Article XII: National Economy and Patrimony
Section 1. The goals of the national economy are a more equitable distribution of opportunities, income, and wealth; a sustainedincrease in the amount of goods and services produced by the nationfor the benefit of the people; and an expanding productivity as thekey to raising the quality of life for all, especially the under-privileged.
The State shall promote industrialization and full employment basedon sound agricultural development and agrarian reform, throughindustries that make full and efficient use of human and naturalresources, and which are competitive in both domestic and foreignmarkets. However, the State shall protect Filipino enterprisesagainst unfair foreign competition and trade practices.
In the pursuit of these goals, all sectors of the economy and allregions of the country shall be given optimum opportunity todevelop. Private enterprises, including corporations, cooperatives,and similar collective organizations, shall be encouraged to broadenthe base of their ownership.
Section 2. All lands of the public domain, waters, minerals, coal,petroleum, and other mineral oils, all forces of potential energy,fisheries, forests or timber, wildlife, flora and fauna, and othernatural resources are owned by the State. With the exception ofagricultural lands, all other natural resources shall not bealienated. The exploration, development, and utilization of naturalresources shall be under the full control and supervision of theState. The State may directly undertake such activities, or it mayenter into co-production, joint venture, or production-sharingagreements with Filipino citizens, or corporations or associationsat least sixty per centum of whose capital is owned by suchcitizens. Such agreements may be for a period not exceeding twenty-five years, renewable for not more than twenty-five years, and undersuch terms and conditions as may be provided by law. In cases of water rights for irrigation, water supply fisheries, or industrialuses other than the development of water power, beneficial use maybe the measure and limit of the grant.
The State shall protect the nation's marine wealth in itsarchipelagic waters, territorial sea, and exclusive economic zone,and reserve its use and enjoyment exclusively to Filipino citizens.The Congress may, by law, allow small-scale utilization of naturalresources by Filipino citizens, as well as cooperative fish farming,with priority to subsistence fishermen and fish- workers in rivers,lakes, bays, and lagoons.
The President may enter into agreements with foreign-ownedcorporations involving either technical or financial assistance forlarge-scale exploration, development, and utilization of minerals,petroleum, and other mineral oils according to the general terms andconditions provided by law, based on real contributions to theeconomic growth and general welfare of the country. In suchagreements, the State shall promote the development and use of localscientific and technical resources.
The President shall notify the Congress of every contract enteredinto in accordance with this provision, within thirty days from itsexecution.
Section 3. Lands of the public domain are classified intoagricultural, forest or timber, mineral lands and national parks.Agricultural lands of the public domain may be further classified bylaw according to the uses to which they may be devoted. Alienablelands of the public domain shall be limited to agricultural lands.Private corporations or associations may not hold such alienablelands of the public domain except by lease, for a period notexceeding twenty-five years, renewable for not more than twenty-fiveyears, and not to exceed one thousand hectares in area. Citizens ofthe Philippines may lease not more than five hundred hectares, oracquire not more than twelve hectares thereof, by purchase,homestead, or grant.
Taking into account the requirements of conservation, ecology, anddevelopment, and subject to the requirements of agrarian reform, theCongress shall determine, by law, the size of lands of the publicdomain which may be acquired, developed, held, or leased and theconditions therefor.
Section 4. The Congress shall, as soon as possible, determine, bylaw, the specific limits of forest lands and national parks, markingclearly their boundaries on the ground. Thereafter, such forestlands and national parks shall be conserved and may not be increasednor diminished, except by law. The Congress shall provide for suchperiod as it may determine, measures to prohibit logging inendangered forests and watershed areas.
Section 5. The State, subject to the provisions of this Constitutionand national development policies and programs, shall protect therights of indigenous cultural communities to their ancestral landsto ensure their economic, social, and cultural well-being.The Congress may provide for the applicability of customary lawsgoverning property rights or relations in determining the ownershipand extent of ancestral domain.
Section 6. The use of property bears a social function, and alleconomic agents shall contribute to the common good. Individuals andprivate groups, including corporations, cooperatives, and similarcollective organizations, shall have the right to own, establish,and operate economic enterprises, subject to the duty of the Stateto promote distributive justice and to intervene when the commongood so demands.
Section 7. Save in cases of hereditary succession, no private landsshall be transferred or conveyed except to individuals,corporations, or associations qualified to acquire or hold lands ofthe public domain.
Section 8. Notwithstanding the provisions of Section 7 of thisArticle, a natural-born citizen of the Philippines who has lost hisPhilippine citizenship may be a transferee of private lands, subjectto limitations provided by law.
