BRIEFING TO University of the Philippines

1
The Global Environment and the Prospects for
the Philippine Economy
BRIEFING TO University of the Philippines School
of Economics
Peter Wallace President The Wallace Business
Forum, Inc.
2
MAJOR DEVELOPMENTS THAT COULD AFFECT 2003

• GLOBAL ECONOMIC PROSPECTS
• US-IRAQ WAR
• TERRORISM
• AFTA-CEPT
• BUDGET DEFICIT/OUTLOOK RATING DOWNGRADE
• CHALLENGES TO FDIS
• PERCEPTION OF CORRUPTION
• PEACE AND ORDER

3
GLOBAL ECONOMIC PROSPECTS
QUARTERLY U.S. GDP GROWTH ()
U.S. GDP LIKE A BOUNCING BALL THIS YEAR ITS
MAINLY CONSUMER SPENDING KEEPING IT UP NO
BUSINESS EXPANSION NO INVENTORY
BUILD-UP ACCOUNTING SCAMS AND CONSUMER
CONFIDENCE IS NOW FALLING FEDS RECENT 50BPS
RATE CUT UNLIKELY TO SPARK MORE SPENDING
U.S. CONSUMER CONFIDENCE INDEX
4
GLOBAL ECONOMIC PROSPECTS
2
SO ALMOST FLAT U.S. GDP IN 4Q02 THROUGH 1Q03 SOME
IMPROVEMENT THEREAFTERBUSINESS REBUILDS
INVENTORY SO GDP UP 2.9 03 (DOWN FROM 3-3.5
FCAST ORIGINALLY) VS. 1.9 02

• EUROPE IS THE WORRY
• GROWING MORE SLOWLY THAN THE U.S.
• PRIORITY IS TO TIGHTEN MONEY GOVT BUDGET
  (MAASTRICHT TREATY)
• RIGID LABOR MARKETS
• WEAKENING THIS YEARBUT RECOVERING NEXT YEAR

5
GLOBAL ECONOMIC PROSPECTS
3
JAPAN STILL ISNT STRONG BUT IT DOES SEEM TO BE
GETTING LESS WEAK

• KOIZUMI IS PUSHING FOR
• BANK REFORMTO REDUCE NPLS
• TAX CUTS
• MINIMAL GDP GROWTH IN NEXT 2-3 YEARS
• SO, OVERALL, GLOBAL ECONOMY IS FORECAST TO GROW
  FASTER AT 3.7 IN 03 VS. 2.8 IN 02

6
U.S. IRAQ WAR
1
IRAQ HAS AGREED TO U.N. SPONSORED ARMS
INSPECTION WAR AVERTED, FOR NOW

• BUT CHANCES FOR A WAR ARE STILL HIGH
• IRAQ CAN STILL CHANGE ITS MIND ABOUT COOPERATION
  AS IT DID MANY TIMES IN THE PAST
• U.S. IS ALREADY PLANNING FOR A WAR OUSTING
  SADDAM IS ITS GOAL, EVEN IF THIS MEANS MILITARY
  ACTION
• U.S. DOESNT NEED A U.N. RESOLUTION TO ATTACK
  IRAQIF THERE ARE ARMS VIOLATIONS
• THE U.S. CONGRESS HAS OKD BUSH REQUEST TO DEAL
  WITH IRAQ AS HE SEES FIT.
• SCARY

7
U.S. IRAQ WAR
2
IMPACT WILL BE ON THE OIL MARKETAND CONFIDENCE.
THE POSSIBLE SCENARIOS

• NO WAR, BUT THREAT OF ONE REMAINS
• OIL PRICES INCORPORATE A WAR PREMIUM AN EXTRA
  4-8/BBL
• OIL PRICES VOLATILEUP IF WAR IS IMMINENTDOWN
  IF THREAT EASES
• A BRIEF WAR, AND SADDAM IS TOPPLED
• OIL PRICES SPIKE BRIEFLY, THEN FALL
• LOW, STABLE PRICES PREVAIL POSTWAR, AS IRAQI OIL
  RE-ENTERS THE MARKET
• INCREASED U.S. INVESTMENTS IN IRAQ

8
3
U.S. IRAQ WAR

• A PROLONGED WAR
• 70-80/BBL OIL PRICES
• CONFLICT IN THE MIDDLE EAST ESCALATES
• MORE TERRORIST ADVENTURES AS U.S. ATTENTION IS
  DIVERTED TO IRAQ
• DAMAGED GLOBAL CONFIDENCE, POSSIBLE DEFLATION

