PHILIPPINES RISK ANALYSIS

Philippines Risk Analysis

Philippines Risk Analysis

Introduction

In the 1980s and 1990s, the Philippines was part of the East Asian growth 'miracle', emerging as a leading destination for inwards investment. However, growth never quite matched the economic dynamism of Singapore, Taiwan or Korea. The economy was hit by the 1997-98 regional financial crisis, but has since returned to a reasonable level of growth, recording a CAGR of 6% over 2001-07. Gloria Macapagal Arroyo assumed presidency of the Philippines in 2001 after the impeachment of her predecessor. She was re-elected in 2004(WB 2008), although she herself had to face a number of impeachment attempts. Release of tapes that showed President Arroyo having a conversation with an election official dented her government's credibility. Another troubling feature of her reign has been political killings. Although this is not unique to Arroyo's tenure as president, the number of incidents has been reported at over 800 and ongoing killings of politicians and journalists are a major problem in the country. The country's relationship with the ASEAN has improved considerably, and its economic relations with China have also been on an upswing with a reduction of tension over the sovereignty of the Spratly Islands in the South China Sea. President Arroyo strongly supports switching to a parliamentary form of government from the current presidential system. The Philippine military forces are currently engaged in conflict with the Moro National Liberation Front (MNLF) and Abu Sayyaf, (Campos Kinoshita 2008 pp.398-419)and the country continues to face high risk in terms of terrorism. The Philippine economy is expected to experience slowdown after recording a year of robust growth of 7.3% in 2007, the fastest expansion in 31 years. The country's GDP growth came down to 4.6% in 2008 and the growth rate is expected to remain flat in 2009, according to Datamonitor forecasts. The country needs more investment in infrastructure and education. The remittances of the country's expatriates continue to encourage investment in small and medium enterprises and to fuel entrepreneurship among their family members, as well as bolstering the current account surplus of the country. Difficult external conditions have moved the Philippine government to set aside the target of maintaining a balanced budget from 2008 to 2010.

The government has decided to take loans to fund its increased infrastructure spending so that the country can successfully endure the global financial crisis. The Philippines will continue to be in a strong position in terms of social security, as its population is very young. Most people in the country are of working age, which precludes the increased social security expenditures advanced countries have to bear. More than 10% of the country's population lives on less than $1 per day, which is a far higher percentage than in other countries in the region, such as Vietnam and Indonesia. A large amount of people live below the poverty line, and it is unlikely that the country will achieve the Millennium Development Goal of halving poverty by 2015, given its current rate of progress. With regard to technology, the country has a strong BPO sector. President Arroyo has promised to harness advances in biotechnology to attain food security by ...