Section 9. The Congress may establish an independent economic andplanning agency headed by the President, which shall, afterconsultations with the appropriate public agencies, various privatesectors, and local government units, recommend to Congress, andimplement continuing integrated and coordinated programs andpolicies for national development.Until the Congress provides otherwise, the National Economic andDevelopment Authority shall function as the independent planningagency of the government.
Section 10. The Congress shall, upon recommendation of the economicand planning agency, when the national interest dictates, reserve tocitizens of the Philippines or to corporations or associations atleast sixty per centum of whose capital is owned by such citizens,or such higher percentage as Congress may prescribe, certain areasof investments. The Congress shall enact measures that willencourage the formation and operation of enterprises whose capitalis wholly owned by Filipinos.In the grant of rights, privileges, and concessions covering thenational economy and patrimony, the State shall give preference toqualified Filipinos.The State shall regulate and exercise authority over foreigninvestments within its national jurisdiction and in accordance withits national goals and priorities.
Section 11. No franchise, certificate, or any other form ofauthorization for the operation of a public utility shall be grantedexcept to citizens of the Philippines or to corporations orassociations organized under the laws of the Philippines, at leastsixty per centum of whose capital is owned by such citizens; norshall such franchise, certificate, or authorization be exclusive incharacter or for a longer period than fifty years. Neither shall anysuch franchise or right be granted except under the condition thatit shall be subject to amendment, alteration, or repeal by theCongress when the common good so requires. The State shall encourageequity participation in public utilities by the general public. Theparticipation of foreign investors in the governing body of anypublic utility enterprise shall be limited to their proportionateshare in its capital, and all the executive and managing officers ofsuch corporation or association must be citizens of the Philippines.
Section 12. The State shall promote the preferential use of Filipinolabor, domestic materials and locally produced goods, and adoptmeasures that help make them competitive.
Section 13. The State shall pursue a trade policy that serves thegeneral welfare and utilizes all forms and arrangements of exchangeon the basis of equality and reciprocity.
Section 14. The sustained development of a reservoir of nationaltalents consisting of Filipino scientists, entrepreneurs,professionals, managers, high-level technical manpower and skilledworkers and craftsmen in all fields shall be promoted by the State.The State shall encourage appropriate technology and regulate itstransfer for the national benefit.The practice of all professions in the Philippines shall be limitedto Filipino citizens, save in cases prescribed by law.
Section 15. The Congress shall create an agency to promote theviability and growth of cooperatives as instruments for socialjustice and economic development.
Section 16. The Congress shall not, except by general law, providefor the formation, organization, or regulation of privatecorporations. Government-owned or controlled corporations may becreated or established by special charters in the interest of thecommon good and subject to the test of economic viability.
Section 17. In times of national emergency, when the public interestso requires, the State may, during the emergency and underreasonable terms prescribed by it, temporarily take over or directthe operation of any privately-owned public utility or businessaffected with public interest.
Section 18. The State may, in the interest of national welfare ordefense, establish and operate vital industries and, upon payment ofjust compensation, transfer to public ownership utilities and otherprivate enterprises to be operated by the Government.
Section 19. The State shall regulate or prohibit monopolies when thepublic interest so requires. No combinations in restraint of tradeor unfair competition shall be allowed.
Section 20. The Congress shall establish an independent centralmonetary authority, the members of whose governing board must benatural-born Filipino citizens, of known probity, integrity, andpatriotism, the majority of whom shall come from the private sector.They shall also be subject to such other qualifications anddisabilities as may be prescribed by law. The authority shallprovide policy direction in the areas of money, banking, and credit.It shall have supervision over the operations of banks and exercisesuch regulatory powers as may be provided by law over the operationsof finance companies and other institutions performing similarfunctions.Until the Congress otherwise provides, the Central Bank of thePhilippines operating under existing laws, shall function as thecentral monetary authority.
Section 21. Foreign loans may only be incurred in accordance withlaw and the regulation of the monetary authority. Information onforeign loans obtained or guaranteed by the Government shall be madeavailable to the public.
Section 22. Acts which circumvent or negate any of the provisions ofthis Article shall be considered inimical to the national interestand subject to criminal and civil sanctions, as may be provided bylaw.
Monday, September 29, 2008
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4 comments:
The report below tells us the relevant news: some U.S. utilities are now 100% or majority foreign-owned. Similarly, the Philippines should allow foreign controlled firms at electric power transmission and distribution firms, water supply, sewage mangement, telecom, and railway transport, instead of limiting foreigners to a 40% maximum ownership or control in these utilities.
