Friday, June 3, 2011

Global Out Look and the Philippines

            A description of the economic climate and issues in this country between the years of 2000 and the current year, including the following:
1.         Periods of economic expansion and recession (Economic Cycle)
2.         Trends in GDP
3.         Instances of inflation, deflation, or stagflation
4.         Unemployment rates, interest rates
5.         Examples of the government’s monetary policy during this time
6.         Discussion of the government’s fiscal policy during this time

Descriptive Report on the Philippines
            Describing the economic climate in a country or Government arena for a country has become easier in recent times, due to the vast movement of information stored on computers, and it availability at a few strokes on a keyboard. Gathering of factors that contribute information on various nations have become necessary for global trade. The benefits of finding current conditions in a trading nation allow us information on trends, unemployment rates, GDP values, indicators and statistics, fiscal policies that may be implemented along with monetary exchange rates.
            Since the end of World War II, the Philippines has been on an unfortunate economic trajectory, going from one of the richest countries in Asia (following Japan) to one of the poorest. Growth after the war was rapid, but slowed as years of economic mismanagement and political volatility during the Marcos regime contributed to economic stagnation and resulted in macroeconomic instability. A severe recession from 1984 through 1985 saw the economy shrink by more than 10%, and political instability during the Corazon Aquino administration further dampened economic activity.
Today's Economy
            The Philippine economy proved comparatively equipped to ride out the recent global financial crisis in such a short time, partly as a result of the efforts over the past few years to control the fiscal deficit, bring down debt ratios, and by adopting an internationally-accepted banking sector and capital adequacy standards. The overall investment forecast remains a concern due to limited exposure to investment and financial institutions. Time is needed to recover from the impact of external shocks to long-term economic growth, poverty alleviation, employment, credit availability, and overall investments.
The economical cycle & law of demand
            When the cycle is just starting to expand out of a period of recession we first, consider how consumer spending might influence this economic environment. If a consumer purchases a product, they inject money into the economy and add to the demand for that particular product. As a result, the seller of the product has gained income. This increase in income might influence the seller to increase the hours of a part-time worker. Now that part-time worker also has more money to spend this is called recovery. The compounded effect of all the hiring and spending will then lead to a period of remarkable economic activity, which is called economic expansion.
            Acting with self-interest, consumers tend to produce a compounding effect within the economy starting with spending increases, which in turn, causing business profits to increase, which causes employment to increase, which causes consumer spending to increase further! Then the nation now is experiencing economic expansion sometimes called a boom. Economic expansion is described as a time of high economic growth, which is characterized by high spending, high production, and high employment. All good things come to an end, the same self-interest groups behavior which caused economic expansion will soon start to inspire economic decline.
            Behavioral economic decline happens as a result of the secondary effects which accompany economic growth. When demand for products and services increases, businesses will soon become inspired to increase prices. In addition, increased spending, business expansion, and consumer confidence during economic expansion causes the demand for borrowed money to increase that in turn causes interest rates to rise. After a while, increased prices, inflation and high interest rates start to reduce consumer spending. While the spiral continues to wined leads to a recession considered the most painful part of the recession.
            Recessions decreased incomes may cause consumers and businesses to merely cut back on expenditures. However, during severe recessions, individuals and families may be forced to sell their homes or business as they become unable to make ends meet.
            After a while, consumer will demand fewer goods and services, as well as the need for borrowed money, causing both prices and interest rates to drop. With this happing, the prices become lower and those prices will inspire some people to finally buy items they may not have purchased before. Still other people will take advantage of low interest rates to borrow money.
            The GDP growth slowed to 3.8% during 2008, and sputtered to 0.9% during 2009, though the economy showed clear signs of recovery in the first half of 2010, growing 7.9%. Overseas workers’ remittances increased at a slower 5.6% pace in 2009, down from the double-digit growth rates of previous years, although were nonetheless better than expectations and rose to $17.3 billion which was nearly 11% of GDP, helping the economy avoid recession and by supporting the balance of payments and international reserves. A growth in industry focused on outsourcing along with Government spending policy helped to support the economy. Taking the consideration of population growth rate of 2.0%, the annual GDP growth averaged 4.3% under the Arroyo administration indicating it will take a higher, sustained economic growth path around 7% per year by most indicators to make the progress needed for poverty alleviation.
            Natural devastation pelages Pacific Islanders every year putting some untold stress on the nation and with the Philippines population growth rate topping the charts higher than any Asian nation can be a call for concern. The population living below the national poverty line increased from 30% to 33% between 2003 and 2006. The cost of food, fuel, and financial shocks along with the severe typhoon-related damages of 08 and 09 pushed more Filipinos into poverty. More devastation to the economy has been brought on by drought in 2009 and early 2010 reducing agricultural and hydroelectric production.
            The national government worked to reduce its fiscal deficits for 5 consecutive years to 0.2% of GDP in 2007 and had indicated they hoped to balance the budget in 2008 although opted instead for measured deficit spending to help stimulate the economy and control the adverse impact of global external shocks that have burdened the struggling Nation.
            In 2004 the GDP peaked AT 78%, although still relatively high, the debt of the national government has declined to about 58% of GDP and with a peak in 2003 the consolidated public sector debt has declined to about 75%.
            The government has used privatization receipts during these times to reduce the shortfall in targeted tax collections, other than this, it has not been a sustainable revenue source. Future reforms may be needed to ease fiscal pressures from large losses being sustained by a number of government owned firms.
            The national government's tax-to-GDP ratio increased from 13% in 2005 to 14.3% in 2006 after new tax measures went into effect resulting in a decline and stagnated at 14% in 2007 and 2008, and then declined further to 12.8% in 2009. The Philippines have taken the steps to adopt Internationally Agreed Tax Standards (IATS) and has implemented legislation that allows a framework for the exchange of tax-related information.
Inflation concerns everyone
Interest rates have dropped drastically from about 2001 to early 2002 the gradually declined to the present 4.25%.
Investopedia explains Stagflation
            Stagflation occurs when the economy isn't growing but prices are. For example in the 1970’s, when world oil prices rose dramatically, causing sharp inflation in developed countries. For these countries, including the U.S., stagnation increased the inflationary effect. (investopida/Stagflation, 2011)
            Watch groups both of privet and Government sectors keep watchful eyes on countries globally looking for trends, setbacks and developments. The U.S. Trade Representative is one that has this task. Prior to 2006, the Philippines have been on a 301 special priority watch list from this department. Due to the some progress and economical improvements, although lifted, however there remains a concern.
            Bottlenecks in grow will stunt the growth of any nation. A main concern is, inadequate laws, dealing with tourism, inadequate infrastructure, policy and regulatory instability, and governance issues. Competition from other economies elsewhere in Asia for investment underlines the need for sustained progress on structural reforms to remove unwanted bottlenecks for growth. The outlook in anti-corruption efforts is ineffective and need more improvement. Perhaps this Nation should start with the need to focus on cleaning up an image that may have plagued this Nation for some time. 
Work in the Philippines
            Industry and agriculture have potential in this region, 40% of land usage is farm or agriculture related and an ever growing outsourcing industry while a surviving industry in production assembly seems to dominate. Mining contributes for its mineral wealth with today’s estimates at more than 840 Billion. Gold, and copper had been it chief export mineral in the 1970’s and 80’s however supports other important minerals which include nickel, silver, coal, gypsum, and sulfur. The Philippines also has significant deposits of clay, limestone, marble, silica, and phosphate with a recent discovery of natural gas that is now online and fires electricity for a percentage of the nation.
            Unemployment figures are still high despite what seemingly should be a healthy economy. Poor investment structure, high cost of extraction and infrastructure have contributed to the industry's overall decline. The unemployment figures have improved between 2005 and present as this chart will indicate.                      
            The current unemployment rate indicated at the end of the last year is 7.10 %.
Industry will include textiles and garments, pharmaceuticals, chemicals, wood products, paper and paper products, tobacco products, beverage manufacturing, food processing, machinery and equipment, transport equipment, electronics and semiconductor assembly, mineral products, hydrocarbon products, fishing, business process outsourcing services.

