸¸:/i[::)[7[ ))[i:/)(i[[)7¸/: [):/:)[[ [ .... :::,::::::::::::,: ::./::<:i::::::::.>7_ . : _/ ........ i;i:/'::CT;)_!>:://([7(&[71/:i:i7:7():: ........: _

_ _

_>_

_ _

achievelncnt of these targets will depend much on whether the programs th at have been put in place since October 1989 will eventually l)ear fruit and investors realize[

.....: that the eco:nomic flmdamentals

targets:: Obviously, there:would be:lnore poverty incidence if the t:arget is:not met2::

to issues raised..

: economy will:grow by:6i4 to 6:5 pereent, : and the projeet:ed poverty incidence is 42:

one: of file objective s of the Medium-more 'l'ei m Iclaa is to effectively reduce poverty

: :

{_m Plan, i.e, : .......[Dr, hataI respoads

::itsimplicationsonp0vertyalleviationtar-:: Planning Secretary Monsod said previously that:

the, Medmm-I

:.......

achievk_g the 2evel of: the 1981 real[pcr : [ capital income:., will not be me[ by: 1991., ::: : i Could ym elaborate on this: and mention

......

:i::[

:Dr_ Yap; il[was:rnenfi0n:ed eariierfiiat the

........

..... :: i i: [

for the

Philippines are not that bad. .... If poverty incidence.will be reduced to 42' percent of total famil:ies by 1992, that: means about 4: million Filipinos or Close

:__"_ _ ....

¸,

to :7001:thousand

: ....... ..... i .... :

: :: :

" ii

:: i:: i

.....

terms

1::

: i i: :

:::

: type of inveStments:that:fuel

: : ..... juan:Sarmiento (Philippine Daily inquirer) ......... : ....... ........ :: : .... :

: : : .... .......... .... : ......... ::

economic :::: :i: : : :

:i .....

the: U.S:

dollar

to weaken

fllrther vis-a-vis the behind Western this currencies. The main reason is the mer-'n_ g, _ Of investment opportunities in Eastern Europe by WesternEuropean: .' investors. At the same timei the Philip- i pine peso also depreci:ated:whereas the expected result was an appreciation, or : at least, nochange. The cross rates indicate a favorable trendreference towards il-the European currencie s and the. Japanese yen ::vis-a-vis the: Philippine:

dertake. Interest rates worldwide are expected to rise, particularly with the integration of the European economies .... The German economy has been the beneficiary of a lot of investors' interest

: ..... : .... .....

....... : i :ii : ............ : ',:::

.....

.......

.... :

:: : :

Pinto;

0_reS_dent; Most of the co_ents so farthere Mve ..... : :i'10s) i : i:the domestic :fact:ors: but

I: expect

.peso. Determinlng the: cross: reference: i rate of various:currencies is:a useful exercise for the: forecast of::currency movements, and this is probably one activity that finance experts should regularly un-

.... ....... ...........

: i:i

ex-

What are the effects of: the United States failure to meet its rent commitments of the PhililNfiaes? Woald _uch failure usher the imposition of new taxes? Related to this, how would the flow of foreign aid in the Philippines be affected by developments in Eastern Eur9Pe?

.....

....

::::

Can Philippine

: imported goodsbe priced higher in 1990 and 19917.... .....

....... :

of growth

porters expect to _I1 more products to the United States, Europe and Japan? Will

i :

Which affect our

dailylives: For example, what are the expected crude oil prices in I990 and how would the United States' economy fare in

:: putclfistS would:be apprehended. When: : : :: i this occurs, we can:expeCt a resurgence of : : i :i: interest from foreign countries in various I : : forms rather than merely: in real estate ::ii :i::: i investments,: such as commercial and in:: : : dustrial undertaki_ SineetheSe are thel : ..... ....

:i i i

: :

growth. A more stable: macroeconomic ::i Dr: Villamor Vital environment for 1990 Calls for measures ........ relatedto trade andinduStrialpolicy, and (First Pacific) to some extent, tax reforms. In the p01iti= 째 , ; , cal: front:; flus reqmres _mproxang the::: miiitai:y :Siiuation, and: hopefully,:: the

some: external:factors

::ii:: i:

projected poverty incidence iby i992 assumes average growth rate: that is

ii :

......

i: i::

lower economic

..... ....

