Compared with other economies in East Asia, economic growth in the Philippines has been disappointing. The Philippines was, notably, not described as a ‘high-performing economy’ by the World Bank in its 1993 study of the East Asian Miracle, while Thailand, Malaysia and Indonesia were included in this group.

The per capita GDP of the Philippines was almost twice as large as that of Thailand and three times that of Indonesia in 1960. Yet by 2006, Thailand’s per capita GDP was more than double that of the Philippines while Indonesia — which has a population more than twice that of the islands — was 1.5 times bigger that of the Philippines

The Philippines also lags in terms of poverty alleviation. The incidence of absolute poverty — based on the one dollar a day threshold applied to recent data — is 13.2 per cent in the Philippines, higher than Indonesia (7.7 percent) and Vietnam (8.40 percent). In stark contrast, Malaysia and Thailand have virtually eliminated absolute poverty. Inequality, based on the spread of household expenditures, is amongst the highest in developing Asia. This is a serious problem for growth as well as social welfare, as recent studies have argued that an inequitable distribution of wealth constrains economic growth and development.


Among the factors that explain weak Philippine economic performance and the persistence of poverty and inequality in the country are:

1) The low priority of basic social services. Effective delivery of basic social services remains the most cost-effective way of combating poverty and inequity. The ideal way to achieve this is to channel 20 per cent of budgetary expenditure and 20 per cent of aid into social services. However, only 8.6 per cent of the Philippine national budget goes to basic social services, whereas a combined 40.6 per cent goes to debt service and defence expenditure.

2) Low investment in infrastructure. Upgrading the Phillipines’ infrastructure is necessary to improve economic performance of the country, as it would help attract more foreign investment and reduce production costs. The Philippine budgetary allocation of infrastructure at 2.8 percent of GDP (between 2000 and 2006) is far below the 5 per cent of GDP benchmark set by other Asian countries. Moreover, some resources allotted for infrastructure have become vulnerable to corruption and thus have been inefficiently utilised.


3) Lack of political will to implement a sustained and credible fiscal reform programme. Weak fiscal institutions have led to the creation of policies that increase the national debt burden and create a bias towards deficit spending. Fiscal programs have been marred by politicised spending and corruption. (This has also led to low spending on basic social services and physical infrastructure.) There is a need to establish stronger fiscal institutions that adhere to rules and that do not easily give in to populist demands. The fiscal reforms implemented in 2005 and 2006 have alleviated the situation somewhat, though there is still definite room for improvement.


4) High transaction costs on market-related infrastructure, facilities and services needed to conduct business, in acquiring and exchanging information, and in the enforcement of contracts. This has severely affected the manufacturing sector and prevented domestic industries from fully benefiting from trade liberalisation. It’s also affected decisions by foreign investors to consider the Philippines in their production and logistical networks.

5) Lack of a coherent industrial policy. Some analysts argue that the Philippine government has not played an effective strategic role in providing the necessary physical, institutional and social infrastructure for industrialisation. Instead, it has allowed economic managers to follow a program that largely mimicked the Washington consensus. The first attempts to implement a strong and effective industrial policy failed because they did not target high value added exports, instead favouring sectors owned by close political allies of the administration. More recent programs for attracting FDI and setting up industrial and export processing zones achieved some employment generation, but they had weak or absent links to local firms, failing to create technological spillovers to domestic industry. There is a need for the government to reassess industrial policy and create an environment that facilitates a more dynamic interaction between foreign and local firms, and between large and small and medium enterprises.

The government needs to develop a long term strategy to increase productivity by increasing investments in infrastructure, and boosting human and technological capital.

Commitment to regional economic integration might give the impetus for these investments. It might provide the necessary leverage for policymakers to advocate for the reforms that are necessary. Trade agreements—whether sub-regional, regional, or multilateral in scope—can be the rationale for opening up sectors, for example, air transportation, that would lead to greater efficiency and more widespread benefits through activities like tourism and overseas workers.

Regional cooperation, particularly through new age agreements, like the Japan-Philippine Economic Partnership Agreement, will provide opportunities for upgrading the capability of domestic economic agents and enable them to latch on to global and regional production networks.

The constraints on economic development are not purely economic. There are other ‘deep parameters’ that affect economic performance. Lack of social cohesion, spotty entrepreneurship, and the inability to establish a credible and selfless political leadership are among the challenges that the Philippines faces today. There is a degree of inconsistency between how religion affects society and capitalist development in the Philippines. Meanwhile, long-held social values, such as ningas cogon (an old Filipino expression, which literally means ‘grass flash-fire’, referring to cogon dry grass which blazes furiously when set alight, but only for a few minutes before turning to cold ashes), have adversely affected economic growth in less tangible ways.

In the Philippines, as in other countries, policymakers have to be aware of the limitations of economic reforms and contextualise reforms in local society.

The Philippines lack real leaders.

There's an abundance of dumb voters.

That's the sad reality.

Economist Group sees RP growth at 4.3%

MANILA, Philippines -- Economic growth in the Philippines is expected to fall to 4.3 percent this year and 4.2 percent in 2009 amid a global credit crisis, complicating efforts to arrest the country's slide into deeper poverty, The Economist Group said Thursday.

Economic growth spiked to 7.2 percent last year, the highest in 30 years, building up from a five-year period.

