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Cielito F. Habito, Ph.D. Professor of Economics & Director,

The Philippines Under 'Aquinomics’. Presentation on the Economic Performance and Outlook for MEPI. Cielito F. Habito, Ph.D. Professor of Economics & Director, Ateneo Center for Economic Research & Development Ateneo de Manila University. Overview. Where We Have Been: 50 Years A Laggard

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Cielito F. Habito, Ph.D. Professor of Economics & Director,

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  1. The Philippines Under 'Aquinomics’ Presentation on the Economic Performance and Outlook for MEPI Cielito F. Habito, Ph.D. Professor of Economics & Director, Ateneo Center for Economic Research & Development Ateneo de Manila University

  2. Overview • Where We Have Been: 50 Years A Laggard • Where We Are Now: Key Economic Trends • What It All Means for Filipinos • Outlook & Imperatives • Economic Drivers & Downers • The Challenge of Inclusive Growth • Where We Need to Push • Outlook for Pharmaceuticals • Long Term Prospects

  3. The Philippines & Thailand:Estranged Twins

  4. Fifty Years A Laggard • In 1960, average income in RP was twice that of Thailand; now it is the reverse • Other East Asian economies’ GDP grew annually at 3.6-6.0%; RP only grew 1.4% • Per capita GDP has grown 19 times in China, 8 times in Thailand, 6 times in Malaysia & Indonesia, but only 2 times in RP • At current rates of per capita income growth, WB estimates it would take RP >200 years to reach the average per capita GDP of the OECD (developed) countries

  5. Top Heavy GrowthBottom-Heavy Needs • Narrow: Growth is propelled primarily by a few leading sectors and geo-graphic areas • Shallow: Weak linkages to rest of economy – e.g., low domestic value-added exports • Hollow: Jobless growth; poverty-increasing growth

  6. Top-Heavy Growth,Bottom-Heavy Needs • Poverty incidence rose from 30% in 2003 to 33% in 2006, and 37% in 2009 (NSCB) • Real per capita income fell 10% nationally, and fell in 50 provinces between 2003 and 2006 (NSCB) • Basic education enrollment rates dropped in 75% of provinces between 2002 & 2004 (PHDR 2009) • Wide disparities in life expectancy across provinces: Low - 53.4 (Tawi-tawi); High - 74.6 (La Union) (PHDR 2009)

  7. a.k.a.Broad-Based Growth: Sectorally Geographically Temporally Wanted: Inclusive Growth

  8. Assessing Economic Performance: The “PITIK Test” The Essential Yardsticks (P-T-K): • Price Stability(Presyo) • Jobs (Trabaho) • Incomes (Kita)

  9. Ateneo Center for Economic Research and Development The Economy Last Year & Now:Good News &Bad News • Prices: Rose faster than in 2009, but more slowly than projected; now ticking up again • Jobs:Jobs caught up with labor force growth – but job quality remains a challenge • Incomes/Output: Strong Overall • Manufacturing surged • Services saw robust growth • But agriculture declined

  10. Ateneo Center for Economic Research and Development The Economy Last Year & Now:Good News &Bad News • Investment and Exports: strong rebound, even with dropping foreign investment inflows • Balance of Payments: favorable last year; has now turned negative • Peso: appreciating with weak dollar and amid “currency war” • Net Income Inflows: slows to single digit growth; now facing new threats • Fiscal Deficit: too big for comfort

  11. Presyo: Inflation Trends 2007-Present 9.3% 4.3% 3.8% 3.2% 2.8% 2007 2008 2009 2010 2100

  12. Trabaho:Latest Jobs SurveyMixed Picture

  13. Kita: Incomes/Production (GDP): 2010: Renewed Industrial Vigor • Surge in Private Construction (19.1%) and Durable Equipment (25.7%) • Exports up 33.7% in Dollar values (25.6% in real terms) • Consumption growth surges in Q4 (7% from normal 4-5%) • Manufacturing up by double digits • Private services (esp. media) up 8.8% (media surged 31.4% in Q1) • Spoiler: Agriculture declines 1% (but bounced back in Q4)

  14. Overall Output/Income GrowthIndustry Takes the Lead

  15. Industry Leads the WayManufacturing Makes A Comeback

  16. Gross Regional Domestic Product, 2008-2009 Bicol Region grew fastest 4 Regions declined

  17. Private Investment Surges… Govt Spending Takes the Background

  18. … even as FDI dips Inflows Down, But Intentions Up Top 2 Sources: Japan, Netherlands 89% in Manufacturing

  19. Remittances slowed in 2009, but picked up anew

  20. How do recent economic trends translate to human welfare and poverty of Filipinos?

  21. The Economy in Human Terms • Poverty rose from 24.9% (2003) to 26.5% (2009) [Under old definition: 30% (‘03) to 33% (‘06) to 37% (‘09)] • No. of poor Filipinos up by 970,000, or 185,000 families between 2006 and 2009 (Poverty line: P7,017/month per family of 5) • Net elementary school participation rate down from 97% in 2001 to 85% in 2008 • Net high schol participation rate down from 66% to 62% • Malnutrition incidence went up in most provinces

