Regions and Countries

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p. 23 of 47 BACK | NEXT Developing Asia and the Pacific The global economy Newly industrialized economies Central Asian republics, Azerbaijan and Mongolia People’s Republic of China Southeast Asia Cambodia Indonesia Lao People’s Democratic Republic Malaysia Myanmar Philippines Thailand Viet Nam East Timor South Asia The Pacific

Philippines

Economic performance

Economic growth: The economy registered GDP growth of 3.9 percent in 2000, continuing the recovery staged in 1999. The agriculture sector grew by 3.4 percent, the services sector by 4.4 percent, and the industry sector by 3.6 percent. The contraction in investment appeared to have bottomed out in 2000, as gross domestic capital formation grew by 0.8 percent in the face of stronger investment in durable equipment. Meanwhile, the corporate sector has not recovered fully from the crisis as indicated by the continued high rate of nonperforming loans in the banking system, which rose from about 12.3 percent in 1999 to 16.2 percent by the end of November 2000.

Escalation of the conflict in Mindanao had an adverse impact on investor perceptions and the Government’s ability to implement planned development initiatives, further slowing growth. The recovery was also affected by slow progress in key reforms initiated by the Government.

Employment: The unemployment rate rose from 9.3 percent at the beginning of 2000 to 10.1 percent in October. On an annual basis, however, unemployment was higher at 11.1 percent in 2000, compared with 9.7 percent in 1999. With the development of rural productivity interventions, the agriculture sector is expected to absorb a significant portion of the growing labor force and to decrease the current unemployment rate, especially in the rural areas.

Inflation: The inflation rate declined to about 3.0 percent in early 2000. Sufficient supplies of basic food stocks arising from positive agriculture sector performance in 1999 and prudent monetary management are responsible for holding inflation in check. The average consumer price inflation rate for 2000 was 4.4 percent, lower than the Government’s target of 5.0–6.0 percent. Inflation increased in the latter part of 2000 because of the rise in world oil prices, depreciation of the peso, and adjustments in wages.

Fiscal balances: The Government’s fiscal deficit of 136.1 billion pesos (P) for 2000 has surpassed the targeted deficit of P62.5 billion for the year. This is attributed to lower-than-projected tax revenue collection and privatization proceeds. Revenue collection was 11.8 percent lower than the target, while the privatization proceeds were 22.3 percent of the target for 2000.

The two-year standby arrangement with the International Monetary Fund (IMF) was extended to December 2000. However, during the October 2000 IMF Review Mission, the standby arrangement was allowed to lapse. Currently, the Government is looking at the possibility of entering into an IMF postprogram monitoring framework.

External sector: Notwithstanding the strong performance of the current account, the balance-of-payments position weakened in January–October 2000 because of higher net outflows in the financial account. As a result, gross international reserves declined although minimally by 0.54 percent to $15.0 billion by December 2000. The rate of export growth, which had been robust throughout the crisis, was 8.7 percent in 2000. Growth slowed significantly in the first quarter and recovered to 13.3 percent in the second quarter of 2000; and despite a drop in overseas remittances, a current account surplus of about $8.1 billion was achieved in 2000. The external debt to GDP ratio as of end-September 2000 declined to 63.8 percent from 69.0 percent for the comparable period in 1999 despite the peso depreciation.

Domestic policies: The highest priorities of the Government are to improve macroeconomic stability; consolidate fiscal management by improving tax collections, expediting the privatization process, rationalizing expenditures, and improving cash management; promote good governance in the public, financial, and corporate sectors; accelerate structural reforms for improving stability, promoting private sector participation, and enhancing competition; accelerate rural development; and improve access to social services.

