THE PHILIPPINES The Continuing Story of a Crisis‑ Prone Economy

Abstract

Being an election year, it was commonly expected that the Philippine economy would grow faster in 2004 compared to the year before. In fact, the expectation was more than realized. Not only did actual economic growth as measured by growth in gross domestic production (GDP) exceed that of 2003, it also went beyond the targets set by the government for the year. Moreover, the economy's growth compared favourably with that of most of its neighbours in the region. But GDP growth was only one yardstick for the economy. The quality of the growth achieved was put to question by a significant acceleration in prices and increased joblessness within the year. Meanwhile, the government's precarious financial position owing to heavy indebtedness continued to be the weakest link in the economy, prompting economists from the University of the Philippines (UP) to sound the alarm by the third quarter that the country was in the midst of a fiscal crisis threatening to turn into an Argentina-style collapse, unless the government took prompt corrective actions.1 The alarm resonated and dominated discussions and debates for the rest of the year. But the government response was far from adequate by most assessments, including and especially by the international credit rating agencies. By year-end, Fitch Ratings and Standard and Poor's had announced widely expected one-notch downgrades on the country's credit rating, telling the world, in effect, that the country's ability to pay for its debts was getting more and more