Economist warns Noy: Political capital depreciates over time

Practically without doing much, the economy grew by an average of four to five percent in the past 10 years mainly as a result of the external sector that included remittances from some 9 million Filipinos working abroad providing the economy with huge potentials but the trump card remains that the government may again flub the growth momentum, economist Antonio Jose Periquet said.

At yesterday’s Security Bank Economic Forum 2011, Periquet, who is managing director and head of research at Deutsche Regis Partners Inc., noted the tendency of the government to snatch the economy from the jaws of growth and that it remains the biggest risk to the bullish scenario for the economy.

“Governments have tended to disappoint by losing political will,” Periquet said.

He cited, for instance, that President Aquino came into power with a huge political capital but he added that “capital tends to depreciate over time” if not put into good use.

The opportunity is still with Aquino

but he should make a break from the past and stays the course on reforms, he added.

Periquet noted, for instance, the continued low spending level of government until September when total expenditures reached P1.13 trillion against the budgeted P1.3 trillion.

“That’s P200 billion in underspending that is equivalent to two percent of the gross domestic product (GDP), the main reason in the second quarter the economy grew by only four percent and not the six percent target,” he noted.

Nevertheless, strong remittances are keeping the economy robust keeping primarily consumer spending high, Periquet said.

He noted that an encouraging indicator was the rising level of commercial bank loans which he said is correlated with investments.

The seemingly inexhaustible strength of money transfers had also contributed in turning the peso from a soft currency “that used to depreciate by seven percent a year” until the mid-90’s to a hard currency, Periquet said.

Periquet said the phenomenon of Overseas Filipino Workers (OFW) remittances sustaining the economy had bred a so-called Dutch disease among economic planners in which a hitherto undiscovered source of foreign currencies had caught them off-guard.

“Suddenly we discovered that people can be exported and the peso became a hard currency,” he noted.

He said that the strong support of currency inflows from remittances on the economy presented limitless possibilities to growth particularly now that confidence of investors on the country has risen.

“If we have found a way, thanks to globalization, of sustaining growth by not doing much because of the remittances, it would be easy to imagine what will happen if the conditions restricting investments will be removed,” he said.

He said that an eight percent growth a year would be a breeze if the government manages to remove the hurdles to investments.

The biggest risk, however, to the country’s potential is not external but the possibility that again the government will flub it with history repeating itself, Periquet added.

In the same forum, Wells Fargo Securities managing director and global economist Jay Bryson said the global attention now is directed at Italy will blow up amid its $4 trillion dollar of debts.

“If Italy blows up, many German and French banks will be in serious problems thus worsening the Euro debt crisis,” he said. –Chito Lozada, Daily Tribune