"A decidedly weak global outlook, especially in the Philippines' two key export markets of the US and Japan, is affecting the country's trade," the publishing outfit's Southeast Asia expert Justin Wood said.

"Double-digit inflation is eating into consumer spending where wages are failing to keep pace with rising living costs," he told a news conference.

The gross domestic product (GDP) growth figures were broadly in line with the government's revised forecast of between 4.4 and 4.9-percent growth for 2008 and 4.1 to 5.1 percent expansion next year.

Despite a gathering global slowdown, however, Wood said remittance flows equivalent to 10 percent of GDP by the country's large overseas work force, "will ensure that private consumption continues to be the key factor driving the economy."

He estimated private consumption accounted for a full 70 percent of the economy, which he said has undergone a sea change from the Asian financial crisis in 1997 when growth was mainly driven by exports.

Nevertheless, Wood said he feared slower economic expansion would worsen what he said was a long-term slide in the past 40 years "from relative wealth to relative poverty."

"The Philippines has seriously under-performed relative to the region," he said, with per capita GDP growth of 1.0 percent trailing its neighbors' 4.0-6.0 percent.

In the early 1980s, for example, Wood noted that the Philippines had one of the highest per capita GDP growth but in 2007, the country lagged behind Thailand, China, Indonesia and was "in danger" of being overtaken by India.

The Philippines was also in the bottom rung in terms of foreign direct investments behind Malaysia, Vietnam, Thailand and Indonesia, according to EIU data.

Moreover, the country ranked lower than neighboring countries in the corruption perception index -- only a notch higher than Cambodia. Out of 180 countries, the Philippines was ranked 140th in terms of ease of doing business – behind Rwanda and just ahead of Mozambique, Wood noted.

Wood said generating more investment would require reducing power rates, curbing corruption, and cutting red tape.

At 18 cents per kilowatt hour, the Philippines has one of highest electricity costs in Asia, which adds to investment woes. "It's all about the quality of the investment. The Philippines has always been perceived to be too uncertain, too risky," Wood said.

"Compared to other countries, the Philippines has always been vulnerable to external and internal shocks including natural disasters and political upheavals," he added, also noting political instability in the Mindanao region.

On the plus side, Wood noted growth in the services sector particularly business process outsourcing (BPO), which has grown into a $5-billion industry powered by a young and educated Filipino workforce.

He also cited other segments such as tourism and mining although noting the need to improve further in terms of infrastructure and more investments, respectively.

"The Philippines clearly has a lot of challenges to address," Wood said. "But so do other countries like Vietnam. But Vietnam somehow has managed to persuade investors into a belief that a brighter future lies ahead."

Overall, Wood expects a "miserable" 2009 given current global economic conditions. Any sign of recovery should begin happening by 2010, he said.

I just had a quick look at the rates at xe.com for the first time in almost six months, and back then one AUD bought over 36 PHP. Now the AUD will only buy you 31 PHP, so it's moving in the right direction comparatively.

because both the PEOPLE and the GOVT is corrupt!

because everyone wants to get rich so they drag whoever's @$$ they can down

you mean the upper class is corrupt....i wonder how many people actually vote during elections...

Arroyo has really done nothing for the Philippines...she is too easily influenced by the rich families of Manila

Philippines needs a president who is more in touch with the people...

no,i mean from the bottom of the pyramid, people are corrupt.

from the baranggay officials of the poorest provinces (vote buying is rampant even on baranggay elections...and the people would ask money in exchange for their votes), to the policemen in the streets, to the jeepney driver who would bribe traffic enforcers, to individuals who would pay "under the table" just to hasten their NBI clearances, to the parents who would bribe teachers for favorable grades fro their child...etc

there wont be corruption if people refuse to be corrupted.

corruption is not limited to those in higher offices and the rich.

but those people r in a position of power...even if they r in the bottom rung

what im talking about is the people who make up the majority of the population, farmers, workers, fishermen.....people making a simple living

only way the Philippines problems can start to be corrected is if the people stand up and revolt against the powers that be
bloody or bloodless...if the people remain content...then it will forever remain stagnant

i can see your point.

but dont you agree that these individuals who makes up the majority of the population are also involved in the system?

they are the ones whose votes are bought and sold during election. meaning they are the ones who elects the corrupt officials in office. or probably thats the only way they know they could benefit from the soon-to-be "leaders".

i just think that corruption is not limited to the governing group but also stems from the very people that they serve.

lets just hope radicalism dont spread around here, like some All ultra-leftist $hit just because they are pissed with the situation. (It'll just end like a junta.)

One word, Corruption. I am disappointed in Philippines... It could have done way WAY better.

saddening isnt it?

One thing sure is missing

WE NEED OUR OWN JON STEWERT TO LAMPOON THE GUVMENT.

He would get shot!

Well I think we have our own in Conrado de Quiros who basically writes articles to bash and criticize the GMA govt.

Tribal/family loyalty is often used in the Philippines to justify a whole host of undesirable behaviours. The same could be said for India too but Philippines there is a harder edge to it. Often there is no concept of reasonableness, rationality or professionalism in the psyche. People often blame the government but then a lot of these individuals are guilty of corruptive tendencies themselves. Sure there are some malls and call centres, but overall the country is garnished with all the worst aspects of Americanism - which isnt really their fault tbh.