Philippine Economy in Recession

BAYAN, Main Events in the Philippines July—December 1998, [7 January 1999]

Predictably, the Philippine economy remained in a sorry state throughout 1998 after the global crisis hit our country extraordinarily hard last year. The worsening crisis caused the economy to slip into recession during the second half of the year as it posted a shrinking Gross Domestic Product (GDP)—a contraction of the economy—in two successive quarters. The GDP, the measure of goods and services produced in the country, declined by 1.2% in the second quarter and by 0.1% in the third quarter. Economists were stunned by the government's imagination and sheer denial of the recession when President Erap Estrada declared that his administration is using another definition of recession. If statistics prove you wrong, change them!

Recession or not, there are more than enough signs that something is fundamentally wrong with the economy. Foreign investments, hailed by the advocates of neo-liberalism as the remedy to our sick economy, dropped 43% in the first nine months of 1998. Apparently, the foreign speculators and businessmen who withdrew their money from the country last year to seek higher profits elsewhere are still waiting for the right opportunities to intensify their exploitation of the country's work force. The financial sector remains volatile as the ratio of non-performing loans of the commercial banks further surged to 11%, more than three times higher than in July 1997. For these loans, no interest has been paid in the past three months. Translated into everyday language this means that more bankruptcies can be expected in the near future.

The agricultural output declined 6% in the first nine months of 1998 compared to the same period last year. The output of the manufacturing sector plummeted by 17% in August compared to the same month in 1997. Analysts explained that the drop in industrial output is triggered by weak consumer demand. This phenomenon also explains why, since September, the Philippines is posting a trade surplus instead of the usual deficit. Imports were lower than exports because of the weak demand in the domestic market. Consumers simply cannot afford the imported products anymore, and Philippine companies, who used to import raw materials and intermediate goods to make export products, are ailing. Economists expect that export figures will go down more as the crisis in the world market persists. The usual Philippine trade deficit, trademark of its import-dependent, export-oriented economy, might be back soon.

Inflation, the measure of price increases, stayed at the double-digit level throughout the second half of the year, reaching 11.2% in November. Especially for food items, the consumer goods that are so badly needed by the poor, high price increases were noted. The inflation for food stood at 12.3%. Items that became much more expensive included rice, fruits and vegetables, eggs, meat and fish. This is another indication that the poor have to bear the brunt of the current crisis.