The Government’s renewed attempts to accelerate structural reforms have begun to show results. The amendments to the General Banking Act will considerably strengthen the central bank’s supervisory authority, strengthen prudential regulations, and promote transparency and good governance. Liberalizing foreign participation in banks is expected to enhance competition in banking. The Security Regulation Code, which was passed in July, will increase transparency and strengthen regulation in the capital market. The Omnibus Power Sector Reform Bill was in the final stages of deliberation in Congress. While preparations on privatizing the National Power Corporation have begun, legislation has yet to be enacted, and measures for strengthening its financial position prior to privatization are still pending. Restructuring of government corporations such as the National Food Authority and the Philippine National Railways is also ongoing.

Several laws for promoting competition and creating an investor-friendly environment are in process: the Retail Trade Liberalization Act liberalizes foreign ownership of retail enterprises; the E-commerce law provides a basis for Internet-based transactions; and the Regional Headquarters law grants additional incentives to multinational corporations for establishing regional headquarters in the Philippines.

ADB operations

Operational strategy: ADB’s operational strategy for the Philippines addresses priorities arising from the Asian financial crisis and emphasizes poverty reduction and social development through three main objectives: promoting equitable growth; improving basic social services, including health and education; and improving management and protection of the environment.

Policy dialogue: Policy dialogue with the Government included improving the performance and financial health of the National Power Corporation and restructuring the electricity subsector; restructuring the National Food Authority through the Grains Sector Development Program; improving the urban environment through the Pasig River Environmental Management and Rehabilitation Sector Development Program; and improving air quality under the Metro Manila Air Quality Improvement Sector Development Program.

Loans and technical assistance: In 2000, ADB approved seven public sector loans (two of which are program loans) totaling $470.0 million. In its private sector operations, ADB approved a $45.0 million (plus a $25.0 million commercial loan under an ADB complementary finance scheme)—jointly financed as part of a debt package with other international finance institutions—for upgrading and operating the North Luzon Expressway. ADB also approved 12 technical assistance grants totaling $6.4 million to help the Government strengthen its capacity, particularly in the areas of procurement, local government planning and financing, and project monitoring and auditing.

Three projects were financed under the Japan Fund for Poverty Reduction: Sustainable Livelihood for the Poor in Southern Philippines, On-Site Urban Upgrading for Vulnerable Slum Communities of Payatas, and Off-Site and Off-City Relocation of Vulnerable Slum Communities of Muntinlupa City.

Project implementation: Since joining ADB in 1966, the Philippines has received 183 loans, of which 60 were active at the end of 2000. Contract awards totaled $176.6 million, bringing the cumulative figure to $4.6 billion. The contract award ratio for 2000 was 11.1 percent, lower than the ADB-wide average of 21 percent. Disbursements during the year totaled $228.0 million, bringing cumulative disbursements to $4.9 billion. The disbursement ratio was 11.3 percent, lower than the ADB-wide average of 20.5 percent.

During 2000, the Government achieved several targets in ADB’s 1999 country portfolio review: nearly complete compliance with loan covenants relating to audited accounts, resolving the licensing requirements for foreign contractors, canceling most loan saving that had been identified, and improving postevaluation ratings of project performance. Progress in resolving many other issues was mixed. The project implementation issues identified during the 2000 review include delays in loan effectivity; slow recruitment of consultants, and difficulties in complying with ADB’s selection guidelines; slow procurement of goods and civil works; delayed progress in policy reform issues; and poor disbursement performance. To help address these issues, a time-bound action plan was agreed with the Government, and ADB held joint quarterly portfolio review meetings with the World Bank, the Japan Bank for International Cooperation, and the Government, allowing greater collaboration between the funding agencies and the key oversight agencies of the Government.

The action plan emphasizes reducing the number of underperforming projects, accelerating disbursements, and improving quality control at entry. New initiatives were instituted to improve project preparedness before loan approval and to cancel nonperforming loans or loan components whenever these are detected. In response, the Government has also taken several important initiatives to improve portfolio performance.

Loan implementation in the Philippines is expected to improve over the coming years with the establishment of the Philippines Country Office (PhCO) in 2000. PhCO will improve the quality of ADB’s operations in the Philippines; and strengthen coordination and partnership with the Government, civil society, and other funding agencies.

   

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