MANILA, October 5, 2004 (STAR) By Des Ferriols - The International Monetary Fund (IMF) has upgraded its 2004 economic growth projection for the Philippines from 4.5 percent to 5.2 percent, but the IMF does not expect this momentum to be sustained in 2005 when growth is forecast to slow down to 4.2 percent.

In a report called World Economic Outlook, the IMF said Asian economies in general are expected to be strong this year, although the Philippines will lag behind Thailand and Malaysia in Southeast Asia whose growth rates are expected to reach 6.2 percent and 6.5 percent, respectively.

IMF resident representative Vikram Haksar told a press conference yesterday that the IMF’s revised 2004 projections reflect the strong first semester performance of the country measured in terms of gross domestic product (GDP).

Haksar said the projections include one-time factors such as the surge in agricultural production in the first half of the year owing mainly to good weather and the delay of the harvest season in the last quarter of 2003.

Earlier in August, IMF mission head Masahiko Takeda made the preliminary projection that the 2004 GDP would grow by 4.9 percent, instead of the original 4.5 percent projected by the IMF at the beginning of the year.

The final projection, turned out to be more optimistic.

However, Haksar said that in 2005, growth will slow down to 4.2 percent in the Philippines while

Thailand and Malaysia are expected to grow by 6.4 percent and 6.3 percent, respectively.

The Philippines will outpace Indonesia which is projected to grow by only 4.8 percent this year. However, next year. Indonesia is expected to outpace the Philippines with a GDP growth forecast five percent against the Philippines’ to 4.2 percent.

"Part of the reason is due to the fact that Philippine growth accelerated faster in 2004 and there is a higher base effect," Haksar explained.

The other factor, Haksar said, is the country’s dependence on imported oil which makes it more vulnerable to the wild fluctuations in world oil prices.

Moreover, other countries in Asia have been able to implement some form of quasi-subsidy to cushion the impact of increases in the pump prices of oil and oil products.

Although market-determined prices were the better way of handling the oil price increases, the IMF said that the Philippines’ inability to cushion its effect reflects the fact that it has a radically different fiscal situation compared to its neighbors.

Despite the good growth performance, however, the IMF observed that unemployment rate had risen to 13.7 percent in the second quarter of the year, up from 12.2 percent last year.

Although the Bangko Sentral ng Pilipinas (BSP) had increased its liquidity reserve requirements by two percentage points, the IMF said inflation had continued to increase, reaching 6.2 percent in August.

The IMF said that over the medium-term, the country’s growth prospects rest squarely on the pace of reforms that the Arroyo administration is implementing, particularly in the fiscal sector.

"In addition to reducing the deficit, fiscal measures will create room for increased public spending on infrastructure,"the IMF said.

Reported by: Sol Jose Vanzi

All rights reserved