Achieving the ASEAN Economic Community 2015: Challenges for Member Countries and Businesses

15. Role of the Private Sector in Regional Economic Integration: A View from the Philippines

15 Role of the Private Sector in Regional Economic Integration: A View from The Philippines Maureen Ane D. Rosellon and Josef T. Yap* Overview of the Philippine Situation Sustainable economic development continues to be elusive for the Philippines. A wide spectrum of economic policies has been implemented during the past five decades. Yet the boom-bust cycle has remained a constant feature of the economy, along with a relatively high poverty incidence. The overview underscores one of the dilemmas that currently face policymakers in the Philippines: a dominant private sector in the Philippines, but one that not has not lived up to its potential. Compared with other economies in Southeast Asia, the Philippines’ economic growth record has been disappointing. While the region’s middle- and high-income economies experienced at least 2 per cent average growth of real per capita gross domestic product (GDP) during the past fifty years, the Philippines recorded only a 1.9 per cent average (Table 15.1). As a result, the Philippines was not even described as a 250 Maureen Ane D. Rosellon and Josef T. Yap TAblE 15.1 Annual Average Growth Rate of Real Per Capita GDP, 1950–2006 (%) Period Hong kong, China Indonesia Korea Malaysia The Philippines Singapore Taipei, China Thailand 1951–60 9.2 4.0 5.1 3.6 3.3 5.4 7.6 5.7 1961–70 7.1 2.0 5.8 3.4 1.8 7.4 9.6 4.8 1971–80 6.8 5.3 5.4 5.3 3.1 7.1 9.3 4.3 1981–90 5.4 4.3 7.7 3.2 –0.6 5 8.2 6.3 1991–2000 3.0 2.9 5.2 4.6 0.9 4.7 5.5 2.4 2001–06 4.0 3.3 4.2 2.7 2.7 3.2 3.4 4.0 Average growth rate for 56 years 5.9 3.6 5.6 3.8 1.9 5.5 7.3 4.6 Source: Asian Development Bank (2007). Role of the Philippine Private Sector In Regional Economic Integration 251 “high-performing economy” by the World Bank in its 1993 study of the East Asian Miracle, while Thailand, Malaysia, and Indonesia were included in this select group. Mainstream economists attribute this situation largely to economic protectionism and the import substitution policies that were followed after World War II up to the 1970s. The protection of selected sectors led to the misallocation of the country’s resources, that is, the sectors in which the Philippines did not have a comparative advantage benefited from this policy stance. Moreover, the lack of competition removed the incentive of protected firms to become innovative and adopt modern technology. This resulted in monopolistic firms producing poor quality goods and services at relatively high costs, the burden of which was passed on to the Filipino consumer. In response to this analysis, the Philippines — like many other developing countries — adopted the “openness model”. This reform package began modestly in the early 1970s and was interrupted by the debt crisis in 1983–85. The reform programme, however, was accelerated in the late 1980s and has been the government mantra since. The general thrust of the reforms was closer global economic integration underpinned by liberalization, deregulation, and privatization. At the same time — similar again to other developing countries — the Philippines adopted measures to strengthen the supply capacity of its economy with a view to building competitive industries which would be the main beneficiaries of increased access to world markets. More attention was given to macroeconomic stability and exchange rate movements; appropriate sequencing of the liberalization of trade, financial, and capital-account regimes, supported by prudential regulation and financial sector reform; the strengthening of domestic institutional capacity; and attracting foreign direct investment (UNCTAD 2004). The ASEAN Economic Community is a direct offshoot of the “openness model”. The AEC is a realization of economic integration which aims to establish ASEAN as a single market and production base by 2015, and make it a region of high competitiveness, equitable economic development , fully integrated into the global economy (ASEAN 2008). These elements are incorporated in a blueprint — signed at the 13th ASEAN Summit in 2007 — that ensures consistency and coherence of actions, and implementation and proper coordination among stakeholders. Unfortunately, the “openness model” did not generate the desired results and the Philippines has continued to lag behind its...