NOTHING, it seems, succeeds like success. When Philippine President Benigno Aquino returned to Manila from the US last week he boasted that his trip had generated US$2.4 billion (S$3.2 billion) in new investments for the country.

Companies that are ready to make more investments, he said, included drugmaker Pfizer and energy producer AES. Others were soft drink company Coca-Cola, computer giant Hewlett-Packard, international banker JP Morgan Chase and the General Electric conglomerate.

While he was in Washington, Mr Aquino also witnessed the signing of an agreement regarding a US$434 million Millennium Challenge Corporation development grant that would finance three major projects. They are the construction and repair of the 220km Samar Road in the Eastern Visayas, the expansion of poverty alleviation projects and the computerisation of the Bureau of Internal Revenue.

“We were able to secure a commitment of at least 43,650 new jobs in the next three years, including some 4,500 in construction-related jobs,” declared Mr Aquino.

Investor confidence in the Philippines has been building for some time. Net inflow of foreign portfolio investments surged by 385 per cent in the first eight months of the year as more investors put money into local government securities and equities markets. And just last month the government raised US$1 billion from its first ever sale of Philippine peso-denominated bonds. The issue was 13 times oversubscribed.

The macroeconomic numbers also look remarkably good. According to the National Statistical Coordination Board, gross domestic product grew 7.9 per cent in the first half of this year compared with the first six months of last year, the fastest in 22 years. Gross national product, which includes remittances from Filipinos working abroad, grew more quickly, clocking in at 8.2 per cent.

This extraordinary economic expansion was the result of a rebound in exports, increased remittances and, of course, election spending. Plagued by a drought brought on by the El Nino weather phenomenon, agriculture contracted by 3 per cent. But this was more than offset by strong growth in the industry and services sectors. Economists are now expecting full-year growth of 6 per cent or more.

Not surprisingly, the peso is also doing well. A recent report by Barclays Capital predicts that a robust current account surplus this year will significantly reduce the country’s external funding gap.

But while celebrating these successes, Filipinos would be well advised to see them in the wider context. Many of the economic growth numbers now being cited, for example, are the result of the fact that current output is being compared to a very low base. Dragged down by the global financial crisis and a series of destructive storms, the economy grew by a mere 0.9 per cent last year. Much of the foreign money now flowing in could also be withdrawn very quickly if investors were spooked by a major security incident.

There are many structural problems that need to be resolved before long-term growth can be assured. And while Mr Aquino may congratulate himself on his recent success in the United States, much of the groundwork was laid by his predecessor. But having been given a vote of confidence by the international community, Mr Aquino is now under pressure to perform.

One of the most important issues to address is the widening budget deficit, which is expected to reach 4 per cent of GDP this year. The Bureau of Customs, the government’s second largest revenue earner, is expected to miss its collection goal this year.

Mr Aquino also has to put a stop to the revenue-eroding laws that have negated many of the gains resulting from key fiscal reforms initiated under former president Gloria Arroyo in 2005. One Bill currently before Congress proposes that public spending which results in an increase in the deficit or reduction in revenue must be accompanied by a countervailing measure. It will be interesting to see how much support the idea receives from legislators.

Much of the economic expansion under Mrs Arroyo came from the business outsourcing industry and the flow-on of consumer spending resulting from progressively higher remittances from Filipinos overseas. New sources of economic growth are now required. Among other things, this will involve increasing the nation’s competitiveness by bringing down electricity prices, removing obstacles to investment and improving the efficiency of the bureaucracy.
Last week’s successes will pale into insignificance if Mr Aquino fails to deliver on these issues.

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