9
TERRORISM
1
9/11 WAS A SHOWCASE SUCCESS, HAS SHOWN IT CAN BE
DONE MORE ATTACKS SINCE 9/11 IN ISRAEL, TUNISIA,
YEMEN, PAKISTAN, MOSCOW, JORDON, KUWAIT,
PHILIPPINES, INDONESIA (BALI) AND KENYA

• THE PROBLEM IS RENDERED MORE DIFFICULT BY
• THE SUICIDAL NATURE OF SOME ATTACKS
• THE INCORPORATION OF THE JIHAD ELEMENT
• AVAILABILITY OF CHEMICAL BIOLOGICAL WEAPONSAND
  EASY ACCESS TO BOMB MATERIALS

10
TERRORISM
2
BUT

• IMPACT ON THE GLOBAL ECONOMY IS BRIEFTHE WORLD
  RECOVERED FROM 9/11 IN JUST ONE QUARTER
• ITLL TAKE SEVERAL ATTACKS THE SIZE OF 9/11,
  BALI OVER A SUSTAINED PERIOD TO INFLICT LASTING
  ECONOMIC DAMAGE
• NO MORE COLD WARSO UNDIVIDED FOCUS ON TERRORISM
• JUST A MATTER OF TIME (A FEW MORE YEARS) BEFORE
  TERRORISM IS CONTAINED?

11
(No Transcript)
12
25-YEAR AVERAGE GDP GROWTH OF SELECTED ASIAN
COUNTRIES
SOMETHINGS WRONG
COMPOUNDED PER CAPITA GDP INDEX (1975100)
13
WHAT IT IS
1. POLITICS VESTED INTERESTS VS NATIONAL
GOOD 2. UNCONTROLLED POPULATION GROWTH 3. WEAK
EDUCATIONAL SYSTEM 4. CORRUPTION 5. INADEQUATE
INFRASTRUCTURE 6. AN AGRICULTURE SYSTEM THAT
HASNT IMPROVED IN 25 YEARS 7. AN INADEQUATE
FOCUS ON JOB CREATION 8. A JUDICIARY IN NEED OF
MAJOR REFORM 9. SECURITY
14
WHAT IT MEANS
AT 3 GROWTH AND 2.4 POPULATION GROWTHOR IS IT
MORE? IT WILL TAKE 30 YEARS TO CATCH UP TO WHERE
THAILAND IS TODAY 40 YEARS AGO IT WAS 2ND TO
JAPAN THE PHILIPPINES CANT BREAK
5GROWTHWITHOUT FUNDAMENTAL CHANGE
15
WERE BEING TAKEN FOR A RIDE
THE PHILIPPINE ECONOMIC ROLLER COASTER
RPS ANNUAL GDP GROWTH
16
POLITICIANS
THE ELECTIONS WERE GENERALLY PEACEFUL
COMELEC CHIEF
PEACEFUL? 100 KILLED! A PEACEFUL ELECTION IS
WHERE LESS THAN 1 PERSON IS KILLED PETER WALLACE
MAJOR ECO REFORMS HAVE BEEN INTRODUCEDSINCE 1992
WITH GOOD RESULTS TIME FOR REFORMS IN THE
POLITICAL SPHEREMODERN ECO NEEDS MODERN
POLITICAL SYSTEM
17
1
PROGRESS ON KEY ECONOMIC REFORMS

• NO SIGNIFICANT PROGRESS YET
• GMA GOVT PASSED ONLY 2 KEY REFORM BILLS IN 01,
  BUT
• EPIRA INSUFFICIENT TO ADDRESS TRANSCO ISSUE,
  SO A SEPARATE TRANSCO BILL NEEDS TO BE PASSED
• ANTIMONEY LAUNDERING FTAF REJECTED IT, DIDNT
  LIKE THE FLOOR ON DEPOSITS SUBJECT TO
  INQUIRY, SO THE LAW HAS TO BE AMENDED

