The Peso Appreciation and the Sustainability of Philippine Growth: Need We Worry?

Introduction

As a lifelong observer of the Philippine development story, I have noted one lesson that stands out among all others: Underdevelopment is not a story about the dearth of resources but about blown opportunities. William Shakespeare in Julius Caesar gave perhaps the most eloquent rendition of the genesis of underdevelopment: “There is a tide in the affairs of men that taken at a flood leads on to fortune: omitted, all the voyages of their life are mired in the shallows and in miseries.”

The Philippines missed the tsunami of Japanese direct foreign investment in the second half of the 1980s because we could not get our political act together. The monumental collapse of the Marcos project in the early 80s was preceded by a flood of borrowed petrodollars for which we inherited nary but a slew of white elephants and bankrupt state banks. The ready availability of forest and extractive resources allowed the perpetuation of the increasingly unviable beauty parlor industries in the 50s and 60s. We have not yet stopped counting the cost to the nation of the NAIA Terminal 3 fiasco! It is scary how as a nation, we have managed to transform the opportunities imbedded in available resources into a litany of “miseries.” This it seems is bigger than Dutch Disease.

There is, as we speak, a spectacle rising up along Commonwealth Avenue in Quezon City, that will buoy you up as it does me every morning I pass by. The Ayala Land–University of the Philippines Science and Technology Park stands as a cornerstone of the future we all wish for this country – global in outlook, high technology at its core,  unfazed by competition. It will be a dollar earner for the country –  a rare example of seizing the day. But alas, even before the first locator has moved in, its potential revenue in peso terms has already been slashed by 19% in 2007 alone! This, in my humble opinion is unconscionable, even given the general weakness of the dollar.
Are we on the verge of blowing yet another great opportunity?

A question naturally suggests itself to dismal scientists: Is current growth sustainable? The devil, they say, is in the details and there are others, the detail that bugs us most is the rapid appreciation of the Philippine peso. What if any is this bug’s message?

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