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Economy of the Philippines

From Academic Kids

The agricultural industry of the Philippines is one of the fastest growing economies in South East Asia. The market consists mostly of services, as productivity in agriculture and industry is growing as well.

Historically, the Philippines was primarily an agricultural region producing copra, maize corn, hemp, rice, sugar, and tobacco. Mining was also notable as the mountains contain substantial amounts of chrome, copper, gold, iron, lead, manganese, and silver. Fishing has been another important occupation, centered in Manila Bay and the Sulu Archipelago. Although fishing has been important, its future is bleak due to expensive funds and equipments.

Important sectors of the Philippine economy include agriculture and industry, particularly food processing, textiles and garments, and electronics and automobile parts. Most industries are concentrated in the urban areas around metropolitan Manila. Mining also has great potential in the Philippines, which possesses significant reserves of chromite, nickel, and copper. Recent natural gas finds off the islands of Palawan add to the country's substantial geothermal, hydro, and coal energy reserves. In conclusion, the Philippines is abundant in mineral resources and natural gas.

Contents

Background

Since the end of the World War II, the Philippine economy has had a mixed history of growth and development. Over the years, the Philippines has gone from being one of the richest countries in Asia (following Japan) to being one of the poorest. Growth immediately after the war was rapid, but slowed over time. A severe recession in 1984-85 saw the economy shrink by more than 10%, and perceptions of political instability during the Aquino administration further dampened economic activity. During his administration, President Ramos introduced a broad range of economic reforms and initiatives designed to spur business growth and foreign investment. As a result, the Philippines saw a period of rapid sustained growth, but the Asian financial crisis triggered in 1997 slowed economic development in the Philippines once again. In 1998, the Philippine economy deteriorated as a result of spill-over from the Asian financial crisis and poor weather conditions. Growth fell to about -0.5% in 1998 from 5% in 1997, but recovered to 2.9% by 1999. President Estrada tried to resist protectionist measures; and efforts to continue the reforms begun by the Ramos administration made significant progress. A major bank failure in April 2000 and the impeachment and subsequent departure of President Estrada in the beginning of 2001 led to lower growth. The current administration under President Gloria Macapagal-Arroyo is pushing towards faster and more rapid economic growth. In 2004, the Philippine economy grew by 6.1%, a pleasant surprise, beating most analysts and even the government's estimates. However, the advent of high oil prices might dampen growth estimates for 2005.

Economy year 2005

The Philippines was less severely affected by the Asian financial crisis than its neighbours, due in considerable part to remittances of approximately $5-$6 billion (5-6 G$) annually from overseas workers. Nonetheless, the country continues to be a weak economic performer. The government hopes to hit at least 3.3% GDP growth in 2001 (the low end of its targeted 3.3% -3.8% range), but private forecasts are somewhat lower. In 2000, the Philippines GDP increased by 4.0%.

Agriculture contributes about one-fifth of Philippine GDP. Output fell in 1997 and early 1998 due to an El Nino-related drought but increased by 6.6% in 1999 (over 1998's low base). Growth reverted to more normal rates in 2000 (i.e., 3.1% growth). In 2000, agricultural growth slowed to 3.5%. It slowed to 3.3% in the first half of 2001.

Monthly exports continue to grow but at increasingly slower rates, suggesting that the export boom has run out of steam. Electronic and auto parts exports account for most of this growth. The Philippines' traditional exports are stagnant or declining.

The commercial banking sector suffered from high interest rates and higher nonperforming loan levels during the Asian financial crisis and its aftermath, but the banking system remains sound. Interest rates have been brought under control, but loan growth remains slow as banks continue to exercise caution and clean up their balance sheets.

In 2004 the economy grew by 6.1%, higher than government estimates. However the year also saw an inflation rate of 6%, mostly as a result of higher oil prices. The first 3 months of 2005 have seen record inflation averaging 8.5%, and with declining imports and exports it is expected that the economy might contract in the first quarter. On the currency side, the peso, along with other asian currencies, has gained on the dollar this year, as of early May 2005 is trading at around 54.20 to the greenback.

Despite slower than hoped for growth, the Philippines' longer term prospects remain bright. The Aquino and Ramos administrations opened up the relatively closed Philippine economy and provided a firmer base for sustainable economic growth. After a slow start, President Estrada and his cabinet continued with, and expanded, liberalization and market-based policies and reforms. Efforts to reform the constitution to encourage foreign investment, particularly foreign ownership of land, were abandoned amidst nationalist opposition. Initial optimism about prospects for economic reform also had dimmed amid concerns of governmental corruption. Recent scandals involving the Philippine Stock Exchange, and the President's close ties to certain businessmen, shook confidence of investors and the business community and ultimately led to successful efforts to impeach and remove the president. The pace of economic reform, particularly the passage of key legislation in areas beyond retail trade, electronic commerce, banking reform, and securities regulation, is expected to accelerate under Macapagal-Arroyo and should improve the investment and business climate.