  22. Self Rated Poverty: 49% of Filipinos feel poor (Q4-2010) Lowest since Cory Aquino – but is it really?

  23. Hunger: Roller Coaster

  24. SWS Q1-’10 Puzzle:Self-Rated Poverty Down But Hunger Up • Of the 4 million households reporting hunger in March 2010, only 2.6 million rated themselves as Poor. • A significant 1.4 million who suffered from hunger did not consider themselves to be Poor. • Living standards had dropped so low that standard of “poorness” has dropped (misery loves company)

  25. Outlook & Imperatives

  26. Why 2011 Should Be Better • Recovery from El Niño • Resurgence in investment (especially domestic) • Proven “immunity” to global slowdown • Remittances continue growth • “Rebalancing” of Asian growth toward more internal, intra-regional demand

  27. Why 2011 ShouldBe Worse • Possible double-dip recession (W-shaped recovery) in the West? • European economies under threat • Middle East unrest and new inflation pressures • Peso appreciation (mixed effect) • Japan earthquake/tsunami and nuclear disaster • Medium Term: Heavy debt burden and continued fiscal pressures

  28. Where is the Peso Going? Euro Baht Sing$ Peso Rupiah

  29. Achieving Inclusive Growth:Where To Push • Revenues: Restore tax effort to 17%; mostly from collection/compliance boost; sin taxes, trim excess tax perks • Infrastructure:Massive catch-up program needed; needs above revenue boost &/or better BOT rules • Investment:Now exceeded by savings; confidence boost needed • Democratize Growth: Massive SME boost, asset reform, competition policy (esp. with PLDT-Digitel merger)

  30. Sectors to Watch,Sectors to Push

  31. Agriculture & Agribusiness • End of El Niño droughts • Rebound from 4-quarter decline • Ongoing budget reforms promise positive results • DA to “steer” while LGUs “row” • Remittance-fueled consumer food demand may taper in short term due to external developments

  32. Tourism& Allied Industries • Focused investments under Tourism Act of 2009 underway • Pocket open-skies policy to lower costs, hike tourist arrivals • Improved peace prospects in Mindanao; tourism a major thrust in Mindanao 2020 Plan • “Appreciation lag” of Peso vs. neighboring currencies can make PH relatively more attractive

  33. Business Process Outsourcing • Sustained demand growth projected for long term • Indian firms now moving into Philippines • Need to address dwindling skilled recruitable personnel • Important driver of real property development sector

  34. Construction • Private construction is on a rebound (19.1% growth in 2010) • Massive infrastructure push (GAA & PPPs) is imperative & inevitable • Revenue performance needs clear improvement; PPP policy environment needs constant improvement • Huge unmet demand in low to medium-cost housing

  35. Manufacturing • Electronics: Continued dominance • Food & Beverages: Rising average incomes; elastic demand for processed food steady medium to long-term growth • Design-based manufactures: Innate competitiveness (e.g. Cobonpue, Lhuillier)

  36. Pharmaceuticals • Projected annual PH market growth rate to 2015: 6.9% (BMI) • Drivers: • Cheaper Medicines Act (Elastic demand leads to higher gross sales) • Mergers/industry consolidation (Greater stability) • Universal PhilHealth coverage by 2015 (Wider market)

  37. Economic Outlook: 2011 • Presyo: • Inflation projected to inch upward to 5-6% • Trabaho: • Marginal improvement at 7-8% unemployment • Kita: • Consensus GDP growth projection: 5-6%

  38. Long Term Outlook:Building on Inherent Strengths • Exceptionally rich natural & human resources • Strategic geography (transshipment, shipbuilding/repair, tourism) • Favorable global, regional trends (e.g. aging, medical tourism, outsourcing) • Resilient, adaptable people, in high demand worldwide • Completing the picture: Good Governance is key!

  39. Checklist For Good Governance • Quality Appointments to Cabinet, revenue and regulatory agencies • Zero Tolerance for Corruption: an unequivocal policy • Decentralized Governance where NG “steers,” LGUs “row” • Participatory Mechanisms:bring people to the gov’t & gov’t to the people • Streamline Government Processesto reduce cost of doing business

  40. Post Script: Stories from the Countryside • Bgy. Lopero, Jose Dalman, Z Norte Carabaos, Not Fertilizers:A Farmer’s Plea • Magsaysay, Davao del Sur Diversified Organic Farming System: A Mayor’s Lament • Upland Barangay, Sarangani Horses vs. FMR: A Pragmatic Farmer • Bottom-up devt; Solutions need not be sophisticated nor expensive!

  41. Thank You! cfhabito@gmail.com

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