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By David Pilling and Roel Landingin in Hong Kong
Published: December 5 2008 02:00 | Last updated: December 5 2008 02:00
The Philippines is weathering the global financial crisis better than many economies, but the government is monitoring the effect of inflation and falling growth on the country's poor to see what further poverty alleviation measures might be needed, Gloria Macapagal Arroyo, the president, said.
In an interview with the Financial Times, the head of the world's 12th most populous nation argued that revenue-raising reforms earlier in her administration, specifically increasing value added tax, had stood the country in good stead.
"We've managed our economy well to the point where we are resilient to this crisis," she said, saying the Philippines had grown 4.6 per cent so far this year and was expected to grow at 3.7-4.7 per cent in 2009.
Economists agreed that the Philippines was bearing up relatively well to global financial turmoil but did not necessarily credit the government. "The Philippine economic ship is safe from the storm because it never left the port in the first place," said Felipe Medalla, an economics professor at the University of the Philippines and a former government planning chief. The Philippines, said Mr Medalla, was not a big exporter, shielding its economy from the downturn in external demand.
Amando Tetangco, central bank governor, said in an interview that headline inflation, though still running at double digits, had started to ease, giving us "monetary policy space". Inflation rose to a 14-year high in June of 11.4 per cent, damaging in a country where a third of the population is classified as poor. "Other countries have started to reduce interest rates, but we have not so far," he said. "Core inflation continues to be relatively high and rising, so we think there is still some inertia of inflation and therefore we have to be prudent." On the other hand, he said, "the outlook for inflation seems to be quite favourable down the road", adding that he expected price rises of 4-5 per cent by late 2009.
The bank's policy board meets on December 18 amid speculation that, like other central banks, its emphasis might shift from inflation to supporting growth. Mr Tetangco acknowledged that these were "abnormal times" but said the bank had eased policy by lowering bank reserve requirements by 2 percentage points last month.
Mrs Arroyo, who this week survived her fourth impeachment attempt, said she expected the Philippines, which vies with India as an outsourcing centre, to benefit from corporate cost-cutting. She had recently spoken to Ingram Micro, a distributor of computer products that wants to expand its Philippines operations, she said. The president acknowledged there were problems.
"While the Philippines is in relatively good shape, that is small comfort for the average Filipino who has to pay higher prices for food and fuel."
Mrs Arroyo said there were advantages and disadvantages to a weak peso, which has depreciated 17 per cent against the dollar since the start of the year. "If the peso strengthens, it can help tackle inflation. If it weakens it can help make our exports more competitive and helps our overseas' Filipinos' remittances go a longer way," she said. "As long as the swings are not so wild, it can go either way."
Mr Medalla said that a potential concern was refinancing about $7bn (€5.5bn, £4.7bn) of public and private foreign debt maturing next year if the international credit markets remain tight. Though this could be partly covered by the projected current account surplus of $2bn-$3bn, and was small compared with the central bank's reserves of $36bn, he cautioned against using the reserves to pay off maturing debts. "If people see the central bank reserves going down, they might panic and start speculation against the peso," he said.
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