:i:i:

......

close:to:: 6151 1990, the I : projected).ate is at most 6 percent, and by : i 199'l,c10seto7percent: Investors Con/il :i fidenee in the economy is :a crucialfactor : :: in the aCtuallZafi:0n:of:fiaese figures Irl : turn, this depends on i:he degree of politi-ii cal willand tlie resulting political stability in the:countryi The government ::: : :: :::;: :: needs to show that it isin control. As Isaid earlier,:: :1990: is the year for ira.-: ii: :i::plementing stabilization:measures and :i

i :

i::

i Dri Ponclano lntal jr ....

: i :: :: ii:

wiil: have :

: crossed, the : poverty: llne_ What: wou'ld i their sources:ofincoraebe::and wherewill the jobs come:from? ::

: ::

families

beenalso on are

i i:

:i: ii

.....

lately and it appears the German Stock Exchange had: become overheated. Partlybccauseofthisdevelopment, there has been a noticable slowdown in investment inllows to the United States. In terms of world trade and production, the : European particularly community Germany as will well asdominate, Japan in

i::)::i( .......:::)i; ....::::i ....,: :

.... i

......

i::::::: ::::,

: ::: ilie iiigh:teO!nol0gy :pr0duct group: i: : i : However_ the Arnerieans will continue to excel in the: produ:ction of agricultural i :i i:

......

products, although: no improvement in c0mnlodity prices iS expected. 3he price of gold is expected to increase i while the:'price of oil will stabilize with the agreement: of the OPEC ministers::

i i : iii

):::,

:::i

Dr:: i

: ..... i:

: Philippines has not been: abieto actualiy achieve simultaneously, :greater employ mere, (or alternatively, lower unemploy-

merit) and poverty reduction. That is an important issue which will have to be facedin 1990. The Philippines mayhave to accept a lowcr growth rate (in 1990) just t:opreserve the gains made in poverty

i i i :

last malntalnbenchmark: Crude:oil withinyear the to 1.989high ..... ....... ..... .... i new t_eS are expected f0r ttie:year:: :: i

.... reduction in1985-1988 which may then be : compensated form 1991 with a higher growth ,'ate as long as inflation is :: :managed well. ....

........ : : : :

Of course; there areRevenue pressures(BIR):Dr: for: the::: : : Bureau ol! Internal: Villamor the Bureau of Customs to improve their :: i Vital: : respective c011cctlon efforts in order to: .... ......

:: ii

:::i

....

d 'fer: anyimposition of new

Dr. Fiorian • )-.1) SE): '_ ,,, (11 :

....

[] i

I [] : [] [] [] []

taxes,

:: : i

the second semester of 1989 showed that in a regime of high liquidity growth, ira-

in 1990; there isa: need: to cxtent of the trade-off between growth:: and inflation. Since the country has. : reached a:: double digit inflation in 19891::: kwould

__ _ _

: The need for iaddressing inflation at the cost of lower growth is important. One of the maj,or 'macroeconomic surprises in

: : .... ........ .........

........

:: ........:

be w0rtliwhile: to notewhethcr : i DriPoneiano ,the Same is true in : :intal, jr ;1990. If:: so, then : : ;iwe can conclude that

[m _',_N_

:with

__/: _ __/i::T!le _ii'if1_: '

_:p

respect

to an

increase in ploymeat andpoverty :{'eduction targets, government has S);;c2ss f_!lY Per_ri_Y:.'i°m:::_ "e I[in .) ye, ars;l[ s ossible t0 ieduce

....

: :

.....

inflation Anincrease in the rate ofintla: .... tlon:reduCes :the Capability to achieve :

......

p0v_irty targe :S.:: On the other hand, a : lower inl_ation rate requires:a lowe.......: growth rate_ Which in: tiitn implles lesser employmenf: ln:1989;:the 5.6 percent ::

: ........ "......

0'f i;ew e:i_'t_c_,Sai_s__tii_181;°the num°er .... .... _._.., _ t Y' , ........... ,.._n,..,.f¢, ...... ' ntermsor" .....

.....

.... "

-: i. _,,,,:.,,::,:,,:,,, ,,_,,,,.,2_,

":Y ..... ,:_:_,_: i_:.:::,:::.

