CIAO DATE: 6/99

Remarks by the Honorable Secretary Edgardo Espiritu

Honorable Secretary Edgardo Espiritu

Ministers Luncheon Briefing
October 9, 1998

Speeches and Transcripts: 1998

Asia Society

I wish to thank the organizers of this conference for providing us another opportunity to be in touch with international investors and financial managers. We in the new government of the Philippines certainly put priority in maintaining a close and active relationship with the international business community.

The Philippines, you may note, has been displaying considerable resilience in the midst of the financial and economic turmoil that has been plaguing our region for over a year now.

In 1997, despite the general downturn in the other economies in the region, we managed to post a real GDP growth of 5.2%. In the first half of this year, despite the continuing crisis and the El Nino drought, growth remained positive, albeit at the very modest rate of 0.2%. But this is still favorable in relative terms given the negative 3% average growth performance in the Asean Region.

With regard to prices, prudent monetary and fiscal policies have generally kept inflation at bay for the entire period 1992 to 1997. Despite the onset of the crisis in 1997, inflation was posted at a low 5.1%. In 1998, the drop in agricultural output due to the drought, as well as the impact of the continuing financial crisis pushed inflation to 8.4% for the first eight months of the year. But this is still satisfactory relative to the double-digit rates seen in other Asean countries.

With regard to the fiscal situation, since 1994, the National Government has been posting budgetary surpluses. However, for the first semester of 1998 the government recorded a fiscal deficit equivalent to 0.9% of GNP. This reflects the adverse impact of the general economic slowdown. But as a strategic decision, we are deliberately allowing a manageable amount of government budgetary deficit this year, equivalent to about 1.4% of GNP, to take up the slack in private demand.

The country's balance of payments recorded a surplus equivalent to 4.7% of GNP for the first half of 1998. The country's exports remained one of the bright spots in the economy, growing by 19% during the first seven months of 1998, the highest export growth in the region, where almost all the other countries are now experiencing falling exports.

The numbers indeed show that the Philippines has been weathering the crisis quite well. Some of the factors that are helping the country in this regard are:

1. The structural adjustments that have already been undertaken and which resulted to a more resilient economy
2. An established democratic political system
3. Good external debt management, and
4. A stable banking sector.

The structural reforms that have already been done include the liberalization of trade, investment and the foreign exchange markets; the deregulation of the financial system and of the oil and power industries; tax reforms; and privatization of a good number of government assets. These reforms definitely improved the economy's structure and made it more competitive.

Another distinguishing characteristic of the Philippines is its working democratic political system. The new government assumed power with one of the most popular mandates in Philippine electoral history. This kind of smooth transition of power is clearly a positive factor in fostering business confidence.

The country's external debt position is also quite manageable and sustainable, with the debt service ratio steadily declining from 17% in 1992 to 9.9% as of April 1998. Moreover, the ratio of short-term to total external debt is quite low, at 19% as of the end of the first quarter of 1998.

Moreover, the Philippine banking sector remains relatively stable, with Philippine banks remaining among the best capitalized in the region, with an average capital adequacy ratio of 14% as of year end 1997.

To a large extent, the reason for this relative strength in the Philippine banking system may be traced to the fact that the country has already undertaken many of the difficult banking reforms much earlier on when it went through a financial crisis in the early 1980s.

The country has clearly gained from adopting the appropriate macroeconomic policies and structural reform measures in the past. But this is obviously not the time to relax.

The new administration is committed to continuing with, and indeed improving on, the sound macroeconomic policies and structural reforms started by previous administrations.

The basic principles upon which the new government's economic policies are built may be summed up thus:

1. Reliance on free markets as the main means for organizing economic activities;
2. The private sector as the main move behind economic growth;
3. Government's important role is to provide a sound macroeconomic environment, as well as a fair, simple, and transparent policy and regulatory framework;
4. Substantial focus on making Philippine industries more productive and globally competitive; and
5. Continued liberalization of important sectors.

We remain committed to maintaining sound macroeconomic fundamentals through prudent fiscal and monetary management. We are likewise committed to carrying out the required structural reforms to put the country on a more competitive footing and to ensure the attainment of sustained, broad-based growth.

Thank you very much.

 

Honorable Secretary Edgardo Espiritu is The Secretary of Finance, Republic of the Philippines, at the Philippines.