President Arroyo said Wednesday that global economic shocks have not spared the Philippines, but  her government's fiscal reforms have allowed the country to withstand the fallout from these crises. 

During the government’s mid-year economic briefing in Makati City, the President acknowledged the slowdown in Philippine economic growth this year compared to last year.

She said the country’s Gross Domestic Product (GDP) growth posted only a 4.6 percent increase in the second quarter this year, a far cry from the 8.3 percent growth recorded in the second quarter in 2007.

“There is no doubt that the global economy has hit the Philippines hard. The upheaval in the global economy in the past year has clearly had a significant and painful impact on every Filipino through higher prices of food, fuel and rice,” she said. 

She said that the Philippines was not the only one in Asia affected by the turmoil in the US market, citing the dismal growth in the economies of Singapore, Hong Kong and South Korea.   

While the challenges to Philippine growth are external, she stressed the importance of “strong and decisive actions internally.”
She said the country has remained resilient because of her government’s key programs and economic reforms, particularly in the tax system.

“While the recent economic picture has been challenging, there is also no doubt that thankfully, we have had the foresight to plan for this day through tough choices to reform our tax system. This has given us the funds to invest in targeted reliefs to our most poor through programs aimed at relieving the high price of energy and food,” he said.

The President said among these programs were the removal of tariff on petroleum products, food-for-school program, power subsidy, microfinance, scholarships and college loans, fuel discounts, income tax exemption, and  supplemental calamity budget.

Mrs. Arroyo said these measures “are seeing us through the toughest times.”

“Our team is doing its best in all fronts to manage inflationary pressures, provide safety nets to those members of our society who are hit hard by these global developments, and deliver the growth that will continue to generate jobs and the tax revenues that we need to fuel our investment in the future,” she said.

She said the government will focus on efforts to control inflation and bring down the prices of basic commodities and to strengthen the banking system and improve the country’s fiscal health by encouraging more investments. 

“We will continue on the path of economic reforms. Our reforms have helped us in this time of global economic upheaval. Without them, we will not be confident as we are, but our economy would withstand these external shocks,” she said.

The President also underscored the importance of the country remaining competitive globally.

BSP: Sound banking system

After the president's speech, the country’s economic managers spoke on the resilience of the Philippine economy in the face of convulsions in global financial markets.

Bangko Sentral ng Plipinas (BSP) Governor Amando Tetangco said the country's banking system remains sound despite the collapse of US investment firm Lehman Brothers.

Some of the Philippines' largest banks have investments in Lehman Brothers.

Tetangco said the government will continue to monitor developments in the global financial markets since these could impact not just the banking sector but economic growth as well.

"The Philippine banking system has not been significantly affected by the financial stresses experienced by the US subprime mortgage market. Furthermore, the Philippine domestic banks' exposure to structured products issued by Lehman are well-cushioned by banks' capital base," said Tetangco.

Benefits from VAT

Socioeconomic Planning Secretary Ralph Recto, who also spoke at the Mid-Year Economic Briefing, said the Expanded Value Added Tax (E-VAT) law that he co-sponsored when he was still a senator, has helped the Philippines weather external shocks such as the current global financial crunch.

"Amid the storm in global finance, we remain secure, for we have done our homework. Fiscal reforms, most notably the passage of the VAT law, have yielded revenues since 2005. As a result, the national government deficit has been falling. Hence, the national budget is on track to balance in 2010. This fact is under appreciated. We've had surpluses because of these fiscal reforms," said Recto.

Recto added the additional government revenues from the E-VAT have allowed for more infrastructure spending, which, in turn, has helped improve economic growth.

Food self-sufficiency

Agriculture Secretary Arthur Yap, meanwhile, admitted the agriculture sector has been adversely affected by the global credit crunch particularly by inflationary pressures on rice, the Philippines' staple food.

Yap said however that the agriculture department has been able to manage, thanks to a shift in government policy from food security to food self-sufficiency.

"The shift to food self-sufficiency was made easier by the fact that President Arroyo had foreshadowed the global turn of events, for which reason she had ordered the holding of nationwide consultations in the first quarter of 2008, culminating in a food summit in April 5, 2008 where she unveiled a comprehensive farm level production support program," said Yap.

Yap added that government is now planning more farm infrastructure spending to help farmers improve their production and profitability.

Conducive business environment

Trade and Industry Secretary Peter Favila gave an update on investments in the country.

Favila reported the approval of more than 500 projects in the first semester of 2008 worth about P281 billion - equivalent to a 115% year on year growth in investments.

"We believe that this increase in investments underscores investors' continued confidence in the Philippine economy. We are once more back on the radar screen, even for big ticket items. And this, I would say, is part of government initiatives to provide a desired and conducive business environment."

ADB: RP in better position to respond

President Arroyo’s remarks at the Mid-Year Economic briefing echoed the analysis given by economists from the Asian Development Bank (ADB) Tuesday.

Thomas Crouch, ADB’s deputy director general for Southeast Asia, said Tuesday during the release of the bank’s growth forecast for the region said the Philippines is not immune to the effects of the financial turmoil in the United States but it is in a better position to respond to the impacts,.

“The Philippine cannot be insulated…but there have been macroeconomic policies that have make it less vulnerable and in better position to respond to the negative impacts of these events,” said Thomas Crouch, ADB’s deputy director general for Southeast Asia, during the release of update of the Asian Development Outlook (ADO) Tuesday.

“The cost of insulating is very high,” said Neeray Jain, ADB’s country director for the Philippines. “It will be bad for the Philippines to cut itself from the global market.”

The ADB has trimmed down its economic growth forecasts and raised inflation projections for the Philippines. The Manila-based multilateral bank forecasts a 4.5 percent and 4.7 percent economic growth in 2008 and 2009, respectively. The figures are below the 6.0% and 6.2% projected in April.

The Philippine economy slowed down this year, after expanding at its highest rate in three decades in 2007. GDP growth for the 2nd quarter of 2008 reached 4.6 percent, down from 8.3 percent during the same period last year.

The ADB raised its inflation forecasts to 10.5 percent in 2008 and 8.0% in 2009, which are higher than the April forecast of 4.0% and 3.6%, respectively.

Consumer prices increased by 7.6% during the first half of 2008 and inflation reached a 17-year high of 12.5 percent in August. -- with a report from Jesus Llanto, abs-cbnNEWS.com/Newsbreak, ANC and Reuters