Poverty in the Philippines remains stubbornly high despite the promises of globalization, the managing director of the International Monetary Fund (IMF) yesterday said in a speech before the business community.
IMF managing director Rodrigo de Rato, who is in the Philippines for a visit, said that emerging and developing countries like the Philippines have not fully felt the benefits of globalization and are instead experiencing inequality.
“In both emerging and developing economies, absolute poverty remains stubbornly high. The National Statistical Coordination Board estimated that 30 percent of people still lived in poverty in the Philippines in 2003,” De Rato said, adding that these realities are leading people to question the benefits of globalization.
Nevertheless, he cited the government’s efforts to address inequality.
“In several of these areas, the Philippines is leading the way. The government and central bank have steadfastly pursued sound macroeconomic policies and leaders in the Philippines are acting with imagination and innovation to improve the position of the Philippines’ poorest citizens,” De Rato said.
He urged countries including the Philippines to make sure that the fruits of growth are widely shared and that the poorest people are protected from the costs of adjustment.
He also urged the government to increase investment in education and technology and in infrastructure.
“Governments can take direct aim at inequality by replacing non-targeted tax exemptions and subsidies, for example for petroleum products and electricity, with targeted social assistance,” De Rato said.
The IMF expects the Philippine economy to grow by close to six percent this year and in 2008, lower than the government’s official projections.
The multilateral lender said the government needs to step up its tax collection efficiency and raise more revenues in order for the economy to grow.
The IMF’s projection is lower than the government’s gross domestic product growth forecast of 6.1 to 6.7 percent for 2007 and 6.2 to 6.8 percent next year.
“We expect the Philippines to grow at rates close to six percent in 2007 and 2008, and growth in the ASEAN-5 (Association of Southeast Asian Nations) together – Indonesia, Malaysia, the Philippines, Thailand and Vietnam to average about the same in each year,” de Rato said.
The IMF took into account risks that the Philippines and the rest of Asia are facing. It said that while the economic prospects for Asia including the Philippines are generally good, there are risks from a dramatic rise in private equity buy-outs and threats posed by financial globalization.
De Rato said that the situation in the global oil market, the potential instability from capital inflows and the danger against a backlash against globalization pose threats to growth.
“There are considerable vulnerabilities on the supply side, with respect to both production and refining, and a supply shock could be much more damaging to global growth,” the IMF chief said on the global oil market.
With respect to the risks from financial globalization, De Rato said not many countries realize such dangers.
“There are also risks associated with financial globalization, and I am concerned that these are still not fully appreciated.
Rato said the trouble in the US sub-prime housing market was an example of such risks and called for a fresh look at lenders’ underwriting standards and more borrower education.
De Rato also pointed out the backlash of globalization and that gains associated with it have been distributed quite unequally.
Speaking later to reporters, De Rato said that on the fiscal side, the government needs to improve tax collection efficiency if it wants to achieve its goal of balancing the budget by 2008.
“More work needs to be done if the authorities are going to realize and materialize their fiscal plan. There is a need to raise more revenues and step up tax collection efficiency,” he said.
On the monetary side, the IMF executive said the Bangko Sentral ng Pilipinas has been very successfully in containing inflation despite external shocks.
At the same time, he urged monetary authorities to continue strengthening the banking sector by encouraging more mergers and consolidation in the industry.