World Bank announced that the Republic of the Philippines (PHL) is experiencing a weaker-than-expected first half. The impacts of this slow-down in the country’s economy are limited, though, because of its strong fundamentals. Below is an excerpt from the Washington-based institution:

 

“In response to the slower growth and the weaker economic outlook in advanced economies, we revise our growth forecast downward from 5.0% to 4.5% for 2011 and from 5.4% to 5.0% for 2012,” the report states.

These compare to the government’s 7-8% target for both years and downward revisions announced last month by the Asian Development Bank (4.7% and 5.1%, from 5.0% and 5.3%) and the International Monetary Fund (4.7% and 4.9%, from 5.0% for both years).

“To better insulate the Philippine economy from external shocks, it is important to maintain strong macroeconomic fundamentals and improve its competitiveness through diversifying exports, strengthening domestic competition, and improving productivity of the services sector,” World Bank economist Soonwha Yi said in a statement accompanying the update.

The report noted that the country’s external position and macroeconomic fundamentals remained strong. In particular, the current account surplus was said to have increased by 20% in the second quarter, net foreign direct investments were up in the first half and “foreign reserves have surged to record highs.”

Monetary policy was also described as remaining accommodative, and the deficit likely to fall below target. The World Bank noted, however, that the state underspending behind the better fiscal balance “also reduces economic growth and could waken potential growth as the country’s large deficiencies in infrastructure remain unresolved.”

The challenge for the government, it said, “is to ensure that the Philippines continues to improve its competitiveness, while cushioning the economy from adverse external shocks.” The World Bank recommended accelerated public spending, which can be supported by raising more revenues via improved tax administration and reforms.

Ruperto P. Majuca, assistant director-general for planning at the National Economic and Development Authority, agreed with the report’s recommendations, saying the Philippines can “pursue Asian integration, and take advantage of China rebalancing.”

“You also strengthen the domestic demand by government spending, e.g., by infrastructure spending, then other domestic sector strengthening [for example through] CCT (conditional cash transfers) [and] tourism,” he explained in a text message.

Mr. Majuca, however, thinks that “the forecasts are low.”

“We expect GDP growth to pick up in H2 (second half) relative to H1 due to the acceleration of government spending, the effect of Japan normalization and reconstruction on the Philippine economy, seasonal boost, and the absence of base effects which characterized H1,” he said.

University of Asia and the Pacific economics professor Cid L. Terosa, for his part, said the World Bank “forecast reflects the cautious mood that is prevailing in the economy and will prevail next year.”

“I think [economic growth] will be 5% or below in the next two years,” he added.

Benjamin E. Diokno, former Budget secretary and economics professor at the University of the Philippines, said the multilateral bank’s forecast downgrading was “not surprising.”

“The cut in growth forecasts which has come one after another in the last few weeks is not only realistic and timely; it also calls for a greater sense of urgency and creativity on the government’s spending performance,” Mr. Diokno said in an e-mail.

“There is greater urgency for the government to spend on labor-intensive, quick-disbursing, and rural-based projects in order to create jobs in the countryside where a great majority of the poor reside. Since the poor consume what little money they earn, it will increase consumer spending. With higher spending and high multiplier effect, there will be greater economic activity,” he added.

National Economic Protectionism Association (NEPA) recently launched the “Buy Philippine Made” campaign in the hope of developing economic nationalism in the country. If achieved, NEPA guarantees that growth of the country’s industry competitiveness will follow. The campaign was graced by Bayan Muna Rep. Teddy Casiño and University of the Philippines economics professor Rene Ofreneo last September 27.

 

NEPA President Bayan dela Cruz stressed that if Filipinos start buying local products, the country will once again increase its economic capabilities as demonstrated during the height of economic nationalism in the 60’s. Rep. Casiño, in support, urged the Aquino government to finance the project instead of the Conditional Cash Transfer (CCT) program. Casiño sees additional employments if economy protection is promoted in the country.

Prof. Ofreneo also cited the economic boom in the US when George Washington adopted Alexander Hamilton’s vision of national industry protection. They increased tariff, strengthen their industries, and produced their own products. To date, US have the highest tariffs (+200%) on their protected products.                                  

 

Further studies also showed that developed countries have one thing in common: they practice economic protection as a sort of personal code.

Found this interesting post for January 4, 2011 in the Trade Union Congress of the Philippines – Home.

