MANILA, February 15, 2010—Policies that allow economic growth to be shared by all sectors of society, particularly the poorest of the poor, along with "the right mix of ingredients" for broad-based development, could help propel the Philippine economy's rate of expansion to levels achieved by its more prosperous neighbors in East Asia and the Pacific region.
This was the gist of a speech delivered today by World Bank Country Director Bert Hofman before a gathering of the Foreign Correspondents Association of the Philippines (FOCAP), an organization of journalists affiliated with international news agencies with offices in Manila.
Mr. Hofman referred to the performance of a number of economies – including China, Taiwan, Thailand, Hong Kong (now a Special Administrative Region of China), Indonesia, Japan, South Korea, and Taiwan – that recorded average growth rates of 7 percent or more over a period of 25 years or longer.
Such a fast, sustained growth is not a miracle; it is attainable for developing countries with the 'right mix of ingredients', according to a World Bank-sponsored study that Mr. Hofman cited. Titled "The Growth Report: Strategies for Sustained Growth and Inclusive Development," the study looked into the policies adopted by 13 economies that led to sustained high growth rates for long periods since 1950.
According to the study, these rapid-growth economies did the following: 1) they fully engaged with the global economy; 2) they maintained macroeconomic stability; 3) they mustered high rates of savings and investment; 4) they let markets allocate resources; and 5) they had committed, credible, and capable governments.
"What I find striking from the insights of policymakers in rapidly growing countries is their focus on inclusive or shared growth," said Mr. Hofman, stressing that these countries provided a level playing field for investors, invested well in people's health and education as well as social protection. "The nature of growth actually matters for the speed of growth. More inclusive growth that benefits all makes it easier for policymakers to argue for the reforms that are needed to accelerate growth."
"It's really all about making growth work for the poor," stressed Mr. Hofman.
Could the Philippines achieve similar growth rates of 7-8 percent a year and catch up with high-income economies in the East Asia and the Pacific region? Mr. Hofman pointed out that while a similar policy "menu" cannot be prescribed outright for the Philippines, given that conditions differ from country to country and from time to time, the successes of the economies with rapid growth rates could serve as points for discussions on a program of reforms towards higher growth.
Mr. Hofman pointed to recent gains that the Philippines has achieved on the economy. "The Philippines has restored macroeconomic stability, and, as important, a reputation for macroeconomic stability, mainly on the back of rapidly growing remittances that provide a strong basis for currency stability and international reserve buildup," he said.
Also, the country now enjoys a savings rate that well exceeds investment, and the country's human resources are in high demand around the world, he added.
Mr. Hofman said there remains a bottleneck in the creation of opportunities for deploying these financial and human resources at home—the investment climate. This bottleneck was traced to 1) insufficient infrastructure, 2) investment in human resources that falls short of levels required to grow faster and lift people out of poverty, and 3) governance issues cited as "a critical factor" by both domestic and international investors.
"More consistency in policies and their implementation and enforcement would benefit the Philippines' investment climate," said Mr. Hofman. "While improvements in these areas are difficult to achieve, credible commitment to more consistent policies should be high up the agenda for any government, and actions that reinforce such commitment would be much welcomed by the business community."
In arguing for inclusive growth, Mr. Hofman said that such expansion that benefits all makes it easier for policymakers to argue for the reforms that are needed to accelerate growth. "Indeed, growth is accumulation and restructuring—and restructuring is painful for those involved, for those that need to move to a new job, need to give way for infrastructure, or are otherwise adversely affected by rapid growth," he said.
Mr. Hofman added: "To know that they and their families will benefit from such disruption in the end is important for people to accept the type of measures that are needed. To know that there is a safety net when they become temporarily unemployed may well speed up growth, rather than slow it down. Further, providing people with better, if not equal opportunities—by having a level playing field in markets, by providing people with the education needed to succeed in life, by providing equal protection under the law could be seen as an inclusive growth agenda, but this can equally be simply considered a growth agenda, period."