Philippine Business Magazine: Volume 14 No. 2 - Updates

Doha Round
Make or Break

The Doha Round of World Trade Organization negotiations that began in 2001 remains at a deadlock, with countries failing to reach an agreement again and again, particularly over measures liberalizing agriculture. All 149 member countries are hoping to get favorable concessions out of this negotiation but balk at lowering their own farm tariffs or cutting domestic subsidies for agriculture products, especially the developed nations.

For the Philippines, the G-20 proposal will result in a 29% overall average cut in farm tariffs

At this point, the European Union already appears to be willing to finalize the Doha Round. The EU is said to be veering towards accepting the proposed framework of the G-20 group of developing countries (which includes the Philippines) if cuts in the higher tariff band will also be reduced. The proposed G-20 framework calls for the cutting of farm tariffs by an overall average of 54%. For the Philippines, the G-20 proposal will result in a 29% overall average cut in farm tariffs.

The U.S., on the other hand, is less receptive to the G-20 proposal, including the provision of a US$15 billion cap for the U.S.’s overall trade-distorting domestic support. In fact, it appears to be pushing for a higher limit of US$22 billion. The problem with this is that developing countries, especially the agriculture-exporting countries, are unable to provide similar support to its farmers and, therefore, will be unable to compete with the unnaturally low prices of U.S. farm products.

Developing countries’ frustration over the trade talks has been building up as the U.S. has chosen to give nothing away in terms of commitments until all players have placed their cards on the table. It would seem that despite the looming expiration of the U.S. Trade Promotion Authority on 1 July, the U.S. is in no rush to speed up the Doha Round negotiations.

Meanwhile, developing countries, including the Philippines, are aggressively pushing for a general tariff reduction formula, while with regards to “sensitive products,” the group is eyeing to support a proposal forwarded by the Cairns Group (a coalition of 19 agriculture-exporting countries that also includes the Philippines) on the treatment of sensitive products.

The Philippine negotiating panel for agriculture is said to have adopted a strategy of tactical positioning, through alliances and as an individual negotiator, to give the country flexibility and space to negotiate. In the meantime, it can only hope for a breakthrough in the forthcoming ministerial meeting in New Delhi in April, which is seen as a make-or-break event that could draw the eventual fate of the Doha Round.

Growth Outlook
Foreign Perspectives

After the first quarter of each year, foreign multilateral and regional financial agencies usually release their updated economic forecasts and projections for the Philippines. This year, the updated GDP growth forecasts for the country range from 5.4%-6.1%.

IMF

The IMF’s recent World Economic Outlook, entitled “Spillovers and Cycles in the Global Economy,” maintained its previous Philippine GDP growth forecast of 5.8% for 2007. The Fund also expects the country’s GDP to grow at the same pace in 2008. In 2006, the IMF had underestimated the growth—its 5.0% forecast was lower than the actual GDP growth of 5.4%.

For consumer prices, the Fund expects the country’s inflation rate to decelerate to 4.0% in 2007 and 2008. This is substantially lower than the Fund’s 2006 estimated rate of 6.7% and the actual 2006 figure of 6.2%.

Meanwhile, the current account surplus is projected to be equivalent to 2.1% and 1.9% of GDP for 2007 and 2008, respectively. The IMF estimate for 2006 was 2.9% of GDP, which turned out to be substantially lower than the actual figure of 4.3%.

IMF’s latest Regional Economic Outlook for Asia and Pacific included growth projections for real exports, investments, and private consumption for the Philippine economy in 2007 and 2008 as well. Real exports are projected to expand at 10.9% and 10.4% of GDP in 2007 and 2008, respectively. Investments are projected to grow at 6.6% and 9.0%, while private consumption is forecast to expand at 5.4% and 5.5%.

WORLD BANK

For its part, the World Bank’s April 2007 East Asia and Pacific Update, entitled “10 Years After the Crisis,” downgraded its GDP growth forecast for the Philippines in 2007 to 5.6% from 5.7%, but expects GDP growth to pick up to 6.0% next year. In 2006, the World Bank had overestimated the figure with its 5.5% forecast.

In terms of poverty reduction, the World Bank expects the number of people living below US$1 a day in the Philippines to go down to 6.5 million in 2008 from 7.3 million in 2007, while the ranks of those living below US$2 are also seen to decline to 31.7 million from 32.9 million.

UN ESCAP

Another multilateral agency, the Bangkok-based United Nations Economic and Social Commission for Asia and the Pacific, has also released its updated economic projections for the Philippines. Its most recent edition of the Economic and Social Survey of Asia and the Pacific, entitled “Surging Ahead in Uncertain Times,” forecasts GDP growth of 5.6% and an inflation rate of 4.5% for 2007. In 2006, the UN ESCAP’s GDP growth estimate of 5.2% was below the actual, while its inflation rate projection of 7.0% was higher than the official figure.

The agency believes the country may be vulnerable to oil price shocks. It also expects continued pressure for the peso to appreciate in 2007 given the large U.S. current account deficit and the continuing flow of foreign currency remittances.

ADB

The Manila-based Asian Development Bank’s most recent ADB Outlook is entitled “Growth Amid Change.” The regional development agency slightly upgraded its 2007 outlook for the Philippines to 5.4% from 5.3%. This is grounded on an expected growth of 4.0% in agriculture, 4.8% in industry, and 6.3% in services. In 2008, ADB projects GDP growth to accelerate to 5.7%.

ADB accurately forecasted Philippine GDP growth in 2006 at 5.4%, but like the IMF, ADB overestimated inflation at 6.7%. For 2007 and 2008, ADB projects inflation will come in at 4.8% and 5.0%, respectively.

ADB expects the country’s current account to remain at a surplus equivalent to 3.2% and 3.9% of GDP in 2007 and 2008, respectively. Merchandise exports are projected to grow 6.5% and 9.5%, while merchandise imports are predicted to expand 9.0% and 11.0%.

According to ADB, the main factors that could affect its projections for the Philippines include a slowdown in external markets, the conduct of the May elections, the progress of fiscal and structural reforms, the intensity of the El Niño phenomenon, and the unpredictable impact of typhoons.

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