Why the Philippines can be a 'breakout nation'

Posted at 08/16/2012 5:17 PM | Updated as of 08/21/2012 12:37 AM

MANILA, Philippines - The Philippines can become one of the so-called "breakout nations," according to Ruchir Sharma, author of "Breakout Nations" and head of Morgan Stanley Emerging Markets Asset Management.

"Breakout nations" are defined by Sharma as countries that have been beating growth expectations. Sharma noted the Philippines is one example since the economy has been exceeding expectations, albeit low expectations.

"In the case of the Philippines, after being a laggard in Asia and an economy that was reduced to being a bit of a joke, expectations are being systematically exceeded. When I came back to Manila in 2010, after a long period of time, we could see the potential for that. Expectations were very low and there was a positive change going on in the Philippines," Sharma told ANC's News Now.

One of the positive changes, Sharma said, is the Aquino administration's focus on good governance and anti-corruption campaign.

"In Philippines, it is a combination of factors, starting with low expectations and a change in leadership that was much more focused on improving governance and the other faultlines in the Philippines such as corruption and cronyism," he said.

The Philippines is expected to once again exceed growth expectations this year, but Sharma noted if the government pushes with its public private partnership program and mining reforms, it can grow even more.

"(The Philippines) seems to be on course to grow at 6%, which is a very good growth rate at a time when the global economy is so weak. Just imagine the potential when it gets a couple of economic things right, whether PPP, geting the power or mining sector sorted out, if it manages to get a couple of things right from here, the Philippine economy can do even better," Sharma said.

There may be a lot of skepticism right now whether the Philippines can actually become a "breakout nation."

"As investors and market observers that's what we almost like, you want skepticism because once a story is well-known to people, it's almost too late," Sharma said.

"The Philippines has been an economy that has disappointed for a long period of time and I think there's a long way for the Philippines to go before it can convert many people and by the time many people are converted, you know it's time to get skeptical. I think we are far away from that point right now."

As for the so-called BRIC economies (Brazil, Russia, India and China), Sharma does not believe in the hype.

"What happened with a lot of these BRIC economies is that hype has surrounded these economies and disappointment vis-a-vis expectations. Take the case of India, the growth rate during the boom was 9% and now it has fallen to 6%. It's not bad but versus expectations, that's a real disappointment. Same thing going on in China," he said.

However, Sharma warns that economic success can be fleeting, as the star economies of one decade are rarely the stars of another decade.

"That has to be the big lesson, looking back at Philippine history, in 1960s the Philippines was 2nd richest in Asia after Japan and supposed to be the next East Asian tiger with Burma and Sri Lanka and you know what happened to all of them - for the next 30-40 years, all those three economies systematically disappointed... Success is transient, it can last for a few years but it can be hard to sustain," he said.