Side affects
            Unfortunately uncontrolled laws have lead to the decline in economical investments therefore growth for this country has suffered both ecologically, and financially. The uncontrolled deforesting of the land has eroded the eco-system. The fishing has become scarce because of the inability to enforce fishing protection laws. In summary; Government, humans, and natural disasters have forcefully put in motion a doomed or disastrous path.
            Only by taking some types of measures or steps that will be needed can guide this economy towards its recovery. This Nation has experienced the shortfalls that could take many Nations down, however the Philippines have survived. It has survived from Typhoons, earthquakes, human intervention to include global expansion, health and humanity, ecological, political corruption and war.
            The, “New Central Bank Act" of 1993 confers autonomy on the central bank in its role as the nation's monetary authority.
            The New Central Bank Act governs the structure and function of the Monetary Board, which is the BSP's policy-making agency. The seven-member board is comprised of the governor and a cabinet-level official, along with five private-sector individuals. All are appointed by the president. By law, at least four members of the Monetary Board (with one being the president or a legitimate representative thereof) must meet weekly. Emergency provisions allow the governor, with the concurrence of at least two other board members, to make decisions outside of the board meeting structure. (Monetary Transparency, 2010)
            In 2006 a report indicated the banks were carrying a high number of distressed assets carried on the BSP (Central Bank) balance sheets, and called for legislative reforms to deal with the problem. In July of 2007, banks were to be required to standardize their credit and operational risk assessments, placing a higher risk-weighting on non-performing loans. In 2010, the Philippines started allowing banks to adopt a more advanced internal ratings-based system.
Policy falls short sometimes
            Fiscal policy and goals included alleviation of poverty, generation of more productive employment, promotion of equity and social justice, and attainment of sustainable economic growth. Goals were to be achieved through reforms by strengthening the collective bargaining process and by undertaking rural, labor-intensive infrastructure projects, with additional goals providing social services and expanding education. With any well laid plans it fell short and ended up focusing on the agriculture sector.
            The fiscal plan also involved implementing more appropriate, market-oriented fiscal and monetary policies, achieving a more liberal trade policy based on comparative advantage, and improving the efficiency and effectiveness. as well as better enforcement of government laws and regulations. 

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