Agriculture and Forestry

Arable farmland comprises an estimated 26% 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 agricultural sector employs about 40% of the work force but only provides about one-fifth of GDP.

Decades of uncontrolled logging and slash-and-burn agriculture in marginal upland areas have stripped forests, with critical implications for the ecological balance. The government has instituted conservation programs, but deforestation remains a severe problem.

With its 7,107 islands, the Philippines has a very diverse range of fishing areas. Notwithstanding good prospects for the agriculture sub-sector, the fishing industry continues to face a bleak future due to destructive fishing methods, a lack of funds, and an absence of government support.

Industry

Industrial production is centered on processing and assembly operations of the following: food, beverages, tobacco, rubber products, textiles, clothing and footwear, pharmaceuticals, paints, plywood and veneer, paper and paper products, small appliances, and electronics. Heavier industries are dominated by the production of cement, glass, industrial chemicals, fertilizers, iron and steel, and refined petroleum products.

The industrial sector is concentrated in the urban areas, especially in the metropolitan Manila region and has only weak linkages to the rural economy. Inadequate infrastructure, transportation and communication have so far inhibited faster industrial growth, although great strides have been made in addressing the last of these elements.

Mining

The country is well-endowed with mineral and thermal energy resources. A recent discovery of natural gas reserves off Palawan Island will soon be brought on-line to generate electricity. Philippine copper and chromite deposits are among the largest in the world. Other important minerals include gold, nickel, silver, coal, gypsum, and sulfur. Significant deposits of clay, limestone, marble, silica, and phosphate exist. About 60% of total mining production are accounted for by non-metallic minerals, which contributed substantially to the industry's steady output growth between 1993 and 1998, with the value of production growing 58%. In 1999, however, mineral production declines 16% to $793 million. Mineral exports have generally slowed since 1996. Led by copper cathodes, Philippine mineral exports amounted to $650 million in 2000, barely up from 1999 levels. Low metal prices, high production costs, lack of investment in infrastructure, and a challenge to the new mining law have contributed to the mining industry's overall decline.

Statistics

GDP: purchasing power parity - $390.7 billion (2003 est.)

GDP - real growth rate: 4.5% (2003 est.)

GDP - per capita: purchasing power parity - $4,600 (2003 est.)

GDP - composition by sector:
agriculture: 14.5%
industry: 32.3%
services: 53.2% (2003 est.)

Population below poverty line: 40% (2001 est.)

Household income or consumption by percentage share:
lowest 10%: 1.7%
highest 10%: 38.4% (2000)

Inflation rate (consumer prices): 6.0% (2004 est.)

Labour force: 34.56 million (2003)

Labour force - by occupation: agriculture 45%, industry 15%, services 40% (2003 est.)

Unemployment rate: 11.7% (2004)

Budget:
revenues: $11.56 billion
expenditures: $15.25 billion, including capital expenditures of $2.4 million NA (2003)

Industries: textiles, pharmaceuticals, chemicals, wood products, food processing, electronics assembly, petroleum refining, fishing

Industrial production growth rate: -0.1% (2003 est.)

Electricity - production: 45.21 billion kWh (2001)

Electricity - production by source:
fossil fuel: 70.12%
hydro: 10.75%
nuclear: 0%
other: 19.13% (1998)

Electricity - consumption: 42.04 billion kWh (2001)

Electricity - exports: 0 kWh (2001)

Electricity - imports: 0 kWh (2001)

Agriculture - products: rice, coconuts (copra), maize, sugarcane, bananas, pineapples, mangoes; pork, eggs, beef; fish

Exports: $38.728 billion f.o.b. (2004 est.)

Exports - commodities: electronic equipment, machinery and transport equipment, garments, coconut products, chemicals

Exports - partners: United States 20.1%, Japan 15.9%, Hong Kong 8.5%, Netherlands 8.1%, Taiwan 6.9%, Malaysia 6.8%, Singapore 6.7%, China 5.9% (2003)

Imports: $45.109 billion f.o.b. (2004 est.)

Imports - commodities: raw materials and intermediate goods, capital goods, consumer goods, fuels

Imports - partners: Japan 20.4%, US 19.8%, Singapore 6.8%, South Korea 6.4%, Taiwan 5%, China 4.8%, Hong Kong 4.3% (2003)

Debt - external: $57.96 billion (2003)

Economic aid - recipient: ODA commitments, $1.2 billion (2002)

Currency: 1 Philippine peso (P) = 100 centavos

Exchange rates: Philippine pesos (P) per US$1 - 54.20 (May 2005), 55.715 (August 2004), 40.427 (January 2000), 39.089 (1999), 40.893 (1998), 29.471 (1997), 26.216 (1996), 25.714 (1995)

Fiscal year: calendar year

note: The President of this country calls for a constitutional convention (Con-Con), to change the form of government in order to alleviate the fiscal situation, growing poverty and all allegations of government officials receiving jueteng kickbacks.

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