Thursday, September 22, 2005

RP's Economy's Not Tops

Philippines 2006 still behind neighboring economies -- IMF
Inquirer News Service

THE Philippines next year will continue to lag behind its Southeast Asian neighbors in terms of economic performance, the International Monetary Fund said in a report released Wednesday.

Hounded by huge public debts and political uncertainties, the Philippines is expected to post the slowest growth of 4.8 percent in gross domestic product and the highest inflation rate of 7.5 percent among four mid-level peer economies on the Association of Southeast Asian Countries (ASEAN-4) in 2006, the IMF said in its latest report on economic prospects.

Grouped as ASEAN-4 are the Philippines, Indonesia, Thailand and Malaysia. "Looking forward, the key macroeconomic priorities remain continued fiscal consolidation -- particularly in the Philippines, where large external financing requirements and high public debt remain significant vulnerabilities," the IMF said.

The government has a newly revised target of 5.7-6.3 percent for 2006.

The IMF report puts the projected 2006 average growth of ASEAN-4 economies at 5.4 percent, and that of other emerging economies on the regional bloc at 6.9 percent.

It forecasts Indonesia's growth at 5.8 percent, Thailand's at 5.0 percent and Malaysia's at 6.0 percent.

The IMF forecasts Philippine inflation in 2006 at 7.5 percent, compared with the ASEAN-4 average of 5.1 percent: Indonesia with 6.5 percent, Thailand with 2.7 percent, and Malaysia with 2.5 percent.

For this year, the IMF forecasts Philippine GDP growth at 4.7 percent, compared with Thailand's 3.5 percent, Indonesia's 5.8 percent and Malaysia's 5.5 percent.

It expects inflation this year to average 8.2 percent in the Philippines, 8.2 percent in Indonesia, 4.2 percent in Thailand and 3.0 percent in Malaysia.

Overall, the IMF said persistently high oil prices would adversely affect the region's economies.

"In the Philippines, where, after several months of improving fundamentals, the recent political turmoil has raised concerns about the prospects for economic reforms and led to downward revisions to the ratings outlook," it said, citing country-specific risks.

The IMF added that the very low level of private investment was the greater concern, underscoring a need to complete the unfinished reform agenda in financial and corporate sector restructuring, including improvements in governance.

The IMF expects the Philippines to perform well, second only to Malaysia, in terms of surpluses in the current account.

It forecasts the Philippine current account surplus at 2.1 percent of GDP this year and 1.9 percent next year, as against a deficit in Indonesia at 0.4 percent of GDP this year and a surplus of 0.7 percent of GDP next year. Doris Dumlao, with

The Sleeping Giant

Commentary : The rise of Chinese 'sea power'

Hideaki Kaneda
Inquirer News Service

IN AN age of missiles and terrorist threats, many people think that "sea power" is a word and concept from the past. Not in China. Indeed, China is increasingly emphasizing its naval and maritime interests: economic development, territorial management, energy and food security as well as trade. A navy sufficient to promote such activities is being rapidly developed and purchased from abroad (mostly from Russia and, when possible, from the European Union).

Many of China's neighbors are alarmed. The United States Defense Department views China's goal as being to build a series of military and diplomatic strategic bases -- a so-called "string of pearls" -- along the major sea lanes, from the South China Sea to the oil-rich Middle East.

China seeks not only to secure its energy supplies but also to achieve broader security goals. For example, the Gwadar military port, which China is constructing in southwest Pakistan, is strategically placed to guard the throat of the Persian Gulf, with electronic eavesdropping posts to monitor ships-including war ships-moving through the Strait of Hormuz and the Arabian Sea.

Similarly, China is building container port facilities at Chittagong in Bangladesh for its naval and merchant fleets; as well as more naval bases and electronic intelligence gathering facilities on islands owned by Myanmar in the Gulf of Bengal. Indeed, China's ties with Myanmar's military dictators look set to turn into a de facto military alliance. In nearby Thailand, China has invested $20 billion in a plan to build a canal across the Kra Isthmus to connect the Indian Ocean and the Gulf of Siam, thereby providing an alternate oil import route that avoids the Strait of Malacca.

In the South China Sea, China is developing systems to allow large-scale deployment of naval and air force units by fortifying bases on Hai Nan Island and the southern Chinese coastal area. On the Spratly and Paracel islands -- seized from Vietnam and the Philippines, respectively -- China is building port facilities to moor large surface ships and runways large enough to handle long-range bombers. In effect, China is in the process of building a group of literally unsinkable aircraft carriers in the middle of the South China Sea.

Why is China, usually considered a "continental power," engaging in this maritime expansion? China dominated Asia in terms of "sea power" until the 17th century. Indeed, during the Ming Dynasty (1368-1644), Admiral Zheng He's "Great Navy" was the world's most powerful. But for the last three centuries, China has had no global maritime strategy; neither has it possessed -- or sought to possess-naval forces capable of supporting such a strategy.

Ironically, China's current maritime strategy has its roots in the United States, the nation that China appears to perceive as its key strategic rival, namely in the "sea power" theory developed by Admiral Alfred Thayer Mahan at the end of the 19th century. In "The Influence of Sea Power upon History," published in 1890, Mahan argued that maritime power and economic development were deeply intertwined. Only the ability to protect trade and project power by sea could assure the vitality of this nexus.

Mahan identified the conditions that determine "sea power": (1) geographical position and environment; (2) territorial capacity, specifically coastline; (3) population; (4) character of people attuned to maritime expeditions; and (5) character of government eager to embrace "sea power."

These conditions applied to the United States of Mahan's time, and they surely apply to China today. China is already the world's third largest trading nation and rapidly developing its port capacities to manage an ever-increasing volume of trade. Its ship tonnage (excluding fleets that sail under flags of convenience) is the fourth largest in the world. Rapid expansion of ship tonnage is part of China's current five-year program, and by 2010 its shipbuilding capabilities will likely rival those of Japan and Korea.

However, unlike the United States and Britain in the past, China today must turn to overseas bases rather than to colonization to enhance its "sea power" -- hence its "string of pearls." Still, China is transforming its coastal navy into an ocean-going navy at a pace far quicker than most experts reckoned possible. By 2010, China is expected to have 70 of the most modern surface vessels, several modern strategic nuclear submarines, and several tens of modernized attack submarines, exceeding the modern forces of both Taiwan's navy and even Japan's Maritime Self-Defense Force, at least in quantitative terms.

Moreover, China plans to improve and expand its capabilities for assault landing and joint logistical support, both of which used to be weak points. This will provide China with necessary capabilities to invade, should China's rulers wish, Japan's most remote islands, including the disputed Senkaku Islands, as well as Taiwan. If China's naval growth continues at its current pace, it may have the world's largest naval force by 2020.

All of Asia must wake up to the arrival of Chinese-style aggressive "sea power." Japan, in particular, must reformulate its national maritime strategy with this in mind. Japan, America and other traditional maritime countries must also once again treat "sea power" in Asia as a key component of their ability to defend their own national interests. Project Syndicate

Hideaki Kaneda, retired vice admiral of Japan's Self-Defense Forces, is currently director of the Okazaki Institute.