IMF trims RP growth target to 3%

The weak first quarter economic performance and the perceived downturn in the economies of the US and Japan have prompted the International Monetary Fund (IMF) to lower the country’s gross domestic product (GDP) growth target to three percent this year from an earlier forecast of 3.3 percent.

IMF mission chief Markus Rodlauer who led the IMF team in setting up a framework for the country’s first post-program monitoring arrangement with the multilateral lender, said that while confidence in government has been restored, the IMF has to be "cautious and conservative" in its forecast.

"Also, it is a little bit too early to see if the renewed confidence in the economy will result in a rebound in consumer spending," Rodlauer said.

Government presented its macro-economic targets which set the GDP growth for this year at 3.8 percent and 4.5 percent for 2002. Inflation target for the year is 6.5 percent, while the gross international reserves which was pegged at $15 billion is equivalent to the short-term debts of government. Government is also aiming for a 2001 budget deficit of P145 billion.

Rodlauer said the government’s official GDP growth target of 3.8 percent to 4.3 percent this year is not an unreasonable target and that the IMF is generally in agreement with the government’s official macroeconomic targets for 2001 and 2002.

Despite its less than rosy projections, Rodlauer said the IMF is encouraged by government’s policy plans and urged it to be determined in keeping its projected budget deficit in check.

"We share the authorities’ view that the recent rebound in confidence, coupled with peso stability and lower interest rates, will support a pickup in economic activity this year," he said.

"Given the overreaching goals of rapid growth and poverty reduction, the focus has rightly been put on prudent macroeconomic policies, market oriented structural reforms, and the fight against corruption. The challenge now is to implement these plans, which require determination on the part of government as well as effective consultation and cooperation with Congress," Rodlauer said.

To be able to completely restore investor confidence, Rodlauer urged the government to undertake the following: Overhaul tax administration, rationalize fiscal incentives and look at other ways to strengthen the tax code, while containing expenditures and implement fundamental budget reforms.

Rodlauer also lauded the Bangko Sentral ng Pilipinas’ (BSP) approach to exchange rate management which he said "has been a pillar of strength for the Philippine economy."

"Continued peso flexibility and transparent disclosure of the reserve position will remain key elements of successful monetary and exchange policy," he said.

The IMF prescribed the priority areas for reform which include: the legislation of the power sector bill; tax legislation to allow for development of capital markets; adopting anti-money laundering legislation; and passing a new insolvency law to provide a sound framework or resolution of financially distressed corporations.

With the completion of the IMF mission, government will start its two-year post program monitoring arrangement with the IMF.

Under this program, the IMF will assess the country’s economic performance at least three times a year for a period of two years.

The post-program will not involve new loans from the IMF but instead, the IMF will issue an aide memoir to reflect its assessment of the economy after each review. The monitoring is done to assure international investors and creditors that the country will continue to implement agreed upon fiscal and monetary reforms and policies. These include ensuring local and foreign loans are paid under the signed schedules.

Under the two-year program with the IMF, which lapsed in December last year after a nine-month extension, the economy’s performance will be subjected to quarterly reviews based on criteria agreed up by the IMF and the government.