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No Free Lunch

Weaknesses turned strengths

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Confidence in the Philippine economy, whether from within or from outside, appears to be catching on. Various analysts are consistently coming out with positive predictions on how our economy will shine among others in the years ahead. We haven’t seen this level of confidence in our economic outlook since the 1990s, when President Fidel V. Ramos succeeded in attracting a lot of foreign investor attention for the country, leading to booming stock markets and accelerating production and incomes.

There’s an important difference, however, between the Ramos-era confidence and what we’re seeing now. The Ramos years saw the world economy on a general uptrend, and by promoting greater competition and competitiveness then, we were able to participate in the global growth and ride the rising tide. Things are quite different now. The current surge in our economic growth is happening when major economies continue to have difficulty shaking out of lethargy brought by the 2008-2009 global financial crisis. On top of that were the “Arab spring” (i.e., the succession of political upheavals in the Middle East), the Japan tsunami, fiscal crises in some European economies, and now an imminent hard landing of the Chinese economy.

Through it all, the Philippine economy is defying regional trends and exhibiting a remarkable energy of its own, thanks to strong internal demand. Newfound business confidence is fueling investment growth the likes of which we have not seen in a long time. Ever growing remittances, with ever growing demand for our workers abroad, sustain brisk growth in consumption spending. And after having plugged massive leakages that used to mark most public investments, government is now spending at full throttle, confident that the quality of expenditures has vastly improved. Every peso spent by government now probably induces a stronger multiplier effect on the rest of the economy than could have been achieved within the past corruption-prone environment. Hence, it is purchases of goods and services by our own private firms, households and government that are keeping the wheels of the domestic economy turning, much faster than the export-dependent economies of our neighbors.

What was once regarded as a weakness of our economy—our weaker linkages to the global economy via exports and foreign direct investments—serves us well now that the world economy has become an unreliable source of demand growth. This former weakness now proves to be our strength in withstanding the global slowdown, with the governance improvements that have earned investor trust, and our unique advantage of a solid source of foreign exchange in remittances from millions of OFWs abroad.

This leads us to another former weakness-turned-strength. Of late, bold predictions abound on the Philippine economy rising up to be among the world’s growth leaders. We’ve been called a “breakout nation,” an “economic bright spot in Asia,” a member of the “NEXT-11,” and a country about to enter a “sweet spot”—no more the “Sick Man of Asia.” For Morgan Stanley’s Ruchir Sharma, the Philippines is poised to be one of the “breakout nations” that would shake free of other emerging economies and sustain faster economic growth than the rest. Investment bank Goldman Sachs and economist Jim O’Neill have included the Philippines in a list of 11 countries, which they dub the “NEXT-11, that are likely to be among the world’s largest economies in the 21st century.”

British bank HSBC similarly projects that at current trends, the Philippines will be the 16th biggest economy in the world by 2050, jumping from its 44th-place ranking today. There has also been much talk from the country’s top economic managers, especially Bangko Sentral ng Pilipinas Governor Amando Tetangco Jr., of the “sweet spot” that the economy is about to enter, and reap the dividend of rapid growth. What is remarkable about these positive prognoses is the way they attribute the favorable outlook to a unique advantage: our large and relatively young population—the result of decades of faster population growth than our neighbors. HSBC’s Frederic Neumann explains: “…a number of countries in Asia will see their working-age populations decline in the coming years. The Philippines stands out as the youngest population. As other countries see their labor costs go up, the Philippines will remain competitive due to the sheer abundance of workers joining the labor force.”

The “sweet spot” theory similarly sees great advantage in our predominantly young population. Tetangco explains: “…the country is already at a stage wherein Filipinos too young to work account for less than 30 percent of the population and those too old to contribute are only 15 percent.” He adds, “those in between are people who have the purchasing capacity that can drive consumption and investments and therefore a faster economy.” In contrast, our erstwhile dynamic neighbors like Singapore and Thailand are seeing their population profiles tilting toward greater dominance of dependent senior citizens, with fewer working age people to support them. The Singapore government has been strongly urging its people, apparently with little effect, to have more children. Thailand already considers its aging population as among its most formidable challenges as it plans for future sustainable development.

And yet all this time, we had considered our relatively higher population growth rate a liability. With the coming demographic “sweet spot” and millions of OFWs giving us a strong financial foundation to stand on well into the future, could that weakness turn out to have been our strength after all?

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E-mail: cielito.habito@gmail.com


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