Once considered the most promising economy in Asia after Japan, the Philippines has fallen far behind Southeast Asia's nimble, export-led economies. But things are finally looking up. Tired of being scorned as "the sick man of Asia," President Benigno Aquino III asserts: The Philippines is now "open for real business."
Judging by some very visible changes, Aquino, who has been in office for two years, isn't engaging in wishful thinking. Manila's luxury hotels are crawling with Asian, American, and European investors in search of opportunity. And the city's skyline, a symbol of its past as a home to slow-moving domestic oligarchs, is now dotted with cranes. Foreign direct investment is on track to triple this year, while GDP growth is expected to rise from 3.7 percent last year to a respectable 5 percent in 2012. Karen Ward, a London-based analyst for HSBC bank, speculates that the Philippines, now the world's 43rd largest economy, could be the 16th largest by 2050.
Such optimism is hardly a consensus view. For one thing, the Philippines has yet to deliver an economic performance worthy of an Asian tiger. The IMF forecasts that, while up considerably, Philippine GDP growth will still lag behind that of the other Asian tiger wannabes -- Indonesia and Vietnam -- in 2012. And while foreign investment is rising rapidly, it's from a dismally modest base: Indonesia is expecting to attract some $27 billion this year, compared to roughly $3 billion for the Philippines.
Indeed, the standard indictment of the economy still seems daunting. For one thing, the Philippines is startlingly dependent on alms from abroad. Roughly 11 million Philippine citizens (12 percent of the population) work in a great diaspora, running from Hong Kong to New York and Kuwait, sending home about $20 billion annually to support their families. Nearly one-fifth of all Pinoys, as Filipinos call themselves, still live in deep poverty, which is defined by the World Bank as a purchasing power of less than $1.25 a day. Meanwhile, the WTO reports that "key sectors" of the Philippine economy remain "effectively controlled" by uncompetitive domestic elites.
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So why am I optimistic? President Aquino -- nicknamed P-Noy -- is apparently that rare Philippines leader who is both incorruptible and competent. And his administration seems determined to change the environment of crony capitalism where who you know in government, and how much you're willing to pay for privileges, has always mattered more than what you make or how well you make it. John Forbes, a former U.S. diplomat and business consultant, whose Philippine experience goes back more than 40 years, says Aquino's anti-corruption moves are "unprecedented."
Now, the very idea that one leader or one government administration can reverse a long history of institutional sleaze makes economists and political scientists uneasy. Successful economic reform is a complex, organic process that requires support at every level of society. And the recent past is littered with economic reform plans that succumbed to cronyism -- think Yeltsin's Russia or Suharto's Indonesia or Mubarak's Egypt. But change is afoot in the Philippines, and Aquino may just be able to nudge the economy into a virtuous circle in which reform sparks economic growth, and growth, in turn, gives outsiders the clout to contest the power of the country's crony capitalists.
Aquino's immediate predecessor, Gloria Arroyo, earned her PhD in economics. By contrast, the laid-back P-Noy would never claim to be an economic savant (though he did manage to earn a B.A. in the dismal science, and one of his professors was Ms. Arroyo). President Aquino, by the way, is prosecuting Ms. Arroyo, alleging that she raked in millions of dollars in bribes. However the criminal charges are eventually resolved -- or perhaps not, considering the notoriously glacial pace of justice in Manila courts -- this much is clear: On Ms. Arroyo's watch, rampant corruption held the Philippine economy back, while in P-Noy's few years in office, honesty is producing tangible results in terms of growth.