ABOUT PHILIPPINES (Philippine Economy)

Looking Back

For centuries under Spain, the Philippines served mainly as a way station for the galleon trade between China and Mexico. Such in-transit commerce did not benefit the islands by stimulating the production of new crops or of manufactured goods for export. Later, as other Western interests established quarters in Manila, ores and agricultural products were taken out of the land and a great share of the profits out of the country. Even after the inauguration of the commonwealth in 1935 turned the nation clearly toward political independence there were complaints that trade agreements with the United States prevented Philippine economic independence by perpetuating the disproportionate role of agriculture. Since the 1950's there has been a continuing, though at first erratic, demand for more industrialization and for Filipinization of the economy.

20th century

The Philippines was less severely affected by the Asian financial crisis of 1998 than its neighbors, aided in part by its high level of annual remittances from overseas workers, and no sustained runup in asset prices or foreign borrowing prior to the crisis. From a 0.6% decline in 1998, GDP expanded by 2.4% in 1999, and 4.4% in 2000, but slowed to 3.2% in 2001 in the context of a global economic slowdown, an export slump, and political and security concerns. GDP growth accelerated to about 5% between 2002 and 2005 reflecting the continued resilience of the service sector, and improved exports and agricultural output. Nonetheless, it will take a higher, sustained growth path to make appreciable progress in the alleviation of poverty given the Philippines' high annual population growth rate and unequal distribution of income. The Philippines also faces higher oil prices, higher interest rates on its dollar borrowings, and higher inflation. Fiscal constraints limit Manila's ability to finance infrastructure and social spending. The Philippines' consistently large budget deficit has produced a high debt level, and this situation has forced Manila to spend a large portion of the national government budget on debt service. Large unprofitable public enterprises, especially in the energy sector, contribute to the government's debt because of slow progress on privatization. Credit rating agencies have at times expressed concern about the Philippines' ability to service the debt, though central bank reserves appear adequate and large remittance inflows appear stable. The implementation of the expanded Value Added Tax (VAT) in November 2005 boosted confidence in the government's fiscal capacity and helped to strengthen the peso, which gained 5.7 percent year-on-year, making it East Asia's best performing currency in 2005. Investors and credit rating institutions will continue to look for effective implementation of the new VAT and continued improvement in the government's overall fiscal capacity in the coming year.

Currency

The Philippines' monetary unit is the peso, divided into 100 centavos. Foreign currency may be exchanged at any hotels, most large department stores, banks, and authorized money changing shops accredited by the Central Bank of the Philippines. International credit cards such as Visa, Diners Club, Bank Americard, Master Card, and American Express are accepted in major establishments.

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