Former Philippine first lady, Imelda Marcos, was famous for her 2700 pairs of shoes. These days, such symbols of extravagance are rare in Manila. Frugality is now in vogue and the shift in thinking is originating from the top.
Since becoming President of the Philippines in 2010, Benigno Aquino has made headlines with his down to earth approach to the presidency. He famously had a $2 hot dog and coke for lunch while on business in New York City.
Finance Secretary of the Philippines, Cesar Purisima, told CNBC Asia’s "Squawk Box" the president “walks his talk” on good governance and it's rubbing off on other politicians. “It's the signal he sends to the rest of the bureaucracy that it's no longer business as usual, that we're going to change the way spend our money,” said Purisima.
In the first quarter of 2012, the government’s budget deficit came in below target. The shortfall was 33.9 billion pesos ($800 million), far less than the 82.8 billion pesos ($1.95 billion) the government had forecast for that period. Philippine bonds and the peso rallied on the news.
But critics say government underspending since 2010 has been hampering the economy when it needs help. GDP growth in the Philippines slowed dramatically to 3.7 percent in 2011 from 7.6 percent in 2010 mainly because of a fall in exports.
Purisima told CNBC the government is now recalibrating its approach by frontloading government spending this year. “We've already dispersed 87 percent of the infrastructure spending (for 2012), way ahead of schedule,” he said.
Analysts like what they see. Prakriti Sofot, Regional Economist at Barclays Capital says the painful reforms will soon start paying off.
“The government has been undertaking housekeeping to make sure the systems are in place so that leakages can be minimized. And my sense would be that in 2012, you will actually see a pick-up in government spending because those procedures have been done.”
Sofat says things are changing in the Philippines and investors should be on the look-out for opportunities. “The Philippines appears to be at an interesting turning point and definitely should be an investment destination for asset managers.”
The peso has strengthened 3.3 percent against the U.S. dollar so far in 2012. The Philippine Stock Exchange is one of the best performing Asian equity indices this year, rising 19 percent.