President Gloria Macapagal-Arroyo helped steer the Philippines out of an economic slump in 2001 to its best growth ever, in 2007, by strengthening the country’s public finances and reducing debt. Global turmoil slowed the economy in 2008 and poses an even bigger threat this year, but the president aims to maintain growth by increasing spending. During a recent visit to Hong Kong, Arroyo, 61, discussed her priorities with Institutional Investor Asia Bureau Chief Allen T. Cheng.
Institutional Investor: What has the Philippines done right under your presidency to promote growth, and what is your strategy to maintain it in a global recession?
Arroyo: 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. We did this before we even had a hint the world would go into global economic crisis. We have been working on balancing the budget, developing new industries such as business-process outsourcing, expanding our trade relations and diversifying our exports and export markets. All of these will serve us well during this global economic crisis.
Are you afraid remittances will slow because of global contagion?
The bulk of our expatriates are in the Middle East and Asia, which are fairly resilient in the face of the downturn in the U.S. and Europe. And our workers are increasingly becoming skilled workers. So the higher the skill, the higher the income and the higher the remittance. But also we — the central bank together with the Department of Labor — have embarked on a financial literacy program that provides expatriates and their families information on how to leverage their remittances to earn more income.
How did the Philippines manage to avoid the toxic assets that hurt banks in the U.S. and Europe?
Since the Asian financial crisis, we have had the special-purpose asset vehicle law. Lately, we had the formation of a credit information bureau, and then we had the restructuring of housing loans. These have helped clean up the financial system. And the central bank has used its regulatory and supervisory power to improve banking practices and corporate governance, and to make the banks align their accounting practices with international standards. They have enhanced risk management and bank capitalization.
Last spring there was a major rice crisis that almost derailed the Philippines’ growth plans. What did you do to contain the crisis, and do you think the rice crisis challenge is over?
We started by ensuring stable supplies. Very early on, when our secretary of Agriculture told me there would be a shortage, he said we should procure early, which we did. And then when we had a supply, we had to ensure distribution, and we enlisted the support of civic and church groups, local governments. Then third, we went after price manipulators and conniving officials. Now we see, with uncertainty in the world, with climate change — you never know how much the harvest will be every year — and with so much speculation moving from subprime into commodities, the new global economics makes it important for us to be self-sufficient in rice. Hopefully, we can achieve it in five years.
The Asian Development Bank says the Philippines isn’t doing enough to encourage industrial development and infrastructure investment.
Well, infrastructure investment is indeed the backbone of a modern nation. That is why in the Philippines’ long-term development plan, we are increasing infrastructure expenditures, from 1.8 percent of GDP when we started in 2001 to 4.5 percent in 2010. This is part of the 1.7 trillion pesos ($36 billion) we are planning to spend on human and physical infrastructure, which means billions in ports, roads and bridges and in education, health care and training. We began the plan in 2006, and the money will be spent through 2010.
Your critics have launched various impeachment campaigns against you, alleging that you and your family are corrupt. Why are there all these allegations?
It’s hardball politics. It’s a fact of life in the Philippines, and I don’t like it. We have two Philippines. The economy has been doing well, and the political system continues to be very bad. That is why after working on economic reforms I called for fundamental political reforms, so we can not only have more transparency and accountability, but also less destructive politics.
