The Philippines has received considerable attention in recent years as it “emerged” in the early 1990s from a long period of slow growth and economic imbalances, and then managed to escape the “Asian crisis” relatively unscathed. This suggests that the reforms under way since the late 1980s, and intensified in the 1990s, have paid off, and are continuing to bear fruit with the help of skillful crisis management through the recent turbulence. By the same token, the pressure of recent shocks has put the spotlight on the remaining structural weaknesses that need to be addressed for sustained rapid growth and development. The Philippines’ recent experience may contain valuable lessons for emerging economies’ efforts at crisis prevention and crisis management, as well as for the country’s own policy choices at the threshold of the next decade. This Occasional Paper describes this experience, focusing on the elements behind the relatively strong performance in recent years as well as the remaining reform agenda.
The Philippine economy has long been set apart from many of its Asian neighbors by its weaker growth performance; its performance in recent years, however, offers grounds for optimism.
Since the early 1990s, there has been a significant improvement in the Philippines’ fiscal accounts. The consolidated public sector balance moved from deficits in the range of one-half of 1 percent of GNP to 2 percent of GNP at the beginning of the 1990s to a balanced position in 1996. This reflected not only a substantial reduction in the deficit of the monitored government-owned and -controlled corporations and a strong consolidation in the national government balance, but also an improvement in the position of other public sector entities. Since 1997, fiscal balances have moved back into higher deficits, as fiscal policy turned expansionary in support of domestic demand mainly by accommodating the revenue losses associated with the crisis-related slowdown of growth.