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Philippines: Good Governance is Good Economics
Philippines 1H 2012 Report: Strong economic growth momentum, improved competitiveness indicators, consecutive rating actions and renewed investor confidence cited as major dividends of the Administration’s governance reforms
The Briefing focused on the significant strides of the government in improving governance and its dividends as demonstrated in the country’s strong economic performance in the first half against the backdrop of continued global economic volatilities. The economic managers also highlighted their respective agency’s thrusts to sustain the positive momentum and ensure that the country is on track to having inclusive growth and achieve investment grade credit rating.
Finance Secretary Purisima emphasized that “It is all about executing the agenda of President Aquino in the area of governance, in the area of investments, in the area of policy alignment. So far, we’ve been getting dividends from this agenda in terms of more confidence from the market…more confidence from investors.
The Secretary said that, “We continue to focus on the implementation of good governance agenda in the revenue generating agencies as well as in the expenditure’
The Finance Secretary said that the country is in a sweet spot since “we are basically in control of our fiscal destiny.” He added that we have the fiscal space to allow us to react to any challenges posed by the global economic environment. Our debt to GDP has continued to drop. Our total national government outstanding debt now is down to 50.5 percent of GDP. This was about 74 percent as recently as 2004. More importantly, national government outstanding foreign debt as percent of GDP continues to go down. This means that we are less vulnerable from global economic and financial turmoil. We will continue to bring down this foreign debt to GDP ratio. For 2012, our plan is to borrow 75 percent in the domestic market and only 25 percent in foreign markets. Next year we plan to maintain that ratio,” he said.
Meanwhile, BSP Governor Tetangco remarked that the Philippines continues to beat market expectations with the country being one of the best performing economies in Asia. Consequently, the consecutive rating actions, he said, are recognition of the efforts towards fiscal consolidation, the continued strength of the country’s external position and the improvements in governance.
He also affirmed that the government’s strong commitment to good governance has resulted in increased investor confidence which in turn could lead to more investments that would support higher growth. “Improvements in governance will allow the country to enjoy more “bang for each peso” spent by the government be it on hard or soft infrastructure. Clearly, good governance benefits the majority of Filipinos. Given this, investment grade is on our sight. Going forward, this will further strengthen the country’s economic fundamentals,”
He pointed out that on the part of the BSP, it contributed to the strong performance of the economy through a calibrated and well-communicated monetary policy stance, sustained efforts in financial stability and an appropriate external sector policy.
“The manageable inflation outlook allowed the BSP to take an accommodative monetary policy stance in the first half of the year. We cut policy rates preemptively to help cope with the adverse effects arising from volatilities in the global economy. The banking sector remains sound and stable and continues to play its role of changeling funds to productive uses
The BSP also adopted macroprudential regulations to ensure that bank practices are aligned with the evolving international practices. We managed volatilities in financial markets brought about by surges in capital flows through the judicious use of our enhanced policy toolkit,” the Governor explained.
Moving forward, he added that the BSP will continue to pursue the policy of a market-determined exchange rate and will carefully look at asset price trends and indications of asset bubbles forming. The BSP will also remain watchful of capital inflows and will intensify its financial inclusion programs to broaden access to credit, deepen financial education and strengthen consumer protection. The Governor also assured that the BSP will actively pursue financial stability, focusing on governance, market infrastructure, functioning financial markets and thriving economic growth.
On trade and investments, Secretary Domingo bannered that the country is doing extremely well as export grew by 7.7 percent during the first half of the year despite the slowdown in the world economy. As investors are starting to take notice of the positive developments in the Philippines, “the country has seen more investor missions in the first half of 2012, than all of 2011 and all of 2010. The BOI facilitated a total of 107 inbound missions compromising of 23 delegation/multi-
At the DBM, according to Budget and Management Secretary Abad, the clear sign of good governance is the early preparation, early submission, early approval or passage of the budget which paved the way for the early releases of appropriations and faster implementation of projects. “On top of these, we have been able to generate huge savings in the use of public funds which allowed us to make dramatic investments in the administration’
The DBM, he added, is committed to ensuring that the government’s strides towards fiscal consolidation will continue to gain further momentum. “We are committed to bringing down the deficit to about two percent of GDP next year. Together with the Department of Finance, we are also promoting liability management so that every year, the government’s interest payments will continue to go down and the ratio of our debt to GDP will continue to fall,” Secretary Abad said.
In closing, BSP Investor Relations Office Executive Director Claro
Fernandez said “The Philippines stands out as one of the few nations that
continues to impress investors with positive news and updates. Global fund managers and investors are taking notice of the recent positive
developments in the economy."
Fernandez said investors are watching to see if government proceeds with its governance initiatives and reforms as the economy moves to a faster growth trajectory.
"Investors are watching the Philippines address long-standing structural
weaknesses in the credit profile, transforming the economy by ensuring that good governance of the past two years are institutionalized and, inclusive growth become a reality pushing the country to investment grade credit rating,” he said.”