RP needs reforms to draw in capital, says Amex exec

The flow of serious money into the Philippine economy will depend to a large extent on the pace of institutional reforms being implemented by the Philippine government.

In a presentation yesterday, American Express Bank Ltd. chief economist and strategist John Calverley said the Philippines could grow at a faster pace if reforms are implemented in the areas of tax collection and public expenditures which in turn could result in better fiscal deficit management.

"Reducing the budget deficit is most crucial," Calverley said as he expressed fears that the coming 2004 elections could undermine efforts to rein in the huge budget deficit.

He added that a budget deficit amounting to more than five- percent of GDP or a GDP to debt ratio of over 70 percent is of serious concern for government managers as well as foreign investors.

Nonetheless, Amex International is looking at a "safe" four to five percent GDP growth for the country assuming that the Iraq conflict will be swift and final, that the US and Japan economy recovers within the next six to eight months, and there is a perception of strong initiatives by government towards structural reforms.

The country grew by 3.2 percent in 2001 and by 4.5 percent last year.

Under a similar scenario, the peso is expected to register a full year 2003 average of 54 to the dollar.

Another concern of foreign investors is the ability of the country’s banking system to liquidate its non-performing loans (NPLs) which are officially at an average 16 percent. "We feel that it is even higher," the Amex chief economist said.

Many believe that full impact of the special purpose vehicle (SPV) law will not be realized in the near future. Most bankers – both foreign and local – believe that solid results could be realized only next year assuming that the get of implementing rules and regulations (IRR) is released and enforced starting the second half of 2003.

Bank executives said that there are a host of fund managers or foreign investors interested in acquiring their bad assets. However, serious negotiations will only begin upon the passage of the IRR. "Tell us what the rules of the game are before we start talking," bankers emphasized.

Multilateral agencies such as the Asian Development Bank (ADB) and the World Bank had expressed its concern over the country’s budget deficit.