Boom-bust cycle likely, government warned

By Max V. de Leon, BusinessMirror

Posted at Jan 23 2013 08:40 AM | Updated as of Jan 23 2013 05:39 PM

MANILA - Private think tank Stratbase Research Institute (SRI) warned that the country could enter into another economic boom-and-bust cycle if perennial problems of poor infrastructure and bad government are not fully addressed.

SRI, in its recently released 16-page report titled “Ready to Compete? An Assessment of Philippine Competitiveness, Trade and Foreign Direct Investment Regimes,” said that a combination of constitutional amendments and improvement in infrastructure should do the trick of sustaining economic expansions of 7 percent or more in the coming years.

“If one takes a longer view, the country [is] yet to establish a sustained growth record. The pattern is more boom-and-bust and growth has never exceeded double digits. Taking population growth into account will reduce the country’s per capita growth rate even further,” Prof. Victor Andres C. Manhit, president of SRI, said.

Manhit added that while the Philippines’s gross domestic product grew by 7.1 percent in the third quarter of 2012, which is second to China’s 7.7 percent for the period, the country needs to improve its competitiveness against other Asian economies, if it is to sustain such high-growth level. The report of the advisory and research consultancy group analyzed the progress made and challenges faced by the Philippine economy under the Aquino administration and offered insights on the importance of amending economic constitutional provisions and free-trade agreements as they affect the competitiveness of the Philippine economy.

Manhit said structural flaws that could jeopardize the economy’s continued strong growth are still evident in the eyes of the international investment community.

For instance, while the Global Competitiveness Report 2012-2013 of the World Economic Forum ranked the Philippines 65th among 144 countries, a jump from 75th place in 2011, it noted that the country is still in a transition phase between a factor-driven economic stage and an efficiency-driven economic stage.

“Overall, the most problematic factors for doing business in the Philippines are corruption, inefficient government bureaucracy and inadequate supply of infrastructure,” Manhit said.

With this, foreign direct investments in the Philippines, although up 40 percent to $1.1 billion in the first three quarters of 2012, remained miniscule compared to FDI going to other Asian countries.

While the Philippines, Manhit said, seems to be mired in transition between stages of economic development so it has a sophisticated financial market, stable macroeconomic environment, capacity to absorb new technology and a sizable market, the country is stymied by weak institutions, an inefficient bureaucracy and inadequate infrastructure that together raise the cost of doing business and make the country an unattractive destination.

“Arguably, the bold steps that must be taken include amending the 1987 Constitution in the less controversial manner possible. Changing the basic law of the land will help improve climate for foreign investments and enhance competitiveness. Artificial market restrictions will either be removed or reduced on a phased basis to ameliorate local sentiment,” he added.

Manhit said, “Providing adequate physical infrastructure must be a continuing concern given the regular damage wrought by natural disasters. If these tasks are met, high growth and economic prosperity for Filipinos will result as a matter of course.”

Also, the Doing Business 2013 of the World Bank placed the country third from the bottom among Asian countries in ease of doing business by local small- and medium-sized firms. While the country’s overall rank in ease of doing business is 138th among 169 countries, it is in the area of resolving insolvencies (165th) and starting a business (161st) where it fares the worst. Other areas of concern include paying taxes (143rd), getting credit (129th), protection of investors (128th) and registering property (122nd).

“Unless the Philippines remedies its infrastructure inadequacies and broad governance problems, among others, the country will be unable to capture enough investments needed to fuel its economic growth,” Manhit said.