PHILIPPINE ECONOMY IN FOCUS

What kind of Economy do we have in the Philippines?

Philippine Economic Overview

Philippines is an archipelago composed of 7, 107 islands, 17 regions, 81 provinces, 118 cities,

1510 municipalities and 41, 994 barangays. The country’s population is already 90.5 M in latest
estimate of Census in year 2008.

The capital is Manila, the largest city is Quezon City – which is also the Best Managed City and
Richest for 3 consecutive years starting 2004.

According to figures released by COA on the financial performance of 75 provinces, 117 cities
and 1,419 municipalities in 2004:

1. QC boasts of current assets worth P6.454 billion.

2. Manila is a far second with P3.584 billion
3. Pasig is third with P2.636 billion
4. Makati is fourth with P2.349 billion.

Mayor Belmonte’s formula is simply “earn more, and spend less.”

In terms of “spending less,”, Quezon City’s 2004 expenditures of P4.028 billion was less than
Manila’s P5.26 billion and Makati’s P4.49 billion. This is despite the fact that QC has a
bigger population and a much larger land area than both Manila and Makati.

Moreover, Quezon City remains the only city without any debt to banks as it operates on a
surplus fund of over P2 billion. Manila owes banks a total of P830.345 million, while Makati
has outstanding debts of P108.866 million.

 Makati City is still considered as the Financial District in the Philippines where the
nexus of big business and foreign investors are present. It is in line with other top
performing cities across the globe such as Londo, NYC, Tokyo, Moscow, etc.

 In the countryside, we have other emerging markets that have the high concentration
of urbanization- such cities are Baguio, Cebu and Davao. The main industry relies on
the tourist’s spots and large agricultural farms and lands
  If the concentrations of wealth in the Philippines are highly noticeable in urban areas
and major cities, the concentration of the poor can be felt in the rural areas
specifically in Mindanao.

 The concentration of the wealth is highly noticeable in the upper class of the society
and there is a marginal difference between the middle class and the lower class.

The richest 20% of the population account for 53% of the income pie while the bottom 20% get
only 4.63%. The poorest 30% of the country’s families, some 4.9 million, had a combined
income of P177 billion, This was half of the total net worth of the Philippines’ richest: Jaime
Zobel and his family, Lucio Tan and Henry Sy. According to Forbes magazine, as of Feb. 2007
the three had a total net worth of $7.5 billion or P360 billion (at P48:$1).

 The social classes on the Philippines are highly felt: A – usually refers to business
tycoons, B consists of (yuppies)- young professionals and other professionals in
different field of specialization earning an optimum wages per month, and the class C
which consists of average or low income earners that receives 365 a day.

 The leading sector is on Agriculture. Agriculture generates 30- 40% of jobs in the
Philippines but because of industrialization it actually deflated in size and resulted to
high unemployment. Arable farmland comprises more than 40% of the total land area.
Although the Philippines is rich in agricultural potential, inadequate infrastructure,
lack of financing, and government policies have limited productivity gains. Philippine
farms produce food crops for domestic consumption and cash crops for export.

 The current unemployment in the Philippines is already 7.8% which exceeds to the
average of 7% to be considered full employment. (That’s why unemployment is still a
big issue)

 The recent boom is in the service and industrial sector because of the downturn of
most of the agricultural spots.

 Philippines is also a significant source of Migrant Workers next to Mexico, India and
China around the world. We call this phenomenon as Exodus of Filipino workers or OFW
Migration.

 As of now, Philippines have already exported about 10 M workers or approx. 11% of our
Population, no wonder in every 100 Filipino there could be at least 10-20% of them
have family member working abroad and receiving remittances.
Philippines is highly relying on OFW remittances, that is one of the significant reasons why our
economy is still alive. OFW remittances received last year is amounting to $14 B and it is
expected to rich $14.7 B by the end of the year. We can observe the flow of dollars and
remittances during holidays, such as Christmas- showing our strong love for the family. It is
also felt during enrolment period for Filipinos have high value for education.

