November 13, 2009

Survival and Growth: The Philippines 2010 and Beyond Philippine Economic Society Holds Annual Conference

The global financial and economic crisis was at the center of this year’s annual conference of the Philippine Economic Society (PES) on 13 November 2009 in Manila. The conference looked at the various aspects of the crisis, its effect on the Philippines and the policy options the country has at this point. Apart from that, the conference also provided space for the presentation of new work from the economic profession, mainly on various aspects of the Philippine economy. This was grouped in two rounds of parallel sessions on topics such as macroeconomic management, agriculture and natural resources, poverty and income distribution and institutions and governance. One session was reserved for student papers to recognize and encourage the work done by budding talent. The last session was devoted to the Philippine development outlook.

The economic profession has met with some criticism because so few economists have warned about the possibility of a blow-up in the financial sector. This is indeed cause for introspection. The analyses offered made clear, however, that a number of factors came together to create the crisis. Mr. Dennis Botman, the representative of the International Monetary Fund, pointed to a confluence of loose money and loose regulation. Dr. Raul Fabella of the University of the Philippines School of Economics and Siegfried Herzog of the Friedrich Naumann Foundation for Liberty (FNF) pointed to systematic violations of fundamental principles of a market economy. These infringements created a moral hazard and perverse incentives. These were: politically induced weakening of lending standards, the reduction of incentives to screen borrowers carefully due to the securitization of loans that passed on credit risks to people with no direct connection to original borrowers and the fatally flawed business model of rating agencies. A spirited debate concentrated on the wisdom of the international move to “mark-to-market accounting standards.”

Overall, the majority of commentators felt that the crisis was not a crisis of capitalism per se, but that it did necessitate some major reforms in the system that would lead to better regulation. This is what Asia had done after the painful shock of the Asian crisis, and there was general consensus that it escaped due to these reforms that made financial systems more resilient. However, the region has been affected by the contraction in the real economy, especially in the export sector.

The Philippines has weathered the crisis relatively well, but the country is still stuck with mass poverty and a worrying dichotomy between GDP growth and poverty reduction. There are several reasons for this, one being geographical. Growth is centered in central Luzon, while other areas of the country are only weakly linked to the boom region. The lack of competition in ports and shipping is another factor. Another worrying aspect is limited domestic investment. Even in the past few years, investments had mainly come from abroad, while domestic investment is stagnating on a level much lower than neighbouring countries. Key factors identified were: weak governance, unreliable institutions and widespread corruption.

What to do? Some speakers saw hope in 2010 if a new government would be elected that would tackle corruption and institutional erosion. Another important point was the role of small and medium industries. They offer the best hope of creating employment on a broad scale. Both Dr. Cielo Habito, of the Ateneo de Manila University, and the keynote speaker, Ambassador Jesus Tambunting of Planters Development Bank, stressed this.

The Philippine edition of the Economic Freedom of the World report was also distributed to the participants to contribute to the economic policy debate in the country. Outgoing PES president, Dr. Wilfred Villamil, acknowledged the growing partnership between PES and the FNF that had resulted in several joint activities this year.

“We are very happy about the deepening partnership” explained Siegfried Herzog, FNF resident representative. “We feel it is based on shared values and objectives. These are to improve economic policy so that it can create a competitive economy that can effectively tackle the problem of mass poverty.”