Reform would benefit Philippine economy.

A review and commentary in the Asian Development Bank's (ADB) annual report on the Philippine economy appeared on page 1 of the Philippine Daily Inquirer (Manila) on April 7, 2006. The ADB's report was front page news in part because of its claim that in addition to sluggish investment and lackluster consumption, remittances from overseas Filipino workers were constraining the country's prospects for growth.

In short, the ADB said that the Philippines is too dependent on remittances.

The ADB said further that GDP growth would be 5.0 percent in 2006. This compares with the Philippine government prediction that growth would fall into the 5.5 percent to 6.2 percent range.

The International Monetary Fund (IMF) also forecasts Philippine GDP growth. The IMF predicts that growth for 2006 will be 4.8 percent-even more pessimistic than the ADB.

The ADB says GDP for 2007 will be 5.1 percent.

One of the major problems facing the Philippines is reform. The country's reform agenda, according to the ADB, is "long and potentially complex" but that if the country were to make progress in even "a few key areas" this would be a great help in building "a consensus behind the need for a determined reform effort over the medium term."

For the medium-term (2008 through 2010) the ADB says that it is probable the Philippines GDP rate of growth would "be locked within the 5 to 6 percent range."

Another potential problem for the economy is an environmental shock that could have a negative impact on the Philippines agricultural sector-which accounts for 19 percent of GDP. That environmental shock is connected with the weather phenomenon known as La Nina, a gigantic, cyclical global weather system that brings rain to specific parts of the globe while creating drought elsewhere.

Currently, the rainy part of the cycle is operating across Southeast Asia and because of this the ADB characterizes the fortunes of the agricultural sector for 2006 as "uncertain." The sector will recover "modestly" in 2007.

The "torrential rains" from La Nina are likely to have a negative impact on prices for the food and beverage sub-sector.

The ADB stressed the importance of reform in restoring the credibility of the current government. News from the Philippines in recent months features one political crisis after another. The ADB says, "political uncertainty has yet to completely subside, and this has the potential to undermine growth prospects over any time scale."

Enhanced commitments to reforms in tax administration, and privatization in the power sector, says the ADB, would go a long way to restoring confidence in the government.

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