2 FAILURES OUT OF 2 LEDAC SUBMITTED TO CONGRESS
17 PRIORITY BILLS FOR 02, WITH 6 KEY ECONOMIC
REFORM BILLS CONGRESS WAS ABLE TO DISCUSS ONLY 2
ECO BILLSAMENDMENTS TO EPIRA (TRANSCO, PPA) AND
SPAV ACT BUT SENATE COUP STALLED THESE BILLS
18
AFTA-CEPT
0-5 TARIFFS ON 98 OF RPS PRODUCTS(EXCLUSION
SOME MAJOR AGRICULTURAL COMMODITIES) MOST LARGE
LOCAL MANUFACTURERS READY TO ADJUST TO THIS
CHANGENOW EXPORTING, OR HAVE SET UP FACTORIES
IN OTHER ASEAN COUNTRIES BUT OTHERS COULD FALL BY
THE WAYSIDE ALSO, DECISION TO FREEZE TARIFFS ON
SELECTED PETROCHEMICAL PRODUCTS (15) ARE
WORRYING MANUFACTURERS COULD RAISE THE PRICE OF
PACKAGING MATERIALS (6 TO 10 COST)AFFECTING
THEIR COMPETITIVENESS
19
BUDGET DEFICIT
1
P188B AS OF OCT. VS. P130B TARGET FOR 02 NO
SERIOUS IMPACT THIS YEARBUT IT WILL BE TOUGH
NEXT YEAR SP, FITCH OUTLOOK DOWNGRADES WILL MAKE
ACCESS TO INTL CAPITAL MARKET MORE DIFFICULT,
AND MORE EXPENSIVE 507 BPS SPREAD FOR 500M FLOAT
IN NOV. DOESNT AUGUR WELLIT WAS ONLY 290 BPS
IN JUNE AND RP STILL NEEDS 1.5B FOR 03
DEFICIT FINANCING 03 DEFICIT ALSO RAISED TO
P200B FROM P142B ORIGINALLY MORE MONEY NEEDED
20
BUDGET DEFICIT
2
IF INTL MARKET CLOSES DOWN ON RP,OR PREMIUM
BECOMES TOO PROHIBITIVE GOVT HAS LITTLE CHOICE
BUT TO BORROW LOCALLY PLANNED MIX IS NOW 52
LOCAL, 48 FOREIGN VS. 4456 BEFORE OCT.
HIGHER LOCAL INTEREST RATES PESO INSTABILITY
(DUE TO INCREASED PERCEPTION OF POOR ECONOMIC
PROSPECTS) HIGHER GOVT DEBT SERVICE (DUE TO
PESO DEPN, MORE EXPENSIVE BORROWINGS) AND THE
SPIRAL COULD GO ON
21
3
BUDGET DEFICIT
ITS THE INCREASE IN DEBT SERVICE THAT COULD
INFLICT DAMAGE OVER MT

• LESS GOVT FUNDS AVAILABLE TO BOOST THE DOMESTIC
  ECONOMY TO COMPENSATE FOR A POSSIBLE WEAKNESS OF
  THE GLOBAL ECONOMY
• IT BECOMES DOUBLY HARD WITH SPENDING 03 FALLING
  1 IN REAL TERMS
• PRESSURE ON GOVT FINANCES INCREASED AS DEBT
  SERVICE RISES FURTHER WITH PESO DEPN

DEBT SERVICE AS OF NATL BUDGET
22
CHALLENGES TO FDIs
1
THE INVESTMENT ENVIRONMENT IS BAD ENOUGH ITS
WORSE WHEN PROJECTS ALREADY APPROVED,
IMPLEMENTED, COMPLETED AND/OR OPERATING STILL GET
UNSETTLED BY LEGAL AND POLICY CHALLENGES

• JUST THIS YEAR
• THE PIATCO FIASCO
• THE PEA SCANDAL
• THE IPP ATTACK AND REVIEW
• ATTACK ON CBK
• SC DECISION ON MANILA RECLAMATION
• SHIP BUILDINGA PUBLIC UTILITY?
• THE MERALCO RORB VERDICT
• SO, WHOS GOING TO INVEST?

