Philippines could miss growth target this year

Despite the continued positive outlook by international rating agencies on the Philippine economy this year, two important developments, if left unchecked, could change their perception in the long run. The government has forecast the economy to grow by 6.5 to 7.5 percent this year. Last year, the economy grew by 7.2 percent, the second fastest in the region only after China. However, the target may not be achieved because of two negative developments. First, for three successive months, there was a net outflow of portfolio investments, popularly known as "hot money", from the Philippines. As a result, there was also a continued decline in stocks traded in the local bourse. Second, the country's unemployment rate rose to 7.5 percent in January, an indication that growth in the economy failed to benefit laborers. Data from the Philippine central bank (BSP) showed a net outflow of "hot money" in February amounting to 361.1 million U.S. dollars. In January, there was a net outflow of 1.84 billion U.S. dollars while in December last year the outflow amounted to 354.33 million U.S. dollars. BSP blamed "hot money" outflow on the decision of the U.S. Federal Reserve to reduce its stimulus measures as the American economy has signaled slow but steady recovery. The BSP said that the flight in foreign capital was triggered by investors' "reaction to the tapering of the quantitative easing program in the U.S. starting January of this year." The U.S. Fed cut back its bond-buying program by 10 billion U.S. dollars for the second month in February to 65 billion U.S. dollars a month, from the original 85 billion U.S. dollars. Philippine socio-economic planning secretary Arsenio Balisacan, however, has allayed fears that the current volatility of the financial market would disrupt the country's high growth trend. "Portfolio capital may come and go quickly but foreign direct investments (FDI) are determined by fundamentals," Balisacan said. Earlier, Takehiko Nakao, president of the Manila-based Asian Development Bank (ADB), has expressed confidence that emerging Asian economies will be able to weather the impact of the U.S. tapering of its stimulus package, predicting growth in the region of about 6 percent this year and next. "There was a certain overreaction on the side of the market," Nakao said. He said that recovery in the U.S. and Japanese economies should actually help emerging Asian economies in 2014. "At the same time, it's important that policy makers in the region use the period of stability to address domestic policy needs," Nakao said. The country's unemployment hike has proved to be more worrisome for Philippine President Benigno Aquino, who had asked his economic managers to do something about it. Balisacan explained that the increase in the proportion of Filipinos out of work was consistent with earlier government projections, which were based on the destruction of public infrastructure and private assets resulting from an earthquake and a super-typhoon that hit central Philippines late last year. A 7.2-magnitude earthquake struck Cebu, Bohol and neighboring provinces in October while super-typhoon "Haiyan" devastated central Philippines on Nov. 8 last year. Benjamin Diokno, economics professor of the University of the Philippines, said that the latest unemployment rate is " inconsistent" with the picture of a growing economy. "A growing economy should be creating jobs, not losing them," Diokno, a former budget minister, was quoted as saying in a newspaper interview. Citing a 2013 World Bank study, Diokno said that by the time Aquino steps down in 2016, the state of unemployment in the country will be as dismal, if not worse, as before he assumed the presidency in 2010. The World Bank study forecasts that 12.4 million Filipinos, or 11.5 percent of its projected population by then "would still be unemployed, underemployed or would have to work in the informal sector where moving up the job ladder is difficult." According to Diokno, with about 1.2 million new workers joining the labor force every year, the challenge for the government is to create 14.6 million jobs in the next four years.