Despite politics, RP growth to pick up

The conflict between President Arroyo and the opposition continues to simmer but the economy is starting to show signs of growth, contrary to fears it would be paralyzed by politics.

While gross domestic product (GDP) growth in the three months to September was a disappointing 4.1 percent, economists expect fourth quarter growth to come in at almost five percent.

The huge influx of remittances from the eight million Filipinos working abroad has lifted the economy and the stabilizing of oil prices after recent record highs will also boost growth, analysts said.

"We feel the economy is performing better than expected even considering the type of difficulties we are experiencing," said Melito Salazar, president of the Financial Executives Institute of the Philippines.

He expects GDP growth to be "a little bit lower," than five percent — a good showing "given the difficulties we have been through."

"After expanding 4.6 percent in the first three quarters, the economy should be able to post an above-five percent performance in the fourth quarter, primarily due to the strong influx of remittances," said economist Euben Paracuelles of DBS Bank in Singapore.

Overseas remittances usually surge in the fourth quarter as Filipinos send money home for the Christmas holidays and this might enable the economy to end 2005 with 4.8 percent growth, Paracuelles said.

"The weaker-than-forecast third quarter growth (of 4.1 percent) places the full-year real GDP outcome on track to reach 4.6 percent," said JP Morgan economist Sin Beng Ong in a research paper.

Socioeconomic Planning Secretary Augusto Santos concedes that the latest figures make it unlikely the Philippines will now hit its 5.3 percent growth target for 2005 but he is still confident it can approach that figure.

He blamed the slowdown in the third quarter on the poor performance in agriculture, record oil prices and the political turmoil stemming from opposition’s effort to impeach Mrs. Arroyo on charges she cheated to win the 2004 elections.

"The political uncertainty brought about the impeachment case and the volatility of oil prices weighed on the country," Santos said.

Since June, the country’s attention has been riveted to accusations that Arroyo cheated her way to victory.

The President has denied the charges and her allies in Congress succeeded in quashing an impeachment motion in September but almost all functions of government have become bogged down in the partisan struggle.

Mrs. Arroyo says the growth so far shows she has successfully insulated the economy from the political environment but her approval rating still hovers at record lows and many Filipinos are still complaining of hard times.

"The fact is, that up to today, there are questions being raised on the ability of government to get its act together (over) legislative issues that are still unacted upon," Salazar said.

But businesspeople have learned to "ignore the political situation and continue with their own business," he added.

Mrs. Arroyo can boast of some victories such as the implementation on November 1 of a long-delayed expanded value-added tax, which is the cornerstone of the government’s efforts to boost revenues and avoid a looming fiscal crisis.

This will hopefully lessen the burden from the budgetary deficit, leading possibly to an upgrade in the Philippines’ credit ratings and allowing the government to spend more on infrastructure instead of debt servicing.

Santos was confident the economy would rebound in the fourth quarter based on recent positive indicators such as tourist arrivals, power consumption, rising sales of motor vehicles and appliances and improving trade data as well as the recent strong performance of the stock market.

Stephen Huang, an economist of the Manila-based University of Asia and the Pacific, agrees, saying that "given our penchant for spending in the Christmas season and renewed confidence in the (lower) oil prices, there is still room over some significant increase," in growth.

For next year, Santos said the improvement in the economies of Japan and the United States, the two main trading partners of the Philippines, would also lift the economy.

While growth in 2006 will likely be on the same level as in 2005, analysts hope the country will finally be able to focus its attention on the economy.

"The political scenario has already been put in the background. The focus will now be on the economic reforms, fiscal reforms," said Ron Rodrigo of Accord Capital Equities Inc. — AFP