MERRY CHRISTMAS - Philippines: 'Sick Man of Asia' no more

Philippines: 'Sick Man of Asia' no more


OVER A DECADE AGO, the Philippines was riddled with high unemployment, anemic growth and high levels of debt as the economy emerged from the aftermath of the Asian financial crisis.
[Stellar GDP growth, decreased unemployment, tempered inflation and a host of other factors have made 2012 a landmark year for the country.]
   
Wasteful spending and questionable projects plagued the country during the time, making the average citizen wonder where all his hard earned tax payments were going. The outlook on the economy was bleak, and people lost confidence in the country’s future. Filipinos saw migrating to the West as their “way out,” with brain drain becoming a concern at that time. 

Recently, however, the tables seem to have turned. Bank of the Philippine Islands’ Aurelio Montinola III and Finance Secretary Cesar Purisima, among other big names in Philippine finance, have declared that the Philippines is no longer the “sick man of Asia” that it used to be. 

Stellar GDP growth, decreased unemployment, tempered inflation and a host of other factors have made 2012 a landmark year for the country and helped us capture much attention from the rest of the world. The West is no longer the shining beacon of prosperity that it once was, with the risk of double dip recession in the US and with Europe facing a massive sovereign debt crisis. Asia has become the place to be and the Philippines is one of the hottest new markets poised to emerge.

Positive outlook

2012 has been a great year for the Philippine economy as a whole, as the country defied the dimming global outlook. Concerns of a Chinese hard landing, the fiscal cliff and slow economic recovery in the US, and the continuing Euro debt crisis were not enough to hamper the domestic economy with multiple milestones set this year. 

The year started off on a positive note with the Philippine Stock Exchange index (PSEi) breaking the 5,000 level and proceeding to consistently reach new all-time highs. The stock market has been breaking all-time highs with the main index staying above the 5,500 level. Many have attributed this to rising investor confidence in the PSE and in the Philippine economy as a whole. 

The bull run was fueled in part by the local economy beating expectations, posting above-consensus 6.4-percent gross domestic product (GDP) growth in the first quarter, a level second only to economic powerhouse China in the Asian region. While growth moderated to a still-robust rate of 6.0 percent in the succeeding quarter, the third quarter figure surprised market watchers again as an even stronger 7.1-percent growth rate placed the Philipppines second only to China once more.

This year, two of the “big three” ratings agencies also expressed confidence in and optimism about the Philippine’s economic prospects. Moody’s and Standard and Poor’s (S&P) each gave the Philippines a credit rating upgrade in 2012, moving the country a notch closer to investment grade.

In July, S&P bumped up the Philippines’ long-term foreign currency rating to BB+ from BB, with the new rating being just a notch below investment grade. In addition, the rating upgrade was accompanied by a “stable” outlook, which means that it is highly likely to remain the same for at least a year, until another review is performed. Moody’s followed suit in October, upgrading their rating of the Philippines up to Ba1, also a notch below the investment grade rating of Baa3. Fitch Ratings had earlier adjusted their Philippine rating to BB+ (also just a notch below investment grade) back in 2011.

While each agency expressed their own reasons for the upgrade, one criteria that both had in common was the continued decline in government debt as a percentage of GDP. According to the International Monetary Fund, the Philippines’ debt-to-GDP ratio has dropped to 40.14 percent, much lower than the level of 63.26 percent seen a decade earlier. 

With strong GDP growth, investors are upbeat on the local economy. Bangko Sentral Governor Amando Tetangco and Finance Secretary Cesar Purisima both lauded the upgrades and believe that investment grade rating is definitely within reach.

The next big thing

The BRICs (Brazil, Russia, India and China) have hit bumps along the road to economic development. Brazil and India are dealing with inflationary problems and growth slowdowns, with the former also having to address rapidly rising food prices. The economies of China and Russia have also cooled, with earlier worries about China’s “hard landing” being a major concern and Russia’s economy still looking anemic. 

In a paper entitled “How Solid are the BRICs?” Goldman Sachs’s resident economic guru Jim O’ Neil introduced the “Next Eleven” or countries that could become the world’s largest economies in the 21st century --the Philippines among them-- aside from the BRICs. HSBC’s Global Research arm also cited in a recent report called “The World in 2050: From the Top 30 to the Top 100” that they believe the Philippines will be one of the world’s major economic players by the year 2050 based on their forecasts. 

Morgan Stanley also lauded the Philippines with its inclusion in the favored TIP --Turkey, Indonesia and Philippines-- that are part of the investment bank’s new “Breakout Nations,” countries that are poised to boom in the next few years if they raise their trend growth performance. Currently, the Philippines has already beat the bank’s forecasts for this year, and is seen to “break out” if it sustains and improves upon this pace. 

As the Philippines continues to beat expectations, all eyes are set on the country as one of the hottest next economies eyeing to join the ranks of the developed world. Whether the this is yet another false start in the path to Philippine progress remains to be seen. But for now, the country enjoys unprecedented positive attention and the challenge lies in whether we can make the most out of it. BW, Carlos Jesena, IDEA