Without trivializing the loss of even one human life, one can be glad that the tragedy that struck the islands of Central and Eastern Visayas of the Philippines on November 8 happened in 2013 when the country has finally shed its notoriety as the “sick man of Asia.”
The Philippine economy is in a much better position to meet the challenge of helping the stricken communities in the arduous task of rehabilitation, reconstruction and recovery. The Government has a very healthy fiscal position, with its deficit much below the prudent limit of 4 percent of GDP. The private banking sector is awash with liquidity, thanks to the quantum leap of the savings rate from the low levels of 18 percent in the 1990s and early 2000s to more than 30 percent of GDP, owing mainly to the remittances of overseas Filipino workers (OFWs) of more than $20 billion yearly.
Inflation is below 3 percent and the international reserves are at an all time high of 11 months of import coverage, enabling the Central Bank to manage the volatility of the foreign exchange rate that is expected to hover at the P43 to 44 to a US dollar for the next year or so.
The typhoon won’t cripple growth
Given these new strengths of the Philippine economy that are ultimately based on a young, growing, educated and English-speaking population, I am inclined to disagree with the Government that was quick to downgrade the GDP forecast for 2013. I still believe that the GDP can grow for the whole year at an average of 7.5 percent or over, despite all the damage wrought by super typhoon Haiyan, especially in the islands of Leyte and Samar.
I have examined the sources of growth–the highest in the East Asian region, equal only to China’s–of the Philippine economy in the last four to five quarters. First and foremost are the remittances of the OFWs, which in September 2013 alone jumped by close to 6 percent on a year to year basis.
This growth that has significantly stimulated consumption spending has been sustained at the 5 to 6 percent level annually, even during the worst periods of the great recession that started in 2007. In fact, one can expect to see bigger inflows of these remittances in the last months of 2013 and the early weeks of 2014 as anxious relatives of the typhoon victims will dip into their savings to help in the recovery process, whether in the new communities where the homeless and uprooted will relocate themselves or in the very communities that were destroyed by the typhoon.
There is also the usual lift in these remittances during the Christmas holidays when the OFWs become especially generous with their extra gifts. The increases in expenditures resulting from these inflows will compensate for the reduction of spending in the areas affected by the typhoon.
The knowledge economy
Another major source of growth is the foreign exchange earnings of the booming business and knowledge process outsourcing sector that now employs close to 800,000 well paid professionals. In an international conference of the call center industry in Asia, held two months ago in the island of Cebu, I heard top officials of this sector, both foreign and domestic, arriving at the consensus that the Philippines will continue to enjoy double-digit growth rates of both revenues and employment for the foreseeable future, bringing total employment to 1.3 million and forex earnings close to $20 billion annually by 2016, almost equal to the OFW remittances.
This industry is concentrated in the Metro Manila area but has been slowly spreading out into the regions, especially in Cebu, Bacolod, Ilollo, Baguio and Dumaguete. Even the 1,000 workers in the call center that was totally destroyed by the storm in Tacloban can be readily absorbed by the new enterprises that are being put up in Cebu and other neighboring cities that were not seriously damaged by this strongest typhoon to have hit our planet in recorded history.
The third source of the rapid growth now being experienced by the Philippine economy was the significant increase in government spending on infrastructures which is quickly being upped from the low of 2 percent of GDP to the target of 5 percent of GDP. The Government is fortunate to have a Secretary of Public Works and Highways who is both completely honest and competent and is making sure that every single centavo budgeted for roads, bridges, and other infrastructures is actually going into them, especially in the countryside.
Already having demonstrated a track record for the rapid construction, repairs and maintainance of these public works, the government can be expected to act quickly in the rehabilitation of the infrastructures by the typhoon, with its budgets greatly enhanced from what used to go to the so-called “pork barrel” funds of Congress, not to mention the generous financial aid coming from foreign governments and international agencies like the World Bank and Asian Development Bank.
The contribution of tourism
The fourth major source of growth has been the increasing success of the tourism program of the Government. Putting together the foreign tourists, estimated to be at 5 million in 2013, and domestic tourists who exceed 20 million, the economy is expected to get another big boost in the coming months when the dry season begins all the way up to the middle of 2014.
