Chapter 1 - Introducing the Philippines

Physical Features | The People | Government | The Economy

The Economy

In recent years there has been a rapid shift from an agricultural based economy to a service economy - much of which however is within government services. There are moves afoot at the political level to reduce and rationalize the myriad levels of government activity but equally there are entrenched political interests opposed to any fundamental change. It is hard to see such reform emerging under the present constitutional system and unless there is a massive shift to federalism and an empowerment of resources to finance local decision-making and to make it accountable.

The service sector now accounts for some 43% of GDP while agriculture - which remains the largest employer in rural areas - has been reduced to some 19%. Manufacturing now accounts for a further 24% and is the most important sector in terms of foreign exchange earned through exports.

Business Hours

Office hours in Manila are generally between 8:30am and 5:30pm Monday to Friday with lunchtime from noon to 1pm. However, Filipinos love their "merienda" and so expect staff to be away from their desks for at least 15 minutes by mid-afternoon.

Factory hours are generally from 8am to 6pm Monday to Friday.

Retailing hours are flexible. Most department stores open between 09:30 and 10:00am and close around 9:30 in the evening. Larger retailers are open seven days a week but close during some Holy Week celebrations.

The Outlook

The collapse of the Estrada Government in Manila over the weekend of 20-21 January 2001 and the immediate installation of Vice President Gloria Arroyo as his constitutional successor has brought the Philippines back from the brink. But the crisis is far from over. While promising good governance and an inclusive policy platform that aims to bring dissident groups into the mainstream of political life, the structural imbalances plaguing the Philippines - and which have never been satisfactorily addressed by past presidencies - are still there. It remains one of the most glaringly unequal societies in East Asia (North Korea excepted). Has the ruling elite been given a wake-up call? Only time will tell .

Despite the political upheavals, the local economy did relatively well in 2001 thanks largely to a robust agricultural performance and continued consumer spending. A similar performance characterized by modest growth is anticipated for 2002. However other countries in the region appear likely to overtake the Philippines once again in terms of return to robust growth rates.

The Asian Development Bank (ADB) in its most recent forecast for East Asia has said that the Philippines economy will likely grow by 3.6 percent in 2002, up from the actual 3.4 percent growth achieved the previous year but lower than the 4.0 percent growth achieved in 2000.

Yet while the Arroyo Government has been given high praise for its commitment to sound economic management, perhaps best exemplified by an upgraded credit rating from a number of international agencies, it is beset by a number of problems including a burgeoning public debt and inefficiencies in tax collection, sluggish export performance, declining productivity and output in the manufacturing sector as well as what appears to be a crisis in investor confidence among local and foreign investors. While in mid 2002 there are signs that portfolio investment is again on the rise, there is little sign of new money - domestic or foreign - being poured into bricks and mortar businesses. Many appear to be adopting a wait and see attitude.

Compounding these problems are fears of a renewed El Nino effect that could reduce agricultural output in the second half of 2002 - thereby confounding expectations of sustained economic growth in the latter part of the year.

While President Arroyo has pledged to make reduction of poverty a major plank of her economic program, she has to grapple with the same problem as past administrations in achieving real per capital income growth in the face of one of Asia's highest population growth rates - some 2% last year. Faced with such alarmingly high levels - the country needs to meet a minimum of 5% annual growth target in order to make a significant impact on the poverty level.

Problems on the economic front were compounded by an upsurge in terrorist activities during the first year of her presidency - especially in the south - and by urban terrorist and other criminal groups who routinely threaten bombings and kidnap for ransom. Again the government has pledged to combat the problem but to many it seems powerless to eradicate the lawlessness, some of which appears systemic and some of which at least is believed by many to be politically motivated and part of a deliberate plot to undermine the administration.

Nevertheless, despite the setbacks, the present government has gone a long way to rolling back the excesses of the Estrada years. Importantly the President retains the confidence of the military and police elite and this in itself ensures a measure of stability.

However, the President also appears at times to remain beholden to vested interests in order to retain her grip on power and the more so given her commonly perceived intention to run for president in her own right in 2004. Whether or not she is prepared to grasp the nettle and introduce real reform and combat the endemic corruption that pervades much of local society remains to be seen.

While the final verdict is still out, most observers admit that under her helm the Philippines has the best chance in many years to introduce real progress.



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