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There is never a good time for a crisis. But for the Philippines, which has known more than its share of difficulties, the global economic downturn comes at a particularly tricky moment. After decades of failed promise, the country in recent years has registered some of its best economic performances ever as a result of the fiscal reforms and pro-business policies of President Gloria Macapagal-Arroyo. Now those gains are threatened by the recession in the U.S. and Europe, which has caused the country’s exports to plunge and growth to slow sharply.

But Arroyo, who took office eight years ago when the Philippines was on the brink of recession and turned the economy around, is confident that the country can meet the new challenges. Her government is taking advantage of its fiscal reforms, which have dramatically lowered the deficit and the national debt in recent years, to ramp up spending to combat the economic slowdown. The 2009 budget, which Congress approved in January, contains a stimulus package of 300 billion pesos ($6.4 billion) for infrastructure spending and tax breaks. The president also believes that the Philippines’ business-process outsourcing industry, which she has actively promoted, stands to benefit from recessions abroad as hard-pressed American and European companies look to cut costs.

“The important thing now is to work on the global recovery together and to prevent the global crisis from becoming a crisis in the Philippines,” Arroyo tells Institutional Investor in a recent interview in Hong Kong, where she was attending a meeting of the Clinton Global Initiative. “Reform has been the central pillar of our administration. Key among the reforms is the expanded value-added tax, which allowed us to have the revenue to invest in human and physical infrastructure as well as social services.”

Although the country resisted the early stages of the financial crisis, its economy — like most across Asia — is feeling the global slowdown that followed the collapse of Lehman Brothers Holdings in September. Exports dropped by 11.9 percent in November, with shipments to the U.S. — the country’s biggest market — plunging by 18.8 percent. Foreign direct investment, which had surged in recent years, declined 47 percent in the first ten months of 2008, to $1.42 billion. Remittances from Filipinos working overseas have held up well so far, but they too are likely to be hit by recessions in foreign markets, the International Monetary Fund warned last month.