23
CHALLENGES TO FDIs
2
WITH THE IPP REVIEW, MERALCO SETBACKTHERE COULD
BE NO MORE INVESTMENT IN POWER SUPPLYNOT
WORTHWHILE DOING SO SO BRACE YOURSELVES FOR THE
RETURN OF POWER BLACKOUTS IN 2006 OR 2007 AND
THE GOVT SAID IT WANTS MORE FDIs WHEN NO MAJOR
PROJECTS EVER HAD A SMOOTH PASSAGE IN RP SURE,
THERE WILL BE MORE INVESTMENTS TO CHINA
24
1
ATTRACTING FDIS
NET FDIS IN 9 MAJORE.ASIAN COUNTRIES (USB)
THE REALITY IS EAST ASIA, NOT JUST THE
PHILIPPINES, LOST ITS ATTRACTION AS A GLOBAL
INVESTMENT SITE AFTER THE ASIAN CURRENCY CRISIS
OF 199798 THE MONEY ISNT FLOWING LIKE IT USED
TO NET FDIS 8B90 59B97
42B01 WORSE, THE MONEY THAT FLOWEDWAS SIPHONED
OFF BY CHINA CHINAS NET FDIS 2.7B90
37.6B01 REST OF E. ASIA 5.7B90
4.8B01(PEAKED AT 17.1B97)
CHINA, INDONESIA, KOREA, MALAYSIA, PHILS.,
SINGAPORE, TAIWAN, THAILAND VIETNAM. THEY
ACOUNT FOR 60 OF FDIS IN ASIA
SOURCES ADB EIU
25
2
ATTRACTING FDIS
TOTAL APPROVED INVESTMENTS (US BILLION)
APPROVED INVESTMENT APPLICATIONS HAVE BEEN ON A
DOWNTREND SINCE 97 BOTH LOCAL AND FOREIGN WORSE
FOR FOREIGNSLIGHTLY ABOVE 1B APPROVALS IN 01,
ONLY A LITTLE OVER 10 OF ITS LEVEL IN 97 LOCAL
16B97 3B01 AND THE DECLINE
CONTINUES TOTAL DOWN 80 TO 176M
1Q02 FOREIGN 67 TO 99M LOCAL 87 TO 77M
SOURCES BOI PEZA SBMA CDC
26
3
ATTRACTING FDIS
PROJECTED JOB CREATIONOF APPROVED INVESTMENTS
(000)
BUT DESPITE THE STEADY DECLINEIN APPROVED
INVESTMENTS JOB CREATION FELL ONLYMINIMALLY, OR
EVEN ROSE A NEW WAY TO LOOK ATINVESTMENT IN THE
OLD DAYS, MOST WENT INTO FACTORIES (2/3 OF
INVESTMENTS) 70,000 CREATED 1 JOB AND 50,000
WORTH OF EXPORTS ANNUALLY NOW FACTORIES ARE
JUST¼ OF INVESTMENTS
SOURCES BOI PEZA SBMA CDC
27
4
ATTRACTING FDIS
TODAY 10,000 INTO ICTRELATED SERVICES (CALL
CENTERS, SOFTWARE DEVT, ENCODING, ETC.) CREATES
1 (BETTER PAYING) JOB AND 20,000 WORTH OF
REVENUES ANNUALLY GROWING 39 P.A.DURING THE
PAST 5 YEARS
28
CORRUPTION
2
TRANSPARENCY INTERNATIONAL HAS RANKED RP THE 11TH
MOST CORRUPT AMONG 102 COUNTRIES OCCURS MOST
SIGNIFICANTLY IN THE PROCUREMENT OF SUPPLIES
CONTRACTS BRIBES IN POLICY-MAKING THATS BAD WB,
OTHER MULTINATIONAL INSTITUTIONS, EVEN MNCs
NOW CONSIDER CORRUPTION AS A PARAMETER IN THEIR
DECISION TO DISBURSE FUNDS, INVEST IN A COUNTRY
29
PEACE AND ORDER
1

• SOME PROGRESS
• KIDNAPPINGS DOWN 32 AS OF SEPT., ACCORDING TO
  PNP
• ABU SAYYAF LESS ACTIVE
• BUT
• LAW ENFORCEMENT AGENCY STILL ILL-EQUIPPED TO
  FIGHT CRIME SYNDICATES FLAT BUDGET FOR CRIME
  FIGHTING 03 MAKES MATTERS WORSE
• DELAY IN SALARY INCREASE FOR POLICEMEN COULD
  AFFECT MORALE
• WELL-ENTRENCHED PRESENCE OF SCALAWAGS IN THE
  FORCE

