Policy Reforms and Institutional Weaknesses: Closing the Gap

The World Bank (2005) reported that from 1985 to 2003, per capita gross domestic product increased only by about 0.7% per year, well below the 3.7% average of neighboring countries (Indonesia, Malaysia, Myanmar, Thailand and Vietnam). It was in the 1970s that the economy last experienced a sustained period of rapid growth, according to the same World Bank report. The 1997 East Asian financial crisis has contributed to the decline in economic growth and the relative economic stagnation experienced by the country in the last few years. There was very moderate economic growth at around 5% a year since 2003 but other ASEAN countries, which were more adversely affected by the East Asian financial crisis, have once again galloped ahead of the faltering Philippine economy. The same spectacle in the eighties when investors studiously ignored and bypassed the country, pouring massive capital and technology into Malaysia, Indonesia and Thailand, seems to be re-emerging. Indeed, private investments have largely bypassed the country, which denied it tremendous opportunities for tapping not only much-needed financial capital but also technology and innovations, so crucial for acquiring competitiveness in global markets. Comparisons with other countries show that the Philippines “remains at the bottom of the list of overall competitiveness rankings and various business environment indicators” (World Bank 2005), which does not augur well for growth, trade and competitiveness.