Economic Problems of the Philippines

Philippine Economy

The Republic of the Philippines is located in Southeast Asia and Manila is its capital city. The country comprises 7,107 islands and ranks as the 12th most populous country in the world. Like most other southeast Asian regions, the Philippines too has a history of European colonization. It was a colony of Spain and the USA. The country is now home to multiple cultures and traditional ethnicities. It is also looked upon as a perfect example of a 'mixed economy'. Industrialization is a new development in the Philippines. Traditionally, the economy stabilized on the agrarian contributions and the manufacture of garments, pharmaceutical products and semiconductors. In the last decade, electronic exports added to the exports, including various products obtained by mining.

The economy of the nation also largely depends on the remittances from Filipinos residing overseas and investing in the homeland. However, exports are not evenly balanced by the imports that include heavy electronics, garments, various raw materials, intermediate goods and fuel. The influence of the Manila galleon on the nation's economy during the Spanish period, and bilateral trade when the country was a colony of the United States has resulted in the preference of a mixed economy over a centrally planned or market based one. It is very important to understand the shift during the Ferdinand Marcos leadership, from a market economy to a centrally planned economy, to relate to the economic recession that the country is now facing. It is only in the wake of economic liberalization and the make over from the monopolies during the Marcos era that the country is now able to apply the fundamentals of a mixed economy to remain buoyant.

Major Economic Problems of the Philippines

Import-Export Imbalance: Among the many economic problems faced by the Philippines, one is the imbalance of imports and exports. The negative trade is heavy and only counterbalanced by the service account surplus. Over the last two decades, Philippine exports have shifted from commodity-based products to manufactured goods. However, in the midst of the current global economic recession, the exports of electronics, garments and textiles are yet to reach a level of import neutralization.

Decline of the Philippine Peso: The economic downturn has resulted in the devaluation of the Philippine peso and subsequently, a fall in the stock market. The fiscal conservatism strategy adopted by the Philippine government has yet to reflect a positive effect on acceleration of economic growth. 6% growth in the gross domestic product (GDP) in 2004 and 7.3% in 2007 has yet to accelerate to the linear GDP growth projected by the government.

Reliance on Remittances: President Gloria Macapagal-Arroyo has pledged complete development of the economy by the year 2020. There have been a number of tax reforms put in place, alongside extensive asset privatization. Nevertheless, Philippines' dependency on remittances from non-resident investors is large. Neighboring competitors have been siphoning away big investors in infrastructure and outsourcing. This has resulted in an uneven regional development.

These are just some of the economic challenges looming large over the Philippines. The government is taking extensive steps to ensure even distribution of economic growth within the nation, by promoting overseas and home-bound investments in the Philippine Islands. The country is facing significant decline in industrial production, gross domestic product, income and employment and sales. Nevertheless, the crossover from import substitution to promotion of exports are slowly adding quality to various fiscal incentives. The abolishing of export taxes and liberalization of foreign investment laws have helped equalize trade deficit to a considerable extent.