' "

..........

prevails over the latter. This is the basic: reason why:my forecast is much more i modest than those:: of my:colleagues. ........ : : .......i

: ....

bY:gavq::v ,qa:aPP

growih, and when:there is a confliCt be-::: : twcen these g0als,:the former frequently ::

gr°wl))_ra_te i'd --' ot'poseu' en.e'a[ec' '-o me tar- _lYo;0o00ne_?ll°ol:S :: ii_is:nnn b 7;::: :" g"!£ .... . :

: :

.....

The scenario that the Philippines is faced :: Escueha .... wilh is a stabilization scenario as era: i : bodledin the Letter of Intent (LOI) sub: mitted to the IMF, Thus, the targeted6.5 percent growth figures must contend with all the key economic indicators amidst ..... _ , . , , ,, . .. . : ........ the consu'amts ano cemngs mmcated m ....

...... ::

/;here _s a Cabinet declsmn to push fro: macroeconomicstability by addressing the problem of inflation in i990 even at the costofalowcrgrowthta, get

:a : trade-off

,,_,E,_,_a_m,_

posing a sharp wage increase, i.e., about 29 percent, would result in the increase of priccs_

: i wish Wlnnie Monsod was here.: in response to Fldfian (Alburo), She would

....

.......

say that the argument goes back to the debt .... "" is " not , " p r oolem, an.c_as _ong as this will always: be the dilemma of growth and stability.

: ....... .........

}

_i_

-i ¸¸

7j)i_)_ij_:i:_ _i_ .....__......

_<F_j _<_:_jl ..... _::_ __

_.....

_ ....._i__i);_:

i Dr, VillamorVital .......

:::i :

:::

........ ..... Nito D0ria

ii::i : i ii i

: i

ii:

i: i ii : ::i :....

.....

: .......

i :

.... : ........

and local, Reacting

remains,

conntries

.......

panies and new investments, both foreign , Mr:: Lopez .concern

for:

Ill certain non-communist like IndoneSia, the notion of

: ministrai0n

10)....

...... : : : : :

Starting: from

the first

attempt in July 7t986,After the latest coup in Decembel: 1.989, the market feredCrashedin theantl bourses.bargain pricesThe resultwerewas°f" the postponement of several investme:nt plans the country, alongside

: l_act,Pr°prietarYits Constitutionland rightSstatesiS non-existent.that the StateIn: shall have control of land rights. In con-i

gesthe proposedof new issues.listingsBeforein thetheexchan-coup, however, 1989 was considercd a

: trast, the Philippine land reform program : i promotes private land ownership, with

path-breaking year with a greater number of volume turnovers as corn-

: ..... rights on the land transfered from the bigl landlord to tenant farmers .......... :

..... j;::

pared to 1983-1985, particularly

for

commcrcial and industrial issues. This was indicative of the confidence on the overall economy, with various sectors putting up their issues to gcnerate funds .from potential invcsIors. :...... . :In s0far as tl_e stock market is Concerned as well as the general economy; there is a Challenge for President:Aquino to ensure that all suspicions of graft and corruption on : the side of her official as well as her personal family are erased. There is much expectation in th e capabilities of Cabinet members to perform well and coordinate more efficiently among themselves.

..... i

(From.page

ii :

:....

.... .........

ECONONllSTS I,

•

Iongp°VertY'as thethe problemexisting landWilltenUrial :be with;us System as

i :: i i:

ii:: the into expansion the: country. Examples of theseCorn-: are programs of existing

: :: i: : :

:PerMps,: part of thel answer:is to review : the type of investments that are coming

.........: ........... :

In the legislaivc branch, the HoUSe of Representatives and the .....

Senate must prioritize their legislafive agenda to promote the interests o1! Filipinos and not solely their .... : political ambitions. Th e private sector also needs to:participate in the effort by being vigilant and: continually reminding the government,

.... .......

.....

.... : :

.......

particularly agencies that are in the .....forefront of service delivery, on its mandate to the people:, il

_ _ __>_i..... __:_.:

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i__ _ _>

L _ __

_ _ _ i i_ _ _i2_ji:j;_!?:_::@::':_

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:SECOND

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of:t_ie : : : ......

:recommendations :::: reSearctior retated studies:done byother:institati0n:s;

Foa

.....

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