Another tale of two economies

From the Philippines Star: Another tale of two economies

by Ray Butcher Gamboa

Many of our readers found last week’s column where we juxtaposed the economies of two super powers namely America and China quite revealing and informative. Many thanks to our readers who faithfully follow this column and sent their interesting comments.

As I said, that was from a kibitzer (me) from a developing country, awed by the supremacy of these two big economic powers. For this week, let’s take a look at the economies of two developing nations, both sharing interesting histories, one determined to overcome decades of oppressive rule and the devastations of a protracted war, the other wonderfully rich in natural resources and minerals but seriously set back and weighed down by massive corruption.

Vietnam, composed mainly of feudal dynasties, has always been an agricultural country. It was colonized by France in the mid-19th century who divided the country into a manufacturing region in the North and an agricultural one in the South. But political forces divided this otherwise placid country, the North turning communist while the South remained capitalist. This was in 1954. It was also during this time that the Second Indochina War took place, and Vietnam’s fragile economy took a turn for the worse due to massive exodus between 1954 to 1975. The protracted Vietnam War where the Vietnamese regime fought valiantly against the mighty US forces further devastated the country.

The Philippines suffered through a long repressive Spanish rule, liberated by the Americans who merely took over from the old colonizers, until it was finally granted full independence. The years after World War II saw us recovering faster than most Asian countries, and for some time, the Philippines was one of the richest countries in Asia, topped only by Japan, and beating other countries like Thailand. Now, the Philippines is one of the poorest in Southeast Asia, left by a mile by neighbors Thailand and Korea, and competing for the last place in the rung in the ASEAN region.

What happened in the ensuing years?

Immediately after the Vietnam War, the government launched into a series of 5-year plans up to 1985, integrating the North and South and decentralizing planning. Still, it was beset by small-scale production and material shortfalls, among other serious obstacles for advancement. All this time, Vietnam’s foreign trade was heavily tied up with the Soviet Union’s until the trade agreements were finally dissolved. Thus was Vietnam able to forge ahead with fresh trading partners and embark anew on more liberal regional and international economic capitalization.

For the Philippines, 1984-1985 saw a severe recession fueled by political instability. With the next regime, President Fidel Ramos’s economic reforms produced palpable results in terms of sustained economic growth and foreign investments until 1997 when all of Asia crumbled during the Asian crisis. The Philippines was largely spared, but economic growth slowed down perceptibly, recovering only in 1999 when the country registered a 3.4 percent growth. President Joseph Estrada’s term, despite efforts to continue the economic reforms his regime inherited from the previous administration, was marked by low economic activity amidst growing reports of corruption which ultimately led to his ouster and ushered in a new administration under Pres. Gloria M. Arroyo.

This regime posted remarkable economic gains, growing by 6.1 percent in 2004; by 2005, the Philippine peso appreciated by six percent, then the fastest in the Asian region for that year. Still, despite the oil crisis and two devastating typhoons, our economy grew by five percent+.

To give you an idea of how the peso fared against the US dollar: in 1980, the exchange rate was P7.51:$1; in 1985 – P18.60:$1; 1990-P24..32:$1; 1995 – P25.52:$1; 2000 – P44.19:$1; 2005- P55.05-$1; 2006- P49.28:$1; 2011- P42.50 - $1.

In contrast, Vietnam reeled from the Asian crisis, the GDP growth falling dismally to six percent in 1998 and five percent in 1999. The decade, though saw a resurgence in the country’s exports which grew to as much as 30 percent, accounting for almost 40 percent of the country’s GDP. The next decade saw them expanding their foreign trade even faster, becoming a member of the World Trade Organization in 2007. Upon acceptance at the WTO, their textile quotas were rendered moot, so the textile industry of Vietnam flourished.

The Philippines, though, enjoyed better times as a major global player in textile and garments especially in 2003 when the industry employed as much as 600,000 workers and was a top supplier of apparel in the global market. Today, this is an ailing industry that barely employs 150,000 workers, many factories having folded up. The industry waits in bated breath for the passing of the Save Act in US Congress (and Senate) where it was refilled in June 2011, having failed in the bill’s initial try. It must be remembered that the United States stopped issuing quotas on garments in 2005. The Save Act seeks to grant duty-free treatment to selected apparel products made from US-made fabrics but wholly assembled in the Philippines. The bill also seeks lower tariffs for products made from US yarn, and duty-free status for “cut and sew” clothes that are not produced in the United States. With the re-filing, certain provisions of the new version of the Save Act have been altered to woo the American vote.

For Vietnam, the country’s industrial GDP grew at an average annual rate of 10.3 percent. Several manufacturing sectors also showed rapid growth, among them food processing, tobacco, textiles, chemicals and electrical goods. The cities of Ho Chi Minh and Hanoi were bustling as most of the economic activities were centralized here. Crude oil (they have limited refining capacity) accounts for the bulk of Vietnam’s exports, representing over 20 percent of the country’s export earnings. As for tourism, there is a steady increase in visitors’ influx, mainly from the United States and neighboring Asian countries.

Vietnam continues to be a recipient of aid from the World Bank, Japan and the Asian Development Bank. Pledges of official development assistance from 1993 to 2004 reached a high of US$29 billion, about half of which have actually been released to Vietnam. In 2008, these pledges reached US$31.6 billion.

The Philippines also has its fair share of big foreign investors like Intel (which makes Pentuim 4 processor) which has been in the country for 28 years, Texas Instruments in Baguio (20 years now) which produces DSP chips and all the chips used in Nokia cell phones as well as 80% of chips used in Ericsson cell phones in the world, Toshiba in Sta. Rosa, Laguna, which now focuses in the production of hard disk drives, and Lexmark which operates a printing plant in Mactan, in Cebu. We continue to be the richest in mineral resources (gold, nickel, copper and chromite), but since 1999, our mineral production has slowed considerably until 2004 when the Supreme Court upheld the law allowing foreign ownership of Philippine mining companies. Our geothermal energy output a few years ago ran second to the United States, and our Malampaya oil fields already generates electricity in three gas-powered plants.

Both countries are still called developing countries, but Vietnam has rebounded from an inflation rate of 106 per cent in 1988 to 20.3% in 2008. Corruption continues to permeate the government in both countries, but the extent of corruption in ours is perceptively more, and this is compounded by high costs of utilities, lack of transparent regulations and a dismal failure to enforce investor rights which scare off the investors.

Vietnam has had bigger leaps than us.

Mabuhay!!! Be proud to be a Filipino.