(DP 2004-01) Direction or Drift: Philippine Economy After 2004

Abstract

“What are the prospects of the Philippine economy after the presidential election of 2004?” Before speculating on this question, the paper discusses four major problems of the economy that the new president will face after the elections. These are (a) the weak long-term performance; (b) the high population growth; (c) the fiscal deficit and the low national saving rate; and finally, (d) the need to reinforce the investment climate. Each of these represents a big challenge. The last issue, in particular, requires dealing with inherently difficult economic reforms. The revision of restrictive economic provisions of the Philippine Constitution will open undercapitalized and high cost sectors of the economy to risk investments in critical infrastructure and allow greater economic exploitation of land and natural resources. The reforms of labor market policies will enhance the country’s competitiveness and raise employment. The essay then discusses the Philippine economy under alternative economic scenarios. Gloria Macapagal Arroyo, the incumbent seeking election, had three years of lead time as successor to deposed Joseph Estrada to establish a track record. However, that record is undistinguished. On the other hand, Fernando Poe Jr. adds greater risk and uncertainty, given his lack of track record on what he could do on a national scale. The country is headed towards an unpromising future, unless the new president displays unusual leadership ability that is not predicted by the objective information available at the moment.