Cyclicality

For years, the Philippines has been threatening to break into the ranks of high middle income countries.

- ALEX MAGNO

Each year, the schedule is pushed back. We seem to have hit a ceiling.One economist pointed out what might be the snag. Our manufacturing sector remains small as our economy is driven mainly by domestic consumption instead of improvements in productivity. Domestic consumption is fueled by remittances. Our policymakers seem content with that.

The so-called “tiger economies” of East and Southeast Asia are export powerhouses. Their growth is driven by constant innovation in their manufacturing and sustained expansion of their industrial bases.

The Philippines is an outlier in this regard. Our exports are marginal. Our disposition for breaking up the land estates kept our agriculture backward - and today, increasingly import-dependent. There is little in terms of backwardand forward-integration among our enterprises to support manufacturing growth.

Some have commented that we should allow the peso to continue to depreciate to encourage demand for domestically produced goods and suppress pressure to import our needs. Exchange rates alone will not accomplish this outcome for as long as our domestic manufacturing sector is weak. The structural factors must be changed. A weak peso will simply make imported inputs for domestic products more expensive.

For as long as we have a weak manufacturing base, we will be dependent on imports for our vital needs. A weak currency will penalize our consumers and feed inflation without improving our position visa-vis our neighboring economies. We will sink deeper in our role as the Sick Man of Asia.