Even if Bohol and Palawan–major tourist destinations–were adversely affected by the two calamities that came one after another (an earthquake and a super typhoon), there are enough alternative sites in Luzon, Central Visayas and Mindanao that can at least temporarily replace the damaged resorts. I can think, for example, of the many attractions of Cagayan de Oro and the surrounding areas of Bukidnon and Camiguin Island that are now becoming more popular to both foreign and local tourists.
The Government is also fortunate that the Department of Tourism is under very enlightened leadership that has done a fantastic job of marketing the Philippines, first to its people, and to the world at large.
Over the longer run, the focus that people will now have on helping Eastern Visayas to recover can lead to the construction of a modern airport in Tacloban and the reconstruction of the many tourism treasures of Eastern Visayas, especially in the hard-hit Tacloban, Leyte and Guian, Samar which have some of the most beautiful beaches as well as historical and cultural treasures close to the hearts of Americans (Guian is where General MacArthur first landed when he returned to the Philippines to reconquer it from the Japanese).
A manufacturing renaissance
Finally, as Director General Lilia de Lima of the Philippine Economic Zone Authority (PEZA) has repeatedly announced, there is a veritable renaissance of manufacturing happening in the industrial regions of Luzon, Visayas and Mindanao because of the keen interest of Japanese companies to relocate many of their plants from Japan and China.
The very high rates of electricity that have resulted from the closing down of practically all the nuclear plants in Japan and the continuing shortage of manpower are compelling the Japanese to look for alternative sites for their manufacturing ventures. In the past 20 years, it was an easy choice for them to relocate to China. Today, however, China is already suffering from severe labor shortages and skyrocketing wages so that there is a very noticeable tendency of the Japanese to look at Southeast Asia (especially Vietnam, Indonesia and the Philippines) for possible relocation sites for their manufacturing enterprises.
The Philippines has at present the competitive advantage of enjoying industrial peace, as labor unrest now is plaguing both Vietnam and Indonesia. In 2011, for example, while China experienced 222 strikes and Vietnam 978 strikes, the Philippines only had 2 strikes. Fortunately, the areas devastated by Haiyan are not among the potential sites for the relocation of these Japanese (and their competing South Korean) enterprises.
Again, because the Philippine economy is now economically stronger in addressing the needs of the poorest of the poor, a blessing in disguise of the recent natural disaster could be a greater resolve of both the State and civil society to address more effectively the long-standing situation of Eastern Visayas as among the poorest region in the country.
Whereas the national average of households falling below the poverty line is about 25 percent, in Eastern Visayas, especially Samar, the figure could be as high as 50 percent or more, especially in the fishing villages and coconut regions. It is well known that the poorest of the poor anywhere in the Philippines are the sustenance fisher-folk, the small coconut farmers and the landless rural workers. The populations of Leyte and Samar are made up mostly of these people.
With higher economic growth and the attention of the world on them, we may still find effective means of directly addressing their poverty, thus attaining inclusive growth. Some of the most effective means tried all over the world are improving the quality of the public schools in which the children of the poor study; increasing the number and quality of barangay health clinics; giving access to the poor households to potable water; and building rural infrastructures, such as farm-to-market roads, irrigation systems in the coconut growing areas, post-harvest facilities; and providing agricultural extension services and access to credit.
The funds of the Conditional Cash Transfer should be especially allocated to providing the children of the poor with adequate nutrition from the age of zero to six years. Fortunately, milk companies like Alaska and Nestle have been quick to donate milk products for the consumption of the poor children.
I hope that all Filipinos and their friends from abroad will unite to help Eastern Visayas and other areas damaged by typhoon Haiyan to recover by first addressing the needs of the poorest of the poor in the key result areas mentioned above.
Over a longer time period, let civil society and the business sector improve the investment climate in these areas so that economic growth can be restored. That would be the only way to ensure sustainable human development in these hapless regions.
Again, we should give thanks that this tragedy occurred when the Philippines is no longer an economic basket case. It is the new Asian tiger, the breakout nation, the rising star and one of the emerging markets that will lead the world in economic growth in the coming decades.
Bernardo Villegas teaches at the University of Asia and the Pacific in Manila. He has a PhD in economics from Harvard University. His email is email@example.com