30
2002 CORPORATE SURVEY
RPS TOP INVESTMENT ATTRACTIONS
NO TABULATON PRIOR TO 2000
ENGLISH LANGUAGE PROFICIENCY REMAINS 1
INVESTMENT ATTRACTION,BUT RANKING OF QUALITY OF
MIDDLE MGT/TECHNICAL STAFF DROPPED TO 9 IN 2002
FROM 1 IN 2000
31
2002 CORPORATE SURVEY
BARRIERS TO INVESTMENT
PEACE ORDER PROBLEMS WORSENED
32
POLICIES MNCS WILL DIRECTLY BENEFIT FROM
10 PTS FOR 1ST PLACE VOTE, 9 PTS FOR 2ND, 8 PTS
FOR 3RD, ETC.
33
RP PRODUCTIVITY VS SUBSIDIARIES WORLDWIDE( OF
RESPONSES)
RP VS REST OF ASEAN AS INVESTMENT SITE(
RESPONSES)
ALMOST 2/3 CONSIDERED RP WORSE THAN REST OF THE
ASEAN
RP 39TH OUT OF 124 SUBSIDIARIES WORLDWIDE
34
HEAD OFFICE ATTITUDE
TOWARDS EXISTING OPERATIONS IN RP ( OF
RESPONSES)
NEUTRAL29
SUPPORTIVE24
NEGATIVE8
RESERVED39
TOWARDS NEW INVESTMENT IN RP ( OF RESPONSES)
NEUTRAL16
SUPPORTIVE14
RESERVED49
NEGATIVE20
35
PERCEPTION MANAGEMENT
3
AND THE WBF CORPORATE SURVEY RESULTS
H.O.S PREFERRED INVESTMENTSITE IN ASIA

• 47 WITH RESERVED/NEGATIVE H.O. ATTITUDE TO
  EXISTING RP OPERATIONS
• 69 WITH RESERVED/ NEGATIVE H.O. ATTITUDE TO NEW
  INVESTMENTS IN RP
• 63 WITH WORSE/WORST PERCEPTION OF RP VS. ASEAN
  AS INVESTMENT SITE
• ALLTIME WORST RESULTS

36
PERCEPTION MANAGEMENT
1
RP SLIPPED TO 61ST OUT OF 80 IN WEF
COMPETITIVENESS RANKING 40TH OUT OF 49
COUNTRIESIN IMD RANKING 11TH MOST CORRUPT
COUNTRY BASED ON TRANSPARENCY INTL STUDY OF 102
COUNTRIES THE TRAVEL ADVISORIES, CLOSURE OF
EMBASSIES CREDIT RATING DOWNGRADES
37
1
RPs COMPETITIVE RANKING
PHILIPPINESCOMEPTITIVENESS INDEX RANKING
20
SLIPPED TO 61ST OUT OF 80 COUNTRIES IN THE WORLD
ECONOMIC FORUM (WEF) SURVEY TO 40TH OUT OF 49 IN
THE INTL INSTITUTE OF MANAGEMENT DEVELOPMENT
(IMD) SURVEY
30
40
50
60
38
2
RPs COMPETITIVE RANKING

• IN BOTH SURVEYS, RP GOT BAD, FALLING MARKS IN
• INFRASTRUCTURE
• ICT-RELATED FACILITIES (TELEPHONE, PC DENSITY,
  INTERNET USAGE)
• CORRUPTION IN THE GOVERNMENT
• (BUT RELATIVELY GOOD MARKS IN WORKER SKILLS ESP.
  MANAGEMENT, TECHNOLOGY TRANSFER FROM FDIs,
  OPENNESS)
• R D SPENDING
• NO WONDER OUR SURVEY SAYS MNCs RANK RP NEAR THE
  BOTTOM IN THEIR CHOICE OF INVESTMENT SITE IN ASIA

