It is difficult to imagine how the Year 2002 can possibly beat Year 2001 in terms of twists and turns of unexpected events. Last year, after all, brought us People Power 2, May 1, the downturn of exports, and September 11. While not as dramatic, 2002 has brought us more than our fair share of unexpected turns of events, making this year every bit as long and exhausting as last year. At the end of the day, while the numbers will look remarkably good given the circumstances (GDP will expand by 4.1%, GNP by 4.9%), the public mood will be a good deal gloomier than those numbers. The mood suggests that (a) people worked harder this year to achieve the same results, (b) people expected more out of government, (c) people have grown frustrated with yet more missed opportunities, (d) something out there outside the economy is causing this funk, or (e) all of the above.

To be fair, the economy has performed about as well as could be expected in a post 9-11 global economy scenario – perhaps even better than expected, one might argue. The underlying strength behind the economic growth has been the service and agricultural sectors, with the industrial sector showing some mild signs of recovery. Personal consumption, too, has been quite strong, probably fueled by the surge in dollar remittances from overseas Filipinos. Inflation has dropped to a historic low and interest rates have remained at low single digits. As expected, exports have rebounded on the back of a recovering electronics sector.

But in spite of these gains, there have been problems. This year, the deficit has once again gone out of control, missing its original P130 billion target and now headed for P220 billion. We’ve now missed the absolute peso target as well as the percent-to-GDP target of 4%. The underlying cause appears to be a severe shortfall in tax revenue collection, a chronic problem which now seems to be hitting epic proportions. In the banking sector, non-performing loan ratios remained persistently high while loan growth was anemic at best. Investments proved to be erratic for most of the year as businessmen shied away first because of security considerations and later because of issues surrounding the sanctity of contracts. Independent Power Producers’ (IPP) contracts and the NAIA terminal contract with the government were questioned years after they were signed. Investors are now thinking twice, even thrice, before committing to pour capital in places where they may find contracts under review down the road.

There are a lot of opportunities to bring the economy back to the growth path. The country’s economic fundamentals are reasonably sound and the necessary reforms are slowly being put into place. We have a president who herself is an economist and we have a good economic team to advice her and implement the administration’s programs. However, what could really be the “fly in the ointment” is the upcoming 2004 elections. Despite well-meaning intentions, the administration could be blinded to choose the more popular decisions, with elections only 16 months away. If this happens, be ready to kiss economic and rationale thinking goodbye. But on the other hand, should the right decisions and programs be implemented, the people would credit this administration and cast their votes accordingly. Clearly, the year 2003 will be a “make” or “break” year for this administration.