 

MANILA, Philippines—Sophisticated transnational drug-trafficking syndicates—including a West African group using overseas Filipino workers as couriers—remain the biggest challenge to the Philippine Drug Enforcement Agency (PDEA) and other agencies involved in the campaign against illegal drugs, according to a report from the US State Department.

From only three in 2008, the number of foreign-based drug organizations operating in the Philippines has increased to nine, according to the department’s 2010 International Narcotics Control Strategy Report.

“The West African drugs syndicate continues to infiltrate the Philippines with their operations. There is an increase in the recruitment of OFWs to smuggle cocaine and heroin in and out of the country,” said the report which was posted on the website of the US embassy in Manila.

These drug couriers “smuggle and transport illegal drugs to China, Malaysia and Vietnam. Several Filipinos, mostly women, are jailed abroad for drug trafficking and face severe prison sentences, including the death penalty in countries such as China,” it also said.

Billion-dollar industry

The report noted that although the Philippines is not a regional financial center, the illegal drug trade in the country has evolved into a billion-dollar industry, valued at over $8.4 billion (about P368.2 billion) a year.

It said the illegal drug industry here is fueled by foreign-organized criminal activities from China, Hong Kong and Taiwan; insurgency groups that partially fund their activities through local crime and the trafficking of narcotics and arms, engaging in money laundering through ties to organized crime; and the proceeds of official or bureaucratic corruption which are also a source of laundered funds.

“Wholesale quantities of crystal methamphetamine (commonly known as shabu) are smuggled into the Philippines and continues to be manufactured clandestinely in the country,” the State Department said.

“Precursor chemicals are smuggled into the country from China, India and Taiwan through international airports, seaports, the mails, as well as via large unpatrolled expanses of the Philippine coastline,” it said.

PH transshipment point

Traffickers take advantage of the Philippines’ long and porous maritime borders to use the country as a transit point for high-grade cocaine and heroin shipments, primarily originating from India and Pakistan, the report said.

Chinese and Taiwanese remain the most influential foreign drug-trafficking groups in the Philippines and control domestic methamphetamine production, the State Department said.

Their chemists continue to establish clandestine laboratories in the Philippines for the manufacture of methamphetamine, it said.

“These traffickers typically produce methamphetamine in relatively small-scale clandestine meth labs commonly referred to as ‘kitchen-type’ labs, which more easily avoid detection by law enforcement authorities,” it said.

Shabu “ranks first in availability and remains the primary drug of choice in the Philippines,” where approximately 95 percent of arrested drug users are addicted to the illegal drug.

According to the 2009 United Nations World Drug Report, the Philippines “ranks fifth in the world in terms of methamphetamine hydrochloride seizures in the last 10 years and has remained a significant source of high-potency crystalline methamphetamine used both domestically and exported to locations in East and Southeast Asia and Oceania.”

The Philippines is also a primary source of shabu for Hawaii and Guam, said the US State Department.

But it noted that “intensified nationwide counter-narcotics operations by Philippine law enforcement agencies have apparently contributed to a reduction in drug supply, inasmuch as drug prices have been erratic in areas of increased enforcement.”

Law enforcement efforts

The Philippine government was cited for making anti-narcotics law enforcement one of its top priorities, with law enforcement agencies such as PDEA, Philippine National Police, National Bureau of Investigation, and Bureau of Customs actively pursuing counter-narcotics enforcement operations.

But though each agency is diligent in its efforts to carry out its mission, “their efforts are hampered by a lack of inter-agency cooperation at higher levels. Severe budgetary constraints also restrict operations and training,” it said.

PDEA, for instance, “remains too small to address the entire nation’s problems with the trafficking and sale of illicit drugs. It currently relies on other agencies for personnel assistance.”

“However, PDEA has established stronger regulatory guidelines and practices, and if provided necessary resources, should continue to develop into an effective drug enforcement agency,” it said.

The PNP’s Anti-Illegal Drugs Special Operations Task Force “has been an effective drug law enforcement unit and scored several successes in 2009,” according to the State Department.

NBI’s small role

Compared with the PDEA and PNP, the NBI “has played a smaller role in drug enforcement due to its very limited manpower and multi-mission focus. However, its investigative and technical expertise is vital to the overall Philippine counter-narcotics efforts, especially in more complex investigations,” the US agency said.

The State Department said Washington plans to continue working with the Philippine government in the “training of anti-narcotics personnel, intelligence-gathering and infrastructure development.”

“Strengthening bilateral counter-narcotics relationship serves the national interests of both the US and the Philippines,” it added. –Jerry E. Esplanada, Philippine Daily Inquirer