7% yearly growth forecast

Investments yardstick of ‘Prophet of Boom’

MOST forecasters see the Philippine economy slowing down this year relative to 2010 when the country held national elections—but not Dr. Bernardo Villegas, a co-founder and trustee of the University of Asia and the Pacific (UA&P).

The economy as measured by the gross domestic product (GDP) would grow at least 7 percent in 2011 and in the years to follow, said Villegas, who has been called the “Prophet of Boom” for his rosy economic forecasts in the past. GDP, a key economic indicator, is the total cost of all final goods and services produced in the country in a year.

Earlier this year, the World Bank predicted that the Philippine economy would “stabilize” and settle down to “a medium 5 [percent] to 5.4 percent in 2011 and 2012 grounded in remittance-supported spending and further infrastructure development.”

Worst predictions

The GDP growth rate is expected to be released next week, but government officials earlier predicted an increase of 7 percent to 7.4 percent over the previous year.

For this year, the government predicts the economy to grow by 7 percent to 8 percent.

Villegas, a Harvard-educated economist, said during a media briefing, “In my experience, the worst forecasts come from the World Bank and IMF [International Monetary Fund].”

He conceded that 2010 benefited from election-related spending and from the last-quarter growth in the US economy that boosted Philippine exports, which was a mere blip. Worse, he added, exports might even slow down to 10 percent this year.

Still, Villegas insisted on his bullish forecast. In addressing his critics, he said, “My answer is investments, investments, investments.”

In a prepared statement distributed at the briefing, he also credited remittances from overseas Filipino workers (OFWs), which could exceed $20 billion this year, and a good economic team assembled by President Benigno Aquino 3rd.

The primary drivers of growth would be infrastructure development, real estate and energy, Villegas said.

He added that he was equally bullish about a number of sectors, including business process outsourcing, agriculture, logistics, education and tourism.

The real bright spot, Villegas said, was that infrastructure development and real estate projects were being fueled by domestic capital—citing the numerous projects by the Sy family business empire and other large Filipino firms.

In the prepared statement, he also said that the 2011 budget has allocations for infrastructure, education and social services, despite the government’s austerity program. Villegas added, “Led by a highly experienced management team, the Development Bank of the Philippines has announced that it will support an investment-led growth by making available a total of P200 billion to jumpstart the national government’s public-private partnership [PPP] initiatives.”

The PPP program is the government’s plan to catch up with the infrastructure spending of neighboring countries in Southeast Asia.

This year though, Villegas said, domestic capital would fuel the boom, and the effects of the PPP program would not be felt until 2012.

He explained that Filipino investors held back spending on major projects last year, because of fears of political turmoil—that there might not be a peaceful transition of power, or that then-President Gloria Arroyo might hold on to power after her term ended, or that there might be a failure of the first-ever automated elections.

Since none of those fears materialized, Filipino investors were now spending heavily, Villegas said.

Also, he added, “There is money oozing out of the ears of banks.” And financial institutions were practically begging people to borrow, and that the time to do so was now, Villegas said.

Threats to growth

For him, only the threat of natural calamities could imperil the economic take-off that he sees happening in the Philippines.

In his presentation material, Villegas listed other threats—the La Niña weather phenomenon, higher government deficit, volatile capital flows, increasing food prices, double-dip recession in the US and Japan (two of the country’s major trading partners), stagnation in the European Union and the conflict between North and South Korea.

He said that the Philippine economy would grow despite high incidence of crime, incidents like the bus bombing earlier this week in Makati City (the country’s financial hub), and even lingering problems with corruption.

Villegas explained that Vietnam and India have shown that it was possible to grow rapidly despite being beset by corruption and red tape. He added that he remembered living in Spain when it was booming economically despite the frequent bombing attacks of separatists there.

Also, he said that domestic capital would not be enough to sustain 7-percent growth annually until 2016—maybe for only two years. So, the government has to “get its act together” to attract foreign direct investments from abroad.

Other than the United States, he noted that some of the other sources of investments included China, South Korea, India and Indonesia.

Other projections

Also during the briefing, Villegas predicted that inflation will increase 4.3 percent to 5 percent this year, mainly because of rising food prices.

On foreign exchange, he said, “Again, I’m the devil’s advocate.”

According to him, the Philippine peso relative to the US dollar will fare better than predicted by others—around P45 and P46. Again, he credited the real-estate and infrastructure boom for his forecast.

Villegas said that he saw investments growing 15 percent, which he pointed out was the minimum if the economy was to grow at 7 percent a year as he predicted.

And finally, he added, he did not think that interest rates would be raised this year. –DANTE “KLINK” ANG 2ND EXECUTIVE EDITOR, Manila Times