 The literacy rate in the Philippines is relatively high compare to other nations, 93% for
male and 93.7% for female- which indicate the shift of increase from male to female;
Pinays are now considered more enthusiastic and serious about their education.

Unfortunately, the bad news is that Literacy rate is not a reliable measure to indicate how
good education is in the Philippines because of wide proliferation of problems in terms of our
school facilities, incompetency of teacher’s esp. in public schools and lack of resources to
pursue higher education.

 Philippines is also one of the largest English Speaking nation in the world, and that is
already an advantage over our international competitiveness. Call Center industry and
other Business Processing Outsourcing (BPO) is also in demand, employing nearly about
millions of Filipinos in years to come.

 Many countries promote the Philippines as a country where people could retire in
comfort and luxury because of low cost of living. A Filipino man can survive in the city
with a simple life as low as Php 15, 000 or less per month in.

 Philippines is a tropical country with undefined separation of seasons. The country is an

island nation, meaning beaches can be found almost everywhere (white sand beach).
That is why Philippines is also rigid in its tourism campaign, to attract more tourist so
we can generate more investments and jobs for our people especially on the country
side.

This is the land we call it our home. And we all say, there is no place like home. Home is where
the Filipino are. This is where we were born, where we grow, where we fall in love, where we
get heartbroken, where we will get married and have children and eventually apos
(grandchildren), the land where we will get old and where we will retire and yeah, the same
place where we will die. Not unless you choose US where not a lot of people will mourn over
your grave, not all will be walking for you up to your last journey towards the cemetery. This is
the Philippines – of about 70 cultures and 84 local dialects, the land of the happiest people on
Earth.
Whether we like it or not- this is our 300, 000 sq km land that have CAPITALISM & Open market
as its economic system. Welcome aboard- this the Pearl of the Orient.

***

The question now is that are we pessimistic or optimistic about the Philippine economy?

Everyone knows about the story of Minoxidil regroe? A shampoo use to grow our lost hair.

The pessimist user will look daily and moans over the bald spots still remaining. While the
optimistic user, however, is cheered up by every reactivated hair follicle he sees.

The comparison between the pessimistic and optimistic doesn’t end there. Another user came
and said, “I would like to inform you that Minodixil regroe is working on me. The problem is
that it grows on my hands not on my head. So now I look like a gorilla.

In a way, this unfortunate development on that 3rd user is the same with our country’s
experience with economic growth.

In the 70s, 80s and up to 20th century GROWTH was very palpable – BUT IT WAS IN THE WRONG
PLACES.

The economy is like growing on hands: the rich were getting richer and the poor, poorer.

For our economy to prosper, we need to have Growth to take place in its right place.

We need to resolve the growing margin of poor to the rich- so that working abroad would be a
matter of a choice and not a necessity, so we cannot see children asking for alms because they
deserve to be in the safety of their home not in the streets, so we can altogether celebrate
because we have equally enthusiastic, kind, warm and loving people, we have a beautiful land-
we deserve to win, too!

***

A better quality of life has been objective of societies and nations. This has been pursued
since the ancient time to the present.

• About 100 yrs. Before the Trojan War, Minos, mythical son of Zeus, organized a
communal society in the island of Crete. For centuries, universal justice and virtue
reigned in the island.
 • Conditions were similar to the fabulous Shangrila of the Lost Horizon. It was like a
paradise for the people. The needs of the people were justly supplied, and they were
happy and contented.

• Plato, the greek philosopher, designed an ideal state in his book, The Republic. He
proposed common ownership of properties as a general rule. The concept of equality
was then improved by Christian doctrines.

• A Kibbutz is an Israeli collective community. It was founded at a time when

independent farming was not practical. Forced by necessity into communal life, and
inspired by their own ideology, the kibbutz members developed a pure communal mode
of living where most resources are shared and there is little or no personal property.

