Let's Prove The IMF Wrong

MANILA, Philippines - In its World Economic Outlook Report released last week, the International Monetary Fund (IMF) announced that the Philippines would post one of the slowest GDP growth rates in the region, trailing Thailand, Malaysia, Indonesia and Vietnam for this year and 2013. According to the international creditor, the Philippines would be stymied by rising oil prices, weak global demand for exports and trickling investment, and as such, would expand by a mere 4.2 percent in 2012 and 4.7 percent in 2013.

I couldn't believe it. After all the advances made towards strengthening our fiscal position and improving our investment climate, 4.2 percent was all the IMF saw us growing by? This couldn't be right-it was too conservative a forecast, I thought. Either the IMF was amiss in its computation or our economic managers have been feeding us inaccurate data on our true economic state of affairs.

As most of my regular readers know, I have been a keen observer of the Departments of Tourism, Trade and Industry, Finance, NEDA, the BSP, Transportation and Communication, and Public Works since the Aquino administration took over. I've seen how each department has progressed in their respective agendas of reform, and have faithfully reported it in on this space. Some have done spectacularly well while others could work with more urgency. I've praised and criticized our economic managers in equal measure. Through it all, however, I have always maintained that a faster pace of sustainable growth could be achieved in the near future. My reasons are predicated on the fact that the very root of our economic maladies-corruption, imprudent fiscal management and poor public governance-is now being addressed.

The IMF Report seemed to have negated the achievements of our entire reform agenda. I must admit, it was a big blow to morale, to mine and the millions of Filipinos out there banking on the success of our reform programs. I needed to put the IMF Report into context, if only to give clarity to all those disheartened.

So I asked DTI Secretary Gregory Domingo, the man on whose shoulders our export performance, investment haul and state competitiveness lies, for a few minutes of his time. Without much fuss or fanfare, the hardworking Secretary granted me an audience the very next day. Although I had met the Secretary only once, this was the first time we connected on a one-on-one level. He struck me as a man on top of his game, spewing-out facts, figures and action plans relating to his department like a machine gun. The last time I was this impressed with a DTI chief was during the time of the late Rizalino Navarro.

The IMF's Forecast

The IMF, as with most financial institutions, uses a country's three-year historical performance as basis for their forecasts. These are imputed into an economic model where certain assumptions are factored in to compute future trends. Such assumptions can range from global economic trends, projected oil prices, interest rates, etc. Most of the time, however, the assumptions used only take global trends into consideration and not domestic ones.

The trouble with the IMF's projections, Sec. Domingo explains, is that it doesn't consider the most recent developments in our economic landscape. For instance, government spending is more robust today than anytime in our history given that 91 percent of capital spending budgets have already been released as early as January this year. Such conditions were not present in the last three years. Also, exports have rebounded strongly while tourism and the BPO sector are both growing at double digit pace. These factors were not imputed into the IMF matrixes either.

The Secretary believes that we are well positioned to grow beyond seven percent this year. He warns, however, that the first quarter will be the least robust given that PPP projects are not yet on stream. He sees the economy expanding by 4.5 to six percent in the first quarter and accelerating further as the year progresses.

Since the Secretary brought up the issue of PPP, I wasted no time asking why the program seemed to be moving at a snail's pace. So far, only one PPP project has been awarded-the four-kilometer Daang Hari Road.

Sec. Domingo was honest enough to admit that they had underestimated the time it would take to build the PPP infrastructure. It takes time, he bemoaned, to prep the bureaucracy, hire the right people (for the PPP center), hire the right consultants and get the feasibility studies done. What they thought could be achieved in six months turned out to be an 18-month affair. But things are more or less in place now, he assures. He looks forward to the forthcoming bid of the LRT1 extension, as well as two more DPWH projects before June.

On Foreign Direct Investments (FDIs)

Many of us are given to comparing the country's FDI performance to our neighbors and flagellating ourselves afterwards for having a smaller take. I am guilty as charged.

While official reports put Philippine FDIs at only $1.26 billion last year compared to Indonesia's $9.6B and Vietnam's $7B (see, here I go again...old habits die hard), Sec. Domingo clarifies that only FDIs registered with the Board of Investments, PEZA and the Bangko Sentral are actually taken into account. Investments made by companies outside our industrial parks are not added on. Last year, for instance, fresh capital infused by Coca-Cola, Nestle, P&G and Texas Instruments, etc. did not figure in the BSP's computation. Sec. Domingo estimates last year's true FDI haul to be in the region of $4 billion. The error in computation methodology was brought to the attention of the Central Bank and is awaiting revision.

"There are two darlings in the investing communities these days-Indonesia and the Philippines." These were the words uttered by the good Secretary with a beaming smile as I started to talk about new investments coming in.

The Secretary excitedly relates how in the first quarter alone, the DTI entertained four top level missions from Japan exploring investment opportunities. Four! With a separate cast of investors each time. Investment missions from far-flung countries such as the Czech Republic, Turkey, Russia, Qatar, etc. have also been coming over to the great (surprise) and delight of the DTI folks.

Rising costs in the southern provinces of China and the floods in Thailand have prompted many companies to move their manufacturing plants elsewhere. The Philippines has a strong cost and geographical advantage, making it a candidate as a new or alternative investment site. It is said that if we play our cards right, a $6 billion investment is within reach using the corrected computation method.

Playing devil's advocate, I cajoled the Secretary that perhaps we might miss the opportunity again if we are not aggressive enough in following through on our new investment inquiries. He assured me that this is not the case. If there is anything working against us, he says it is our higher power cost and the unprofessional treatment investors get from some local government units. In fact, we are even casting a wider net to attract a larger audience of investors through new ads on the Internet and on television. The uber-creative DOT Secretary Mon Jimenez is spearheading this effort.

If memory serves me right, our new ad campaign (for investment promotion) also leverages the character of the Filipino as its main selling point, similar to our tourism campaign. It stresses that it is not where you do business that matters, it's who you do business with. Very Mon Jimenez. Brilliant, as usual. A glimpse of our media blitz will start this week, as the Philippines will be the "Country in Focus" on CNN. This precedes our hosting of the high profile ADB Governor's Meeting in the first week of May.

My Take

My time with Secretary Domingo confirmed what I already knew...that the agencies in our economic cluster-the DTI, DOT, DOF, NEDA, DPWH and the BSP-have a sensible reform agenda in front of them and are pursuing it with great resolve. I believe that all these efforts will eventually translate to better GDP numbers.

Sure, many things still need to be done to prime the economy into tip-top shape, not the least of which is the faster rollout of DOTC's infrastructure programs, the resolution of the power crisis, abolishing the common carriers tax and coming out with a clear set of policies for the mining industry, among others. But for now, I am quite content that department heads like Sec. Domingo are working on overdrive to make the best of what is doable at the moment. One battle at a time, as they say, and I reckon we are slowly inching our way towards winning the war.

"We will surprise the IMF," the Secretary says.

In eight months, we will know whose prognosis was right-the IMF's or the DTI Secretary's. My bets are on the Pinoy. Nothing will give me more satisfaction than to prove the IMF wrong.

Andrew is an economist, political analyst and businessman. He is a 20-year veteran in the hospitality and tourism industry. For comments and reactions, e-mail andrew_rs6@yahoo.com. Follow Andrew on Twitter @aj_masigan.