At utility services, the Philippines looks miserable compared to the rich Asian Tigers economies and China, Malaysia and Thailand. In particular, the Philippines has only about 1/3rd to 1/20th as much electricity capacity per person (5% to 33%) as they do. The U.S. Central Intelligence Agency's World Factbook, found in www.cia.gov, provides web-availalbe data to calculate the above percentages.
Due to the shortage of utility services, the Philippines attracts few global manufacturers to locate there, as may be seen in World Factbook data adjusted for the data on for country populations, also reported by the Factbook.
To make our nation boom, Article 12 of the Constitution must be amended to let foreigners build and control utlities. Filipino businessmen big and small and Filipino nationalists have lacked guts to invest in utilities for 60 years. It is thus practical to let foreigners fill the utility investment void.
The world is able to invest $600 each year for every $1 invested by Filipinos. By liberalizing Article 12 , the Philippines could easily tap $2 from the world to invest in the Philippines for each dollar it is now investing. That is, the Philippines could easily triple its annual investment rate from $21 billion now to $63 billion by liberalizing the
Constitution.
Norman, EPIC25
Foreign Ownership Divides Americans
By JAMES W. CRAWLEY
Media General News Service
WASHINGTON – Americans pour oil from Mexico, Canada, Venezuela and
the sheikdoms of the Middle East into our German, Japanese and Korean
cars.
We eat bananas from Guatemala, baby back ribs from Denmark and grapes
from Chile without a second thought.
But, many Americans may be shocked to learn that foreign-owned companies
control the water they drink, the electricity that lights the kitchen
and the toll road they drive to work.
In all, foreign corporations and governments own more than $1.5 trillion
worth of assets in the United States and employ nearly 5.3 million
Americans, including 1.3 million in the Southeast, according to the U.S.
Bureau of Economic Analysis.
RELATED MATERIAL Foreign investment facts and figures
• Foreign investment in U.S.: $1.5 trillion
• U.S. investment abroad: $2 trillion
• U.S. Treasury debt owned by foreigners: $2.2 trillion
• U.S. Treasury debt owned by Americans: $1.8 trillion
Foreign-owned companies in U.S. (2003)
• Employment: 5.4 million
• Payroll: $317.9 billion
• Share of U.S. Gross Domestic Product: 5.8 percent
States with highest employement by foreign firms (2003)
• South Carolina: 8.4 percent
• Hawaii: 7.8 percent
• New Hampshire: 7.7 percent
• Connecticut: 7.3 percent
• Delaware: 7.3 percent
Leading foreign investors in the U.S. (2004)
Top 5:
• United Kingdom: $251 billion; 16.4 percent
• Japan: $177 billion; 12 percent
• Netherlands: $167 billion; 11 percent
• Germany: $163 billion, 11 percent
• France: $148 billion, 10 percent
Others:
• Canada: 134 billion, 9 percent
• South and Central America: $26 billion, 2 percent
• Persian Gulf nations: $4 billion, .3 percent
• OPEC members: $9 billion, .6 percent
Who owns it?
Grocery stores are a favorite investment by overseas firms. Food Lion is
Belgian owned, while Giant Food's parent is based in the Netherlands.
A British company owns Dunkin' Donuts, while Persian Gulf investors own
Caribou Coffee.
The Colonel's KFC is still American, but Church's Chicken is owned by
the same group that owns Caribou.
Source: U.S. Bureau of Economic Analysis, Media General research
"There is so little appreciation of the amount of foreign investment in
the U.S.," said Dan Ikenson, a trade policy analyst at the libertarian
Cato Institute.
We look at both sides with pro and con arguments on foreign ownership.
---
THE ARGUMENTS IN FAVOR OF FOREIGN OWNERSHIP
WASHINGTON – In George Washington's hometown of Alexandria, Va., a
German firm operates the municipal water supply.
A French company runs the water and sewer plants in rural Reidsville,
N.C.
Across Kentucky, electric customers plug into the world's second largest
utility firm, which is based in Germany.
By summer, drivers in Indiana will pay tolls to a Spanish-Australian
partnership.
In a global economy, it's hard to "buy American."
Foreigners own significant parts of America's infrastructure – the
web of electric and gas lines, telecommunications, water, sewer, roads
and other services that make daily living possible. No one knows exactly
how much.
Economists say foreign investment in the United States is not only a
fact, it's a necessity.
Proponents of foreign ownership point to the 5.3 million Americans who
work for foreign firms and are paid nearly $318 billion annually. This
is "insourcing" – the opposