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Web-only Exclusives
November 30, 2000

From Our Correspondent: Hirohito and the War
A conversation with biographer Herbert Bix

From Our Correspondent: A Rough Road Ahead
Bad news for the Philippines - and some others

From Our Correspondent: Making Enemies
Indonesia needs friends. So why is it picking fights?

Asiaweek Time Asia Now Asiaweek story

Miracle or Mirage?

Some question Philippine economic gains

By Antonio Lopez / Manila


ROGELIO ESTEBAN, A PUBLIC school teacher in the Philippines for the last 30 years, is not feeling as prosperous as the country's leaders suggest he should. He and his wife, also a teacher, draw salaries totaling about $760 a month -- not enough for a sense of security in an economy that is making just about everyone nervous. "Goods are expensive," Esteban grouses. "I still feel so poor."

Many like him are questioning whether the Philippines' vaunted economic performance of the past few years is a miracle -- or mirage. Investors have lately been among the doubters. Concern over some poor corporate earnings, property overdevelopment and bank stability has been reflected in the stock market's recent schizophrenic behavior. The index slumped to 15-month lows in late April, only to come roaring back on positive inflation data on May 5. The 5% surge was followed by another 1% rise the next day -- only to slump 3% on May 7.

Some numbers do look good. Gross national product expanded 6.8% last year. Annual inflation slowed in April to 4.6%, down from 4.8% in March. Tax revenues are growing at a healthy 24% clip. International reserves are at a high of $11.8 billion. All are indicators, says Finance Secretary Roberto de Ocampo, that the stock market plunge is "a knee-jerk reaction" to isolated bits of bad news, such as the failure of the Monte de Piedad thrift bank in April. It was rescued by Singapore's Keppel Group last week. First-quarter figures at blue chips Manila Electric Corp. and San Miguel Corp. have also been disappointing. Still, says de Ocampo, "the Philippine economy is sound and strong."

Or is it? In a recent letter to President Fidel Ramos, the head of the Federation of Philippine Industries, Raul Concepcion, warned that the output of the country's manufacturers was declining, with big factories producing at only 70% of capacity. More danger signs: export growth slowed to 17.4% in the first three months of 1997, compared with 23.9% in all of 1996. The current-account deficit is a worrying $3.5 billion or 4% of GNP. Some doubt whether the Philippines can achieve its target of 7% GNP growth this year. "A 7% to 8% rate sounds great," says Noel Reyes, chief of research for Anscor Hagedorn Securities. "But from initial indications, it will remain that way -- only a nice-sounding, catchy phrase."

The current-account deficit may even be larger than reported. In 1995, the central bank said it could not categorize some $290 million in foreign-exchange outflow, so it placed the amount in its errors-and-omissions account. For 1996, the total that could not be explained had ballooned to $1.3 billion. Some economists argue that the amount should properly be added to the trade deficit, which means the Philippines would be in the red by $4.8 billion. That's 5.5% of GNP, though still way below troubled Thailand's 8%.

Before he left for a 10-day swing through the Americas last week, Ramos took pains to calm the stock market. "What we do at our level is make sure that the macroeconomic fundamentals are sound," said the president. "We have done this." He got a ringing endorsement from David Nellor, the International Monetary Fund's representative in Manila, who described the economy as "fundamentally sound." But can investors and teacher Esteban afford to be more patient?

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