39
1ST1/202 ECONOMIC RESULTS
1
SLIGHTLY BETTER THAN EXPECTED GDP 4.1, GNP
5.2 ONE OF THE FASTEST IN ASIAFOR
NOW CHINA 7.8 S. KOREA 6.0 PHILIPPINES 4.1
THAILAND 4.0 INDONESIA 3.0 MALAYSIA 2.5 SIN
GAPORE 1.2 TAIWAN 1.2 HONG KONG 0.0
REAL GNP/GDP GROWTH RATE ()
40
1ST1/202 ECONOMIC RESULTS
MAJOR CONTRIBUTORS TO GDP GROWTH 1H02(
CONTRIBUTION)
SPENDING SIDE
PRODUCTION SIDE
WSALE RETAIL TRADE18
FBT26
OTHERS 17
FBT16
INV.IN TELECOM EQPMT10
OTHERS26
TELECOM, ETC.13
PRIVATE CONST.4
INV.IN ELECTRONICEQPMT 11
TELECOMS12
MISC. HHOLDSPENDING 12
ELECTRONICS11
ELECTRONICSEXPORTS11
PRIVATE SERVICES8
FISHERY5
41
IMPLICATIONS FOR BUSINESS
1
THE ECONOMY MAY LOOK O.K. BUT ITS HARD TO MAKE
MONEY IN IT GDP MEASURES REAL GROWTH. COMPANIES
MEASURE (OR P) GROWTH SO IF YOU SELL MORE
PRODUCTS FOR LESS PRICE PER UNIT,THE ECONOMY
GOES UP BUT THE BUSINESS DOESNT IF YOU SELL MORE
AND COSTS GO UP BUT THE PRICE DOESNT SAME THING
SALES AND PROFITS ( CHANGE)
WBF SURVEY OF MNCS, MAR02 2002 CORPORATE
SURVEY
42
IMPLICATIONS FOR BUSINESS
ECONOMIC GROWTH WAS NARROWLY BASED
43
IMPLICATIONS FOR BUSINESS
ECONOMIC GROWTH WAS NARROWLY BASED
IN ESSENCEJUST SOME EXPORTS, SOME BASIC GOODS
(IF CELL PHONES CAN NOW BE CONSIDERED BASIC), AND
GOVT HOUSING THIS LEAVES OUT MOST OF THE REST OF
THE INDUSTRIES
44
IMPLICATIONS FOR BUSINESS

• WHILE ADMITTING ECONOMIC PROSPECTS HAVE IMPROVED
  THIS YEAR ALMOST 60 OF CEOs SAID THEY WONT
  HIRE NEW WORKERSFOR AT LEAST A YEAR, WHILE 1/3
  SAID NO HIRING WOULD OCCUR IN THE FORESEEABLE
  FUTURE
• ALMOST 60 ALSO SEE CAPACITY EXPANSION ONLYAFTER
  A YEAR OR TWO, WHILE ALMOST ¼ DONT THINK IT
  WILL HAPPEN AT ALL IN THE NEAR FUTURE

BUSINESS PLANS ( OF RESPONDENTS)
SOURCES PULSE ASIA SURVEY OF 30 CEOs, JULY 2002
45
IMPACT ON RP ECONOMY IN 2003
1

• RP WILL BE VULNERABLE TO EXTERNAL SHOCKS
• HIGHER OIL PRICES
• VOLATILE, ERODING PESO-DUE TO NEGATIVE SENTIMENT
• WEAK EXPORTSIF GLOBAL MARKET SLOWS
• REDUCED ACCESS TO INTL CAPITAL MARKETS
• OFWs IN THE MIDDLE EAST, AFFECTED BY US-IRAQ WAR
• EXCERBATED BY INTERNAL WEAKNESSES
• GOVT CANT PUMP-PRIME DUE TO BUDGET DEFICIT
• STILL HIGH NPLs /NPAs
• FEW CONFIDENCE-BOOSTING REFORMS PASSED
• IMAGE AS A TERRORIST HAVEN

46
IMPACT ON RP ECONOMY IN 2003
2
REAL GDP GROWTH ()
BUT RP IS AN ECONOMY GROUNDED ON BASIC NEEDS
CANT FALL ANY FURTHER OUTPERFORMS ITS NEIGHBORS
DURING PERIODS OF GLOBAL WEAKNESS THE CENTRAL
(EIU/IMF) FORECAST ALSO INDICATES THE U.S./GLOBAL
ECONOMIES WILL GROW FASTER IN 03 VS. 02 SO RP
EXPORTS WILL HOLD
47
ECONOMIC FORECAST 2003
1
ASSUMPTIONS GLOBAL
48
ECONOMIC FORECAST 2003
2
ASSUMPTIONS DOMESTIC
49
ECONOMIC FORECAST 2003
3
ASSUMPTIONS DOMESTIC
50
4
ECONOMIC FORECAST 2003
WHAT IT MEANS
51
5
ECONOMIC FORECAST 2003
WHAT IT MEANS
52
5
ECONOMIC FORECAST 2003
WHAT IT MEANS
53
BEYOND 2003 MEDIUM-TERM ECONOMIC SHIFTS
1

