THE TURBULENT reaction of the global financial markets in the second week of October is a reminder that the Philippine economy will not enjoy a smooth ride, as we want it to be. It will be a bumpy ride, but as long as we keep our economic fundamentals intact and avoid radical counter measures, the Philippines, I believe, will still register a respectable economic growth and ride out the storm.
The sharp drop in Wall Street, as many foreign analysts have pointed out, was overdue after an extended winning streak. European and Asian markets, including the Philippines, caught the proverbial cold after the Wall Street sneeze. Compounding the global market turmoil are the brewing trade war between the United States and China, the Middle East tension that is jacking up world oil prices and, of course, the staggered interest rate hikes of the US Federal Reserve Board. The monetary policy of the US Fed, in turn, is weakening major currencies elsewhere and those in the emerging markets, like the Philippine peso.
But we should be clear-headed about what is happening in the world. Now is not the time to make a U-turn from the economic fundamentals we have nurtured and built. The Philippine economy is growing; there is no doubt about that. Thus, we should protect our growth drivers and go easy on the productive sectors that have been a proven contributor to the gross domestic product.
Take the closure of Boracay Island, for example. President Rodrigo Duterte was right in shutting down the island tourist destination to prevent further degradation of the environment. Now with its soft-opening after a six-month closure, Boracay will resume its contribution to the economy. President Duterte in a sense protected one growth driver in Boracay because the island in the long-term will be a consistent dollar earner and a direct employer to thousands of Filipinos on a sustainable basis.
The government, meanwhile, should keep in mind that amid the turmoil in the global financial markets, it should temporarily avoid introducing reforms that could add up to the anxiety of the consumers. Food and gas prices have recently spiked and any economic measure that tends to increase prices and lead to job losses or reduced job opportunities should be withdrawn from the table, until things stabilize.
The economy as it is will expand, albeit at a lower rate because of the new economic order being introduced by US President Donald Trump. But it will grow at a respectable rate because of our strong economic fundamentals. Our fiscal and monetary policies, for one, encourage growth and attract foreign direct investments. The inflation rate may have overshot the target range of the Bangko Sentral ng Pilipinas, but Philippine prices have not reached runaway levels.
The administration also has established political stability—a sure recipe for economic success. In addition, President Duterte has been consistent in fighting corruption to maximize resource utilization and attract more foreign investments.
President Duterte’s massive infrastructure program that includes toll roads, airports, rail networks, bridges and power plants will ensure further economic expansion in the medium- and long-term period.
Finance Secretary Carlos Dominguez III says the momentum of the “Build, Build, Build” is strong and “we are moving quite well in our infrastructure program.” He also assured that the economy, amid rising inflation, was not overheating at the moment and that local industries were not even running at 90 percent of their capacities, “so we are in safe borders.”
Dominguez, meanwhile, expects the country’s current debt-to-GDP ratio of 42 percent to decline further to 38 percent by 2022. The ratio is one economic fundamental that foreign investors look at before placing their bets on a particular nation.
A low debt-to-GDP ratio indicates the economy’s production of goods and services are sufficient to pay back debts without incurring further debt.
With these strong economic fundamentals, the Philippines, I believe, will withstand the turbulence and the volatilities in the outside world.
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This piece first came out in Business Mirror on Oct. 23, 2018 under the column “The Entrepreneur.” For comments/feedback e-mail to: mbv.secretariat@gmail.com or visitwww.mannyvillar.com.ph./PN
