Starting with serious handicaps

"Asia has a bright future. The region’s developing countries should be central participants and beneficiaries, tapping into Asia’s dynamic production nexus, and by moving up the ladder. To manage this transition smoothly, however, the necessary preconditions must be in place. This means establishing and sustaining macroeconomic stability while reducing infrastructure deficits and strengthening social safety nets," said John Lipsky, the International Monetary Fund’s first deputy managing director, in a forum in Hanoi last Monday.

But Asia is not a monolithic territory. Asia could grow as high as 8-1/2% if the fast-growing giants like China and India were included. Regrettably, Asia consists of many economies with varying degrees of fiscal vulnerability, states of public infrastructure, and levels of poverty.

Being part of Asia does not guarantee strong growth for any country. On the contrary, strong economic growth will depend heavily on the quality of its governance, the strength of its political institutions, and the competitiveness of its industries. An important lesson in the recent past is that China and India may grow rapidly even as the economies of its Asian counterparts contract.

Each country has to face its own handicaps. And its leaders must pursue a sensible post-crisis plan, undertake fundamental reforms, and muster the political will to complete them with the common good, rather than narrow personal interests, in mind.

THE PHILIPPINES AND ASEAN

Rather than compare with the whole of Asia, I think it is reasonable to compare the Philippines with its ASEAN-5 neighbors (Malaysia, Indonesia, Thailand, and Singapore) plus Brunei, Vietnam, Cambodia and Laos. There are complementarities in the economies of these ASEAN countries, but some of these economies are also the Philippinesí natural competitors.

Looking at the Global Competitiveness Index for 2009-2010, the Philippines ranked 87 out of 133 countries, with a score of 3.90. ASEAN countries which ranked higher than the Philippines are (score in parenthesis): Singapore, 3 (5.55), Malaysia, 24 (4.87), Brunei, 32 (4.64), and Vietnam, 75 (4.03). Lagging behind the Philippines is Cambodia, 110(3.50). There is not record for Laos.

In terms of macroeconomic stability, the Philippines ranked 76 with a score of 4.54. Ahead of the Philippines are (ranking in parenthesis): Brunei (1), Thailand (22), Singapore (35), Malaysia (42), and Indonesia (52). Lagging behind the Philippines are Vietnam (111) and Cambodia (122).

The Philippines faces an imminent fiscal crisis. Its ballooning national government debt and sputtering tax collection are serious limiting factors in the pursuit of a more aggressive public spending for public infrastructure, investment in human capital, and social protection for the poor.

"Large infrastructure gaps are present in developing Asia and the Asian Development Bank has estimated that Asia-Pacific countries need to invest about $8 trillion over the next decade," Mr. Lipsky said.

In terms of infrastructure, the Philippines ranked 98, behind all its ASEAN neighbors (ranking in parenthesis): Singapore (4), Malaysia (26), Thailand (40), Brunei (41), and Indonesia (84), Vietnam (94), and Cambodia (95). Catching up on public infrastructure is going to be a major challenge for the next president of the Republic.

And with the region’s poor remaining vulnerable, "more should be done across the board to protect the poor and vulnerable and to raise access to basic public services, including health care," Lipsky added.

On the state of health and primary education, the Philippines ranked 93. Its ASEAN counterparts that outrank the Philippines are: Singapore (13), Malaysia (34), Brunei (42), Thailand (61), Vietnam (76) and Indonesia (82). Only Cambodia (107) ranked lower than the Philippines.

The quality of political institutions matter, too. The stronger political institutions are, the higher the likelihood that the government would be able to institute real, necessarily painful, reforms. Here, the Philippines ranking is miserable —113 out of 133 countries and the lowest among all rated ASEAN countries.

Ease of doing business

The Philippines ranked poorly in terms of ease of doing business. Based on a simple average of the economy’s rankings on the 10 topics covered in Doing Business 2010 survey, the Philippines ranked 144 in 2010 from last year’s ranking of 141 in 2009. It was outranked (ranking in parenthesis) by Singapore (1), Thailand (12), Malaysia (23), Vietnam (93), Brunei (96), and Indonesia (122). Ranked one level lower than the Philippines is Cambodia (145) while Laos ranked 167.

Other governance characteristics are important, such as, political stability, control of corruption, rule of law and government effectiveness. Unfortunately, the Philippines ranked poorly compared to its ASEAN-5 counterparts.

Finally, Asia has to address climate change, which Lipsky described "as one of the greatest long-term risks facing the developing world." He warned: "Southeast Asia is one of the region’s most vulnerable to climate change, given its long coastlines, its coastal concentrations of people and activity, and its reliance on agriculture, natural resources, and forestry. The incipient effects of climate change already are notable, exacerbating water shortages, threatening food security, and increasing health risks. If nothing is done, Southeast Asia could lose the equivalent of 6-3/4% of GDP each year by the end of this century, more than twice the global average loss."

The Philippines is the most calamity prone among Southeast Asian countries. An adequate response to this long-term problem is a leadership with long-term vision, a well-performing bureaucracy, and tons of money. That sums up the herculean challenge for the next presidents.