• GLOBALIZATION WILL FORCE A SHIFT TO KEY
  STRENGTHS
• ICT
• HIGH-VALUE CROPS
• PROFESSIONAL SERVICES
• ENGG GOODS, E.G., AUTO PARTS
• TOURISM, MAYBE
• LOW-END, LABOR-INTENSIVE MANUFG WILL CONTINUE
  TO FADE
• SOME LOCAL COMPANIES WILL STRIVE TO BE
  COMPETITIVE
• UPGRADING, SHIFT TO HIGHER VALUE (BRANDED) GOODS
• COST MANAGEMENT, PRODUCTIVITY IMPROVEMENT
• MAs FOCUSING ON BUSINESS SYNERGY
• STRATEGIC ALLIANCES FOR TECHNOLOGY MARKETING

54
BEYOND 2003 MEDIUM-TERM ECONOMIC SHIFTS
2

• THE ECONOMY WILL BECOME MORE EXPORT-ORIENTED
• INCREASED COMPETITIVENESSINCREASED EXPORT
  CAPACITY
• THE SERVICE SECTOR WILL BE EXPORTING MORE (ICT,
  PROFESSIONAL SERVICES, TOURISM)
• DOMESTIC ECONOMY WILL CONTINUE TO PROVIDE
  RESILIENCE FROM EXTERNAL SHOCKS

55
BEYOND 2003 MEDIUM-TERM ECONOMIC SHIFTS
3

• THE ECONOMY WILL GROW SLIGHTLY FASTER NEXT 5
  YEARS 4.8 P.A. GDP 2002-07 VS. 2.9 P.A. 1997-02
• MARKET-ORIENTED REFORMS
• NO ASIAN CRISIS SIMILAR TO 97-98
• RESILIENCE OF THE DOMESTIC MARKET
• (BUT UNLIKELY TO SUSTAIN 5 P.A. FOR
  LONGSTRUCTURAL WEAKNESSES, RETURN OF POWER
  BLACKOUTS IN 06 OR 07
• A PERIOD OF RELATIVE MACROECONOMIC STABILITY WITH
  OCCASSIONAL VOLATILITY DUE TO GEOPOLITICAL
  UNCERTAINTIES3-4 P.A. PESO DEPN LOW INTEREST
  RATES INFLATION (VS. 1997-02)

56
THE MEDIUM TERM FORECAST
1

• STABLE CONSUMER SPENDING 4.5 PA THE INTERNAL
  SHOCK ABSORBER
• EXPORTS THE GROWTH LEADER AFTER 03
• INVESTMENT TURNAROUND, ALSO AFTER 03, ESP. WITH
  PROPERTY MARKET RECOVERY CORPORATE EXPANSION AS
  NPL/NPA DROPS
• SERVICE SECTOR WILL LEAD ON THE PRODUCTION SIDE
• TELECOMSSLOWING, BUT STILL SIGNIFICANT24M
  MOBILE SUBSCRIBERS IN 3-4 YEARS VS. 13M TODAY
• RETAIL TRADE30 SHOPPING MALL PROJECTS UP TO 04
• FINANCE REAL ESTATE RECOVERING BY 04
• ICT-MOST DYNAMIC CALL CENTERS GROWING 50 P.A.
  NEXT 2 YEARS

57
THE MEDIUM TERM FORECAST
2

• AGRICULTURESLIGHT IMPROVEMENT 2.8 P.A. VS. 2
  P.A. HISTORICAL
• AFMAMORE IRRIGATION
• EXPANSION OF EXPORTABLE COMMERCIAL CROPS
• INDUSTRYMARGINALLY BETTER PROSPECTS 4.6 P.A.
  DUE TO
• EXPORT-ORIENTED INDUSTRIES
• TURNAROUND IN CONSTRUCTION ACTIVITY
• BUT WEAKENING OF SOME LOCAL INDUSTRIES WILL
  LIMIT THE GAINS

58
CENTRAL ECONOMIC FORECAST 2003
59
WORST/BEST CASE FORECAST
60
THE REAL DIFFERENCE
ECONOMIC PERFORMANCE
DECEMBER 2000 FCAST
GMA PERFORMACE WITHIN OUR ERAPOUT SCENARIO
FCAST(EXCEPT EXP IMPAFFECTED BY U.S.
SLOWDOWN)
61
(No Transcript)