COUNTRY REPORT Philippines At a glance: 2001-02 OVERVIEW The resolution of the political crisis in January brought to power a new president, Gloria Macapagal Arroyo, backed by popular protest that enjoyed the co-operation of the leadership of the armed forces. Not everything is tied up, however, since the ousted president, Joseph Estrada, disputes Ms Arroyo’s legitimacy. The new regime should be more firmly bedded in after the May mid-term congressional elections, but the president will be under great political pressure to prove that she is “pro-poor” as well as an economic liberaliser. The Muslim and Communist insurgencies are likely to ease as peace negotiations, broken off under President Estrada, are resumed. Containing the fiscal deficit will be a priority in 2001, and reducing it the priority in 2002, which will reinforce the contractionary impact of much weaker external markets, keeping GDP growth below 3% in both years. Inflation will ease down from its 6-7% highs of early 2001 as the currency stabilises and domestic demand growth remains subdued. Merchandise trade will remain in surplus, but this will diminish as export growth weakens. Key changes from last month Political outlook • Political stability will not fully recover until the fate of former President Estrada is decided. The Supreme Court has, however, now ruled that he cannot make any further appeals contending that he is still president, although this may not be the end of the legal process. We expect the May congressional election to deliver a strong pro-administration majority in the lower house. Economic policy outlook • Despite short-term political constraints, the economic reform agenda will be resumed. The privatisation of the national power utility has been delayed, while objections are given more consideration. Economic forecast • The government’s efforts to rein in the budget deficit will constrain government consumption growth. Private consumption growth will also be muted, as agricultural activity is subdued and unemployment remains high. April 2001 The Economist Intelligence Unit 15 Regent St, London SW1Y 4LR United Kingdom The Economist Intelligence Unit The Economist Intelligence Unit is a specialist publisher serving companies establishing and managing operations across national borders. For over 50 years it has been a source of information on business developments, economic and political trends, government regulations and corporate practice worldwide. The EIU delivers its information in four ways: through our digital portfolio, where our latest analysis is updated daily; through printed subscription products ranging from newsletters to annual reference works; through research reports; and by organising seminars and presentations. The firm is a member of The Economist Group. 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ISSN 0269-428X Symbols for tables “n/a” means not available; “–” means not applicable Printed and distributed by Redhouse Press Ltd, Unit 151, Dartford Trade Park, Dartford, Kent DA1 1QB, UK Philippines 1 Contents 3 Summary 4 Political structure 5 Economic structure 5 Annual indicators 6 Quarterly indicators 7 Outlook for 2001-02 7 Political outlook 8 Economic policy outlook 10 Economic forecast 13 The political scene 17 Economic policy 22 The domestic economy 22 Economic trends 25 Agriculture 26 Manufacturing 27 Services 28 Foreign trade and payments List of tables 10 International assumptions summary 11 Forecast summary 18 Budget results and forecasts 20 Public finance targets 22 Gross domestic product and gross national product 23 Gross domestic product by expenditure 23 Gross domestic product by origin 24 Consumer prices 25 Exchange rates 25 Rice output and area 26 GDP in major manufacturing industries 26 Manufacturing production 28 Foreign trade 29 Major imports 30 Balance of payments, January-November 2000 EIU Country Report April 2001 © The Economist Intelligence Unit Limited 2001 2 Philippines List of figures 12 Gross domestic product 12 Philippine peso real exchange rates 22 GDP growth 24 Consumer price inflation, 2000 29 Trade balance EIU Country Report April 2001 © The Economist Intelligence Unit Limited 2001 Philippines 3 Summary April 2001 Outlook for 2001-02 The resolution of the political crisis in January brought to power a new president, Gloria Macapagal Arroyo, backed by popular protest that enjoyed the co-operation of the leadership of the armed forces. Not everything is tied up, however, since the ousted president, Joseph Estrada, disputes Ms Macapagal Arroyo’s legitimacy. The new regime should be more firmly bedded in after the May mid-term congressional elections, but the president will be under great political pressure to prove that she is “pro-poor” as well as an economic liberaliser. The Muslim and Communist insurgencies are likely to ease as peace negotiations are resumed. Containing the fiscal deficit in 2001and reducing it in 2002 will be priorities; this will reinforce the contractionary impact of much weaker external markets, keeping GDP growth below 3% in both years. Inflation will ease from its 6-7% highs of early 2001 as the currency stabilises and demand growth remains subdued. The political scene A replay of People’s Power—civil protesters allied with the military—removed Joseph Estrada from the presidency on January 20th. He continues to dispute the legitimacy of President Macapagal Arroyo. The mid-term congressional elections will be a significant electoral test of the new administration. The government represents a return to the policies of the Ramos presidency. Peace talks are to resume with the Muslim and Communist rebel movements. Economic policy The budget deficit hit P136bn (US$3.1bn) in 2000 and the new administration will be hard put to contain a further rise this year. Fiscal incentives have come under critical review, and counterpart funding for foreign-aided projects will be reduced. The terms of power sector reform—including the privatisation of the electricity utility—are still under discussion. The Philippines is set to enter a post-programme monitoring arrangement with the IMF. The secrecy accorded to bank deposits has been slightly diminished by a central bank decision. The domestic economy GDP growth slackened in the fourth quarter of 2000, but was up over the full year to 3.9% as manufacturing growth gained momentum. Inflation hit a 21- month high in January. Interest rates have fallen to pre-crisis levels and the peso has stabilised. The government hopes to dispose of its equity in Philippine National Bank in a joint sale with the majority owner. Foreign trade and The merchandise trade surplus reached a record US$6.7bn in 2000, but the rate payments of growth in electronics exports has fallen sharply. Lower workers’ remittances held down the growth in the current-account surplus last year. The capital account is in deep deficit; the balance of payments moved into the red in 2000. Editors: Sophie Lewisohn (editor); Leo Abruzzese (consulting editor) Editorial closing date: April 10th 2001 All queries: Tel: (44.20) 7830 1007 E-mail: [email protected] Next report: Full schedule on www.eiu.com/schedule EIU Country Report April 2001 © The Economist Intelligence Unit Limited 2001 4 Philippines Political structure Official name Republic of the Philippines Form of government Under the 1987 constitution, the government is based on separation of powers between the executive presidency, bicameral legislature and independent judiciary The executive The president is chief executive, head of state and commander-in-chief; serves no more than one six-year term; may approve bills passed by Congress or may exercise a veto, which can be overridden only by a two-thirds majority of Congress. Cabinet appointments are subject to approval by the Congressional Commission on Appointments Legislature The Congress of the Philippines consisting of the Senate (24 members) and the House of Representatives (208 directly elected members and, since July 1998, up to 52 selected by party list); senators elected for six-year terms; representatives for three-year terms Legal system Based on common law; 1987 constitution contains a Bill of Rights and prescribes a judiciary with the Supreme Court at apex National elections May 11th 1998 (presidential, House of Representatives and half of the Senate); next election due May 2001 (mid-term congressional) National government Gloria Macapagal Arroyo became president on January 20th 2001, replacing Joseph Estrada in the middle of his six-year term (he became president on June 30th 1998) Main political organisations Lakas ng Edsa-National Union of Christian Democrats (Lakas-NUCD), the ruling party since January 2001, a role it had played under President Ramos (1992-98).