Government and Administration

ü      Good Governance has returned to the Philippines; the administration of President Gloria Arroyo is acknowledged as being hard-working and focused on a  reform agenda

M   Although the lack of experience sometimes shows through and she and her administration continue to run into problems in the Congress…

L     …and vested interests at many levels are working to thwart reformist efforts – especially where it means greater transparency or an opening to foreign competition.

L     …while a number of reform measures designed to level the playing field for foreign businesses operating in the Philippines have been announced, there remains a world of difference between policy pronouncements and concrete action that results in change.

L     …and again the lack of transparency serves to protect the status quo.

K     There appears to be a small but growing consensus that the present constitutional devolution of power is not working well and there are moves afoot in some quarters to introduce charter change – though likely not before 2010 at the earliest,

L     The political system remains highly fractious, and expedient. It is based for the most part on personalities rather than philosophic principles and long-term political agendas.

L     Many sectors of the population are becoming increasingly disenchanted with the political process and alienated from it.

M   Corruption remains endemic and some agencies report that the cost of development projects is often inflated by as much as 100% of the true cost to take account of leakage of funds in the system; Although the administration claims to be taking a tough line against corruption within the bureaucracy, any effort to reform the system so far remains below the event horizon;

J     The senior military remains on the side of the civil administration and the likelihood of a coup being mounted at the present time appears to be receding,

The Domestic Agenda

J     The government has stressed a major effort to eradicate poverty within 10 years.

M   Although with a birthrate above two percent and a hostile attitude towards contraception in many quarters, the government faces a difficult if not impossible task.

J     Similarly the government has promised a major effort to combat terrorism and crimes against personal safety.

L     Despite a high profile operation against Muslim extremist guerilla groups operating in Mindanao, issues relating to personal security remain of utmost concern to the central government and to local and international businesses operating in the Philippines. It remains a high risk country in which to operate.

M   The law and order problem is compounded by complicity and collusion on the part of some politicians and law enforcement groups and certain sections of the military remain under suspicion.

L     At other times, law enforcement agencies have appeared inept in the face of crisis.

L     The growing budget deficit – and the failure to either reign in expenditure of improve collections means the government’s power to act is increasingly constrained.

The Economy

J     The Philippines has a well-educated and English speaking labor force…

L     … but education is in a state of crisis and the competitive edge is diminishing.

J     …and labor costs remain comparatively low

L     ... although the local Labor Code continues to be cited by many local and foreign companies as a difficult area and problems with labor are among the chief reasons many companies do not expand their local operations.

J     Inflation appears to be coming under control…

L     …although the rate in Metro Manila remains well above the national average

L     Tax and excise collection remains weak and leakage a major problem. As a result domestic government spending is constrained and will be constrained further.

J     There are tentative signs that the economy is picking up pace. These signs include an improved trading performance, manufacturing output and new investment.

K     While the recent indicators are indeed a sign of encouragement the adage that “one swallow does not make a summer” needs to be kept in mind.

L     The unemployment and underemployment rate continues to grow and the rate of outflow of skilled people from the country appears to be increasing.

L     International tourist arrivals remain well down on previous levels.

ü      The peso appears to have stabilized and the prognosis is that it may even revalue slightly against the US dollar in the months ahead; this is providing a boost to exporters;

J     Interest rates are falling and liquidity is high

L     Yet banks appear to be unwilling to lend and the portfolio of bad debts continues to climb and bedevil the banking system.

ü      The government is committed to integrating the Philippines into the global economy with an opening up of the service and manufacturing sectors to international competition;

Consumer / Business Confidence

J     A tentative sign of increasing investment flow into the Philippines but no clear trend has yet been established. This may become apparent in the next quarter.

L     Sales remain generally depressed; white goods and appliances, bellwethers of consumer confidence are lagging;

L     Sales of commercial vehicles has recently shown signs of a tentative revival but overall, vehicle sales still remain down;

L     Credit is tightening in the face of loan defaults;

L     Advertising expenditure by companies is down;

L     The number of Filipinos seeking employment overseas has increased markedly over recent months as more and more people despair of finding jobs locally.

L     Property prices (rental and capital values) remain depressed and industry analysts see no immediate recovery.

Outlook

At the present time, the likelihood is that the Philippines will return to slow but uninspiring growth; however, the expected el nino effect later this year could cause major dislocations in the agricultural sector that may thwart short term prospects.

Our Coding:

ü - very good news      J - good news       K - ho hum     
 L - bad news      M - very bad news