MANILA,  January 3, 2004 (STAR) By Leslie D. Venzon - Keeping the Philippine economy on an upward path at the projected growth rate of 4.9 to 5.8 percent in 2004 will be one of the challenges for the next administration.

This is higher compared to last year’s estimated gross domestic product (GDP) of 4.2 percent, just hitting the government’s target, despite the July failed mutiny, the Severe Acute Respiratory Syndrome (SARS) outbreak, the US-Iraq war and poor weather.

Services remained the banner sector which grew steadily at 5.6 percent in the third quarter of 2003 from five percent last year due to the stronger-than-expected rebound of government services.

This was followed by agriculture that also experienced a rebound posting growth of 5.5 percent from a measly -0.2 percent the previous year as the El Niño drought started to threaten.

However, industry grew modestly at 5.6 percent during the third quarter compared to five percent in 2002, dragged down by the decline in public construction and lagged recovery of exports. This despite the growth in manufacturing, utilities and mining.

President Arroyo said with the country’s GDP of 4.4 percent and GNP of 5.9 percent in the third quarter of 2003, the Philippines outperformed Taiwan (4.2 percent), Indonesia (3.9 percent), Singapore (1.7 percent) and South Korea (2.3 percent).

"Agriculture and investment spending led the way," the President said. "Macroeconomic fundamentals and sustained agricultural modernization are paying off. Fiscal prudence has kept the deficit within reasonable ceilings. Overseas remittances are on the rise."

The Chief Executive said the country is shaking off the lethargy occasioned by the SARS, the Iraq war and El Niño.

"Confidence in our political stability has held steady in the face of the judicious resolution of the Oakwood incident, our gains in terrorism and crime and the diminishing tremors of destabilization as the electoral fever catches on," she said.

Socioeconomic Planning Secretary Romulo Neri said given these factors and the 4.3 percent average GDP for the first three quarters of 2003, "the economy is now assured of growing by 4.2 percent for the year."

Neri said GDP for the fourth quarter is expected to have grown 3.8 to four percent as agriculture normalizes after a bumper production of palay in the third quarter.

However, industry and services are projected to grow 2.4 to three percent and 4.9 to 5.5 percent, respectively, bolstered by better export performance and higher public spending as government makes up for its first semester under-spending while remaining within its fiscal program, he said.

Neri said the economy is expected to further strengthen in 2004 with GDP expanding further to 4.9 to 5.8 percent despite the upcoming elections.

The services sector will continue to lead the economy growing at 5.5 to 6.3 percent. Telecommunications is seen to be the

fastest growing sector, propped up by strong consumer demand and sustained growth in information technology-related businesses.

Industry is expected to follow, growing by five to 5.8 percent, paced by stronger growths in manufacturing and construction.

"These sectors are seen to benefit from higher global growth, increased election-related spending and recovery in remittance inflow. Higher agriculture income shall sustain consumer demand," Neri said.

Agriculture, on the other hand, is projected to expand at a faster pace of 3.7 to 4.7 percent under normal conditions and as the sector further reaps the gains from the programs under the Agriculture and Fisheries Modernization Act (AFMA).

"Although risks remain imminent due to higher-than-expected uptick in world oil prices and the uncertainty from the change of leadership still, economic fundamentals continue to be supportive of stable macroeconomic environment," he said.

Neri, also National Economic and Development Authority (NEDA) director general, said the uncertainty from change in leadership should increasingly clear as platforms are revealed.

"As long as whoever wins in the presidential elections follow the same policy reforms the present administration is undertaking, there is no problem with that," he said.

The socioeconomic planning chief said "any major change in the resent foreign investments policy, trade policy and liberalization policy in transport, shipping and airline may affect the country’s growth momentum."

Neri said crucial to economic growth next year are getting the fiscal house in order, ensuring the successful privatization of the National Power Corp. (Napocor) and bringing more foreign investments in the country.

"Key to ensuring that the macroeconomic environment remains conducive to growth is the control of the government fiscal deficit to 4.2 percent of GDP and the management of the consolidated public sector fiscal position," he said.

Neri said inflation also is expected to increase slightly to four to five percent due to the lagged impact of the weak peso in 2003 and other pressures coming from the higher tariff adjustments, increase in Manila Electric Co. (Meralco) tariff at P0.12 per kilowatt-hour and higher oil prices due to the Clean Air Act.

The government is projecting in 2004 an average inflation rte lower than its target of 4.5 to 5.5 percent against 3.1 percent last year. The country’s inflation rate averaged 3.1 percent from January to November 2003, far below target.

Neri said contributing to the positive outlook for next tear are the pick up in world economic growth, normal weather conditions and higher election spending in the first half of 2004.

He said the economic expansion will also be supported by a faster growth worldwide, with world GDP projected to grow 4.1 percent next year from 3.2 percent in 2003.

Stronger growth is projected to boost the country’s dollar exports by 10 percent next year and increase the demand for overseas Filipino workers after deployment suffered as a result of the US-Iraq was and the SARS outbreak, he added.

NEDA’s National Policy Planning Staff Director Scholastica Cororaton said the banking sector also needs to grow to support more the economy.

"Bank lending should likewise be spurred even if the economy is growing and although we know that some firms are raising their own capitals from the capital market and other sources," she said.

The NEDA official said the credibility of the upcoming elections is crucial to the attainment of next year’s 4.9 to 5.8 percent growth target.

"If the elections is very credible, the initial impact is on the exchange rate. Once the exchange rate starts moving, a lot of things happen such as inflation rate. The BSP (Bangko Sentral ng Pilipinas) will try to assess the outlook if it needs to adjust interest rates or not. It will also affect investors’ confidence," she said.

Cororaton said it is thus crucial for the candidates to reveal their government platforms early on. – PNA

Reported by: Sol Jose Vanzi

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