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It's been a long 50 years, but change is finally coming

For decades, the Philippines has seen some of the lowest per capita growth in Asia, coming last among Singapore, Malaysia, Indonesia and Thailand, its fellow founding members in the Association of Southeast Asian Nations.

     In the past two years, however, the Philippines has logged annual growth in gross domestic product of 6.8% and 7.2%, outpacing most of its neighbors. This, combined with improvements in its global ranking in indexes gauging investment climate -- ease of doing business, international competitiveness, corruption perceptions -- has caused excitement.

     But has the Philippines really shifted to a higher growth path, or is this a mere blip? The answer may be found in what caused the growth differentials between the Philippines and its Asian neighbors in the first place.

Policy problems

Economist Jeffrey Sachs, using the Asian Development Bank model he helped develop, found that for the period of 1965-1990, policy variables -- government savings rate, openness, institutions -- contributed the most to the difference in growth rates between the Philippines and the "Four Tigers" of Hong Kong, Singapore, South Korea and Taiwan. The same is true for the gap between the Philippines and China and Southeast Asia, including Malaysia, Indonesia and Thailand.

     The effect of government policy was greater than all of the other variables -- initial conditions, natural resources, geography and demography -- combined.

     Examples of the Philippines' poor policy choices are not hard to find.

     The country has been struggling with land reform for almost a hundred years, to very little avail. Today, more than 25 years after the last try, such reform has still not been realized, blocked by landowner and business interests.

     In comparison, Japan, China, South Korea and Taiwan -- arguably the four most successful Asian economies -- owe much of their growth to land reform, as Joe Studwell's "How Asia Works: Success and Failure in the World's Most Dynamic Region" describes.

     In addition to land reform, Studwell lists two other critical initiatives adopted by successful countries: support for manufacturing, with a focus on export discipline, and a financial system that caters to both agriculture and industry. None of this was done in the Philippines.

     Here is another example of a policy misstep: After World War II, Japan, whose exchange rate was estimated at 3 yen to $1 before the war, pegged the price of the dollar at 360 yen, and its exports boomed. The Philippines kept its exchange rate at prewar levels of 2 pesos to $1 and faced a foreign exchange crisis within four years. It is hardly comforting that, even with its independence from the U.S., the Philippines agreed not to change its exchange rate without the permission of the American president. This policy choice spawned a culture of corruption, as the imposition of import licenses due to scarce foreign exchange gave rise to the infamous "ten percenters," government officials who demanded that much in kickbacks in exchange for issuing import licenses.

     The pork-barrel scandals plaguing the government are an indicator of the weakness of its institutions, and its much-vaunted democracy is becoming more perception than reality as votes are bought, miscounted or controlled by local warlords.

     Economist and Nobel laureate Gunnar Myrdal, in his 1968 study "Asian Drama," described the Philippines thusly: "It is not surprising to find national policies shaped by personalities and landlord-controlled lobbies more than by issues and principles. ... Perhaps in no other country in South Asia is political dishonesty so widely recognized, accepted and talked about as a part of the political game."

The brink of change

That description still seems to apply almost 50 years later, but there is hope. A very active civil society has realized, starting with its resistance to the Marcos dictatorship, that it can and does make a difference, and social networking and the Internet are making it easier to do so. Victories in the war against corruption include the recent impeachment and conviction of a chief justice of the Supreme Court, the indictment and detention of senators involved in the pork-barrel scandal and the removal from office of a governor found exceeding election spending limits, all significant firsts in the history of the Philippines.

     The tipping point has not been reached, but it is definitely much closer than it was 50 years ago.

"Wealthy we do not think it will ever become: the advantages conferred by Nature, with the exception of the climate, and the love of indolence and pleasure of the people themselves forbid it. They are a happy race and being content with little are not likely to achieve much."

     Another description of the Philippines? No. This is from "Letters from Japan, 1882."

Solita Collas-Monsod is a professor emeritus of economics at the University of the Philippines. She served as the secioeconomic planning secretary during the administration of Cory Aquino.

Read more about Philippines economy

Domestic challenge  CLIFF VENZON, Nikkei staff writer

The economic turnaround going on in the Philippines is impressing the world. But even the government cannot deny that most of these economic gains have yet to be felt by the majority of the populace. Poverty has hardly been dented, despite six consecutive quarters of economic growth above 6%. 


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