Is the economy doing well?
Last Friday I attended the general membership meeting of the Chamber of Thrift banks in Makati representing the Dumaguete Development Bank. This is a quarterly event of all the savings and development banks all over the country when the state of the industry is reported and discussed. The main speaker in that meeting was Dr. Filipe Medalla who is a monetary board member of the Banko Sentral ng Pilipinas. Dr. Medalla is a topnotch economist with a M.A. degree in Economics from UP and a Ph.D. from the University of Illinois, USA He was a former dean of the UP School of Economics and has held various government positions during the Ramos and Estrada administrations. He also has a good sense of humor.
The full title of his presentation was: "Is the economy doing well? But no room for complacency." I found the topic very appropriate as we are now almost a full year under the DU30 administration and it would be a good time to assess the situation. Dr. Medalla acknowledged that where our economy is now is the result also of the policies that were started in the Cory administration, the Ramos administration, the Estrada administration, the Arroyo administration, and the Aquino administration. All the previous administrations have contributed to our current economic well-being, and the issue is how to sustain these favorable economic conditions in the coming years. From his presentation and my analysis these are my conclusions.
At this time, there is a high probability that our economic growth is sustainable and quite resilient. The service component of the economy/Gross Domestic Product, is very strong partly due to the BPO sector and the increasing tourism component. As long as agriculture will not be clobbered by disasters and there is a steady growth in the manufacturing sector, the 6% to 7% growth of the economy is sustainable. This seems to be the natural growth rate of our economy given the constraints. Productivity and employment are also increasing, which with stable/low inflation and financial stability will keep GDP growth in our target range.
What are the dangers that should prevent us from complacency? External pressures on inflation such as a major price increase in oil products, climate disasters that will reverse our agriculture output growth, and an unanticipated reversal of the growth in our BPO and tourism sectors. The problem in Marawi and the peace and order in other parts of the country would be a factor here. Then, there could be fiscal problems in the government finances brought about by higher police and military expenses, rehabilitation expenses, and other populist programs. And these cannot be funded by the government's diluted tax reform program and possible revenue administration shortfalls.
The saving grace for our economy would be the structural soundness that has been built up over the years. The large International Reserves relative to our foreign exchange requirements, the stable financial system, and our favorable workforce demographics will act as shock absorbers. Our credit ratings and our borrowing capacity will be intact and could save us when needed as long as we can prove resiliency.
Still there is really no room for complacency. There is worldwide political and economic volatility and uncertainty. In a globalized world, initiatives and events in Europe, the Americas, the Middle East, and surely in Asia will affect us for better or worse. Added to these would be our own domestic political events that will disrupt the good work so far by the current economic team, and we could stall or reverse our economic successes.
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