• In most recent history for the clamor of equality, Mao Zedong set up the PRC in 1949.
Before 1949 many Chinese were extremely poor. Hunger and disease were very
common. Few Chinese were able to study; women had few rights and were confined at
home, while marriages were arranged by their families. Mao’s government wanted to
set up a new society. It forced the wealthy to give up their land, it established
communes- collective farms, and it outlawed arranged marriages and pass laws giving
women equal rights with men. It sought to unite the country that had always been
badly divided.

But most of this communal living that aimed to properly allocate resources to attain equality
did not last too long. Many of the communism ideas have been greatly replace by MIXED
ECONOMIC SYSTEM (socialism).

The mixed market system in every nation is consists of free market economy and government
intervention. Government intervention is needed to give incentives to businessmen and to
protect the welfare of the consumers especially to the less fortunate members of the society.

Example: Why the government needs to intervene in the market economy

Many businessmen have lost their honesty.

They tampered their weight and measures for their advantage.

Other businessmen have no social conscience.

They create artificial shortage to raise their prices.

Therefore, these activities have to be checked by the government.

***

Meaning of Economic Development

Economic Development is a progressive process of improving human conditions such as

reduction or elimination of poverty, unemployment, illiteracy, inequality, disease and
exploitations.

Economic development are consists of economic factors such as capital, technology and
market and non- economic factors such as culture, religion, government and education.

Most of the time, non economic factors have stronger influence on the economic development
of the nation.

Example: peace and order, graft and corruption, poor leadership, lack of political will, grid-
lock form of government, culture and character of people, lack of entrepreneurial spirit of
people, lack of integrity as one nation and love of country, poor education, inadequate
infrastructure.
 ***

Classifications of Countries

The economy is measured by its Gross Domestic Product (GDP) or PER

CAPITA INCOME
 The basis of comparison is economy of highly developed countries,
usually USA.
FIRST WORLD COUNTRY
Example:
G8 NATIONS: Canada, France, Germany, Italy, Japan, Russia, UK and

If the GNP of a certain nation is near the GNP of the rich countries it is
classified as intermediate country or
SECOND WORLD COUNTRY
Example: Denmark, Australia, Sweden, Israel, Cuba, Libya, Spain, South
Africa, Austria, Saudi Arabia, Singapore, Poland, Venezuela Denmark,
Australia, Sweden, Israel

Those that are far below are classified as Less Developed Country (LDC)
or
THIRD WORLD COUNTRY
Example:
Kenya, Somalia, Tanzania, Uganda, Honduras, Peru, Philippines, Vietnam

Measurements of economic growth

Gross National Product (GNP)

This is the total market value of all final goods and services produced by citizens of a country
in one year.
  However, using the GNP as a measurement of economic growth may not be always in
reflecting the welfare of the different groups in society. For example:

The GNP of the certain country was $100 billion in 2000 and $150 billion in 2001. There was an
increase of 50%. Apparently, it was a very impressive economic growth. But who got the
additional 50% fruits of development? If it is only the high government officials, big landlords
or
business tycoons who acquired most of the benefits of development, then there was no real
and significant economic growth. The rich became richer.

 It is not unusual to equate progress with impressive physical structure like high rise
buildings, modern cars, beautiful houses, super highways, and other conspicuous
symbols of affluence and splendor. Such magnificent products of development are only
meaningful and substantial if they belong to the citizens- and if the lives of the masses
are positively affected. Not a few LDCs have dual economies. That is both extremes of
wealth and poverty exist side by side. Behind the façade of prosperity is a dismal
spectacle of extreme poverty and squalor. Just behind the beautiful modern buildings
are communities of squatters and slums. Such situation is more unfortunate if the
physical symbols of progress are owned and managed by foreigners. Thus, the local
citizens only get the “crumbs in the feast”.

Country GNP Population Per Capita Income

1st world country:

United States $13.84 trillion (2007 est.) (1st) 304,525,000 (3rd) $46,000 (2007 est.)
Japan $4.22 trillion (2006 est.) 127,433,494 (10th) $38,500 (2006 est.)
United Kingdom $2.772 trillion(2007 est.) (5th) 60,587,300(22nd) $45,575 (2007 est.)
Canada $1.274 trillion (2007 est.) 33,310,00 (36th) $38,200 (2007 est.)

2nd world country:

Australia around A$1 trillion (2007-08) 21,350,000 (53rd) $32,900 (2006 est.)
Singapore $222.7 billion (2007 est.) 4,588,600 (117th) $48,900 (2007 est.)

3rd World country:

Philippines $298.9bn (2007) 90.5 m (12th) $3,300 (2007)
Vietnam $297.4 B (2007 est.) 86,116,559 (13th) $3,503 (2007 est.)

The Case of Sao Paulo

Sao Paulo is Brazil’s largest city. Like many other cities, it suffers from congestion and
pollution. It is not famous like the great cities of the world. But Sao Paulo is the largest and
fastest growing sprawl in the Western Hemisphere. It is Brazil’s industrial powerhouse.

The Brazilian city was once a small coffee- processing village. Now, it is the biggest industrial
complex in South America and one of the largest concentration of multinationals among the
third world countries. Sao Paulo pays half of Brazil’s tax revenue. It contributes 2/3 of the
nations manufactured exports. It houses hundreds of multinational corporations. The biggest
foreign investors are the US, Germany, and Japan. In the case of Japan, which is the 3 rd largest
investor, it has increased the number of Japanese companies from 97 to 537 since 1969. These
include giant corporations such as Sanyo, Sony and Hitachi.

The Paulitas are the richest people in Latin America. They have the largest shopping malls,
trendiest boutiques in Brazil and the best eateries in the Southern Hemisphere.

The city also offers cultural and educational opportunities. In the field of education, Paulitas
buy 50% of all the books sold in the country. Students come all the way from Africa and Latin
America to study in the main universities of Sao Paulo. They also say that the fastest, cheapest
and easiest way to travel abroad is to go to Sao Paulo.

The Darkest Side of the City

The tremendous economic growth of Sao Paulo has not improved the social and economic
conditions of the masses. The rich became richer and the poor barely exist. Only 30% of the
residents of Sao Paulo have access to sewage system. Infant mortality rate is high. Thousands
of hungry children roam in the streets. The slum community is infested with rats and
mosquitoes. The city is overpopulated with 9 million people, and another 8 million in the
suburbs. Such population pressure is further aggravated by the arrivals of 1, 000 new migrants
every day.
The darkest side of Sao Paulo is found in the favelas. These are the squatters slums located in
the periphery of the city. Many of the squatters are jobless. They migrated to the city in the
hope of finding jobs.

***

PROBLEMS OF THE THIRD WORLD COUNTRIES

 The poorest nations in the world are located in Asia, Africa and Latin America.

 The third world countries occupy 60% of the earth’s surface with the population
of 70% of the human race. And yet their shard of the total world productive
income is only 11%.

1. Subsistence agricultural economy

 Most people work in agriculture, It major source of income is from export of raw
materials and few kinds of crops to the industrial countries. Natural calamities can
easily shake the stability of such economy.

 The prices and demand for agricultural products are subject to the decisions of the
industrial countries. More often than not, the agricultural countries are being exploited
by the industrial countries.

 Another weakness of agriculture of LDC is its Low Productivity.

Example: Agricultural productivity of developed country like Japan & USA can create 300
cavans of rice per harvest in one hectare, while LDC only produce of average of 50 cavans.

Low productivity is due to improper farming methods, presence of pest, insufficient funds
and facilities to help the farmers.

2. Low per capita income

Per capita is obtained by dividing the national income of a country by the number of its people.
The incomes of the LDC are low because their main incomes are derived from primitive
agriculture. LDCs have very few productive industries that could provide good incomes to the
people. Many families cannot even put up small business like retail store, buy and sell
enterprise, piggery, poultry, and other similar cottage industries. These are good sources of
income for the jobless, and for those whose income are not enough even for their basic needs.

3. High birth rate

 The average rate of population growth in LDC is 2.5% a year.

 Another feature of the population of the LDCs is its young populations. Children under
15 years old constitute almost 50% of the total population. Such age composition has
several economic and social disadvantages. Clearly a young population is not
productive. They are just dependents. For a poor country, it is a heavy economic and
social burden- for both the parents and the government.

 According to Thomas Malthus or his famous Malthusian Theory, “Population increases

geometrically while food production increases arithmetically.” Malthus claimed that
such problem could only be relieved as experience in the past- by war, pestilence and
famine. Nonetheless, he proposed positive remedies like prudence, and self restraint to
sex. For instance, he suggested late marriages, abstinence, limiting the number of
children. Malthus predicted that unless population is controlled, there would be more
human miseries and sufferings.

 In rich countries the number of dependents is lesser. It is only 30%, including the aged.
There are no serious problems in supporting the social and economic needs of the
children and ages because of their welfare status in form of old age pensions and social
programs.

4. High Illiteracy

Literacy refers to the ability of the individuals to read and write in their own dialects. People
become more rational and productive when they are literate.

In the Philippines, according to statistics in every 100 students that entered grade 1, only 21 of
them will be able to finished college. In the 21 college graduates, only 14 of them are from
higher education while 7 are from Technical Vocational.
In some countries in Latin America, the primary school dropout rate even reaches up to 75%.

At present the most literate nation in Asia is Japan. The Philippines is next.

5. Poor Health

Many people in LDC are afflicted with poor health. They are undernourished or malnourished.

In the Philippines, there are only 11 doctors for every 100, 000 Filipinos while in US there are
120 doctors for every 100, 000. Thus, there are about 40% Filipino that die without seeing a
doctor.

6. Negative attitudes, values and institutions

These negative attitudes, values and institutions are not favorable to economic development.
People with wrong attitudes and values cannot hope to improve their own economic conditions,
let alone the government.

Example: Attitude like colonial mentality, fatalism, nepotism, extravagance and other similar
ingrained habits erode all plans and programs of development.

7. Inefficient public administration

 Public administration has been generally inefficient to many LDCs. In spite of the
presence of the Civil Service System, a high degree of nepotism and personal
connections still prevail.

 Graft and Corruption

Example: Why poor countries are poor?

They call Douala “the armpit of Africa”. The description is perfect. Lodged neatly beneath the
building shoulder of the West Africa, the malaria infested city of Douala is humid, unattractive,
and its stinks. But if you live in Cameroon, Douala is where the action is. Cameroon is very poor
country indeed; the average Cameroonian is 8x poorer than the average citizen of the world
and almost 50x poorer than the typical American. According to Transparency International,
Cameroon is the most corrupt country surveyed in 1999. In 2001, it was the fifth most corrupt.
Douala, a city of two million people, has no real roads. President Paul Biya came to power in
November 1982 and had been into office for 19 years, in 2005, he is still in power and recently
described his opponents as “political amateurs”. Much of government activity appears to be
designed expressly to steal money from the people of Cameroon.

8. High rate of unemployment

Unemployment refers to a situation where people who are able and willing to work cannot find
a job. Underemployment means people are working on part-time basis. They only work for
months, a few weeks or months, and the rest of the year they are not employed.

***

THE VICIOUS CYCLE OF POVERTY

Low Low
Employ- Investme
Most people in developing countries are trapped
ment nt in the vicious cycle of poverty. Existing in
absolute poverty, they have low incomes. With
such incomes, it is almost impossible for them to
save or invest. For those with little savings, they
Low Low
Producti Saving contribute to capital formation which is of course
on s not much for substantial investment.

Low
Income