The Philippines grapples with debt.

Much of Philippine news coverage focuses on dramatic warnings that the country may elect to default on its US$70-billion in debt. According to an April 15, 2005 Bloomberg News report the country spends about one third of its annual government budget on interest payments.

On April 25, 2005, The Daily Telegraph (London) reported that the Philippines was contemplating various austerity measures to combat the twin pressures of higher oil prices and rising interest rates in the world capital markets.

Philippine domestic interest rates also were on the rise. On April 8, 2005, the Central Bank of the Philippines (BSP) raised two key overnight interest rates. The BSP said that the move was preemptive.

When the BSP's first quarter inflation report was released three weeks later (April 29, 2005) the rationale behind the interest rate hike became apparent.

In the first quarter inflation did rise compared with the previous quarter due to pressure from oil prices and non-food products. The rise in food prices was somewhat less than in the previous quarter.

Core inflation - that is inflation minus the volatile energy and food sectors - also increased in the first quarter. The bank remarked that the upward trend for core inflation was continuing, and while it did not specifically link core inflation to the April 8, 2005 interest rate hikes, it did say that price pressures were beginning to feed into other commodities.

So where does this leave Philippine consumers? Unemployment is high remaining in double digits. But consumer spending for Christmas was strong, most likely a result of increased remittances from workers overseas. In short, the signals are mixed.

Phlippine consumers would be devastated economically by an Argentine-style default. The comparable default almost eradicated the Argentine middle class.

Nearly everyone in the Philippine government realizes how destructive default would be. Proposals in the legislature to authorize default were defeated quickly.

Circumstances clearly favor prudence over austerity with a good chance for success given the overall historically low international interest rates. The country's President is an economist, and is able to provide strong leadership at this time.

UNEMPLOYMENT CONTINUES TO BE A SERIOUS PROBLEM

The population growth rate for the Philippines is above the regional average, due in part to a birth rate of 26 per thousand inhabitants, more than the average of 22 per thousand for Southeast Asia. Job creation has not kept up with growth of the labor force in recent years, and it is unlikely that the situation will improve further in 2005. Unemployment is running about 11.7 percent, and this continues to dampen consumer confidence.

The Philippines's population reached 84-million mid-2004, which amounted to just over 15 percent of Southeast Asia's 548-million inhabitants. According to data released by the Population Reference Bureau (PRB), the Philippines's population will reach 118-million by 2025. Also, according to that source, the Philippines is going to have a population of 147- million people in 2050.

The PRB data revealed that a moderate 48 percent of the Philippines's population lived in urban areas during 2004, and that the country's population density is a high 722 people per square mile. This makes the Philippines the most densely populated country in the region (excluding Singapore). In area, the Philippines is almost the same size as Italy. Another source, the CIA's World Factbook, indicates that 37 percent of the Philippines's population was birth to 14 years old in 2004, while 59 percent was 15 to 64 years old, and 4 percent were 65 years of age and over.

The CIA estimated that the country's population growth rate will be 1.84 percent in 2005 and the net migration rate will be -1.49 per 1,000 inhabitants.

According to the United Nations Population Division, in the year 2050, 20 percent of the Philippines's population will be birth to 14 years old, while 60 percent will be aged 15 to 59, and 20 percent of the populace will be 60 years of age and over.