A delayed take-off

By David Pilling and Roel Landingin
Financial Times

The Philippines is finally picking up economic momentum, but this rapid growth has passed over the vast majority of the poor
  
For years, the Philippines has been the economic laggard of southeast Asia. Blessed with a large English-speaking population of 100m, abundant natural resources and the trappings of a functional democracy, it has nevertheless managed to fall further and further behind more successful neighbours. Today, in purchasing power parity terms, the Philippines has an income per capita roughly a quarter that of Malaysia and half of Thailand. Outside its glitzy business district, the traffic-clogged capital of Manila is full of slums. Rural poverty and corruption are rife.

At long last, though, the tide is turning. Just as many of the world’s best-performing countries of recent years – including Brazil, India and even China – are sagging, the Philippines is stirring into life. Last quarter, its economy again surprised on the upside, growing 7.1 per cent and notching up its 55th straight quarter of growth. It now seems to be growing at a steady 5-6 per cent, despite an adverse external environment, against a lowly 3 per cent in the 1990s. The finance ministry believes the potential growth rate can be lifted to 6-7 per cent and eventually to 7-8 per cent.

The fiscal position has altered beyond recognition. The Philippines has gone from being a country constantly on the verge of a balance of payments crisis to one with manageable external debt and a fiscal deficit of just 2 per cent of output. Such has been the improvement that rating agencies have nudged its sovereign debt to within a whisker of investment grade, a status it is likely to achieve in the next year or so.

As a result, money is pouring in. The stock market, one of the world’s best-performing in 2011, is up 32.5 per cent in the year to date in peso terms. That makes it the world’s fifth-best performing index. The peso itself has strengthened 7 per cent against the dollar. There is even talk of new investor interest in manufacturing. Japanese companies, looking for an alternative to China, have been nosing around. Philippine exports, not as important to the economy as for many Asian countries, have held up well in spite of falling demand for electronics, suggesting a degree of diversification [...]

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