A look at the trend from 2001 shows that Asian currencies in general have been appreciating against the U.S. dollar especially since the middle of 2006. The U.S. economy is heavily weighed down by its historic budget and trade deficits as well as by the wars it is unable to win in Afghanistan and Iraq. It is also widely expected to experience an economic slowdown this year.

Asia has also been receiving markedly higher inflows of speculative investments, many of which are going to the region’s stock markets, with the trend again being especially marked since the middle of last year. During the first quarter of the year, some $2.8 billion or 78 percent of gross foreign portfolio investments went to the Philippine Stock Exchange. These inflows were equivalent to nearly half of gross inflows in the whole of 2006 and two-thirds of gross inflows in 2005.

The Philippines is also one of Southeast Asia’s laggards in terms of economic performance. Philippine economic growth of 5.3 percent last year was actually the third worst in Southeast Asia and even less than the ASEAN average of 5.8 percent. The country has the worst unemployment and is the fifth poorest country in terms of GDP per capita and national poverty rates. Although comparisons of this sort are problematic because of differing methodologies and measures, it should at least serve as a wake-up call for the administration.

Fiscal Hype

Another achievement that would surely be hyped in the SONA is how Macapagal-Arroyo succeeded in arresting the country’s fiscal crisis through “reforms” such as the implementation of the reformed value-added tax (RVAT). But the country remains vulnerable to another financial crisis which could explode at any time.

The budget deficit has indeed gone down from the historic high it reached it 2002 when it peaked at 5.4 percent of GDP. Last year it was at 1.1 percent of GDP. But the deficit was addressed not through improved revenues or dealing with runaway debt service payments; instead, government cut spending on vital social services such as education, heath and housing, whose combined share in the national budget fell to 15.6 percent in 2007 from 19.7 percent in 2001.

Meanwhile, the Macapagal-Arroyo administration is making the most debt payments compared to previous administrations. Foreign and domestic debt accounted for a historic 87.3 percent of revenues and 14 percent of GDP in 2006. Total debt service last year on foreign and domestic debt was a colossal P854.4 billion ($19.07 billion) in 2006. And public debt continues to increase, hitting P3.9 trillion ($87.05 billion) as of March 2007. National government debt was 65 percent of GDP in 2006.

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