For years, the Philippines has been the economic laggard of southeast Asia. Blessed with a large English-speaking population of 100 million, abundant natural resources and the trappings of a functional democracy, it has nevertheless managed to fall further and further behind more successful neighbors.
Today, in purchasing power parity terms, the Philippines has an income per capita roughly a quarter that of Malaysia and half of Thailand. Outside its glitzy business district, the traffic-clogged capital of Manila is full of slums. Rural poverty and corruption are rife.
At long last, though, the tide is turning. Just as many of the world's best-performing countries of recent years – including Brazil, India and even China – are sagging, the Philippines is stirring into life. Last quarter, its economy again surprised on the upside, growing 7.1 per cent and notching up its 55th straight quarter of growth. It now seems to be growing at a steady 5-6 per cent, despite an adverse external environment, against a lowly 3 per cent in the 1990s. The finance ministry believes the potential growth rate can be lifted to 6-7 per cent and eventually to 7-8 per cent.
The fiscal position has altered beyond recognition. The Philippines has gone from being a country constantly on the verge of a balance of payments crisis to one with manageable external debt and a fiscal deficit of just 2 per cent of output. Such has been the improvement that rating agencies have nudged its sovereign debt to within a whisker of investment grade, a status it is likely to achieve in the next year or so.
As a result, money is pouring in. The stock market, one of the world's best-performing in 2011, is up 32.5 per cent in the year to date in peso terms. That makes it the world's fifth-best performing index. The peso itself has strengthened 7 per cent against the dollar. There is even talk of new investor interest in manufacturing. Japanese companies, looking for an alternative to China, have been nosing around. Philippine exports, not as important to the economy as for many Asian countries, have held up well in spite of falling demand for electronics, suggesting a degree of diversification.
Underlying the story, though, is strong consumption, which makes up early 70 per cent of gross domestic product. Remittances from overseas workers have nearly tripled to $20bn since 2004, defying expectations that they would wilt after the 2008 financial crisis. Notwithstanding the inflow of money, inflation has been kept below 3 per cent thanks to prudent fiscal and monetary policy. Adding to this year's growth impetus, the government – confident that the fiscal situation is under control – has begun to loosen its purse strings, spending more on much-needed infrastructure and social welfare. Spending on education has risen by a third and on health by two-thirds, it says.
"The Philippines, together with Indonesia, is one of two countries beating expectations in this region," says Changyong Rhee, chief economist of the Asian Development Bank. "Now, all of a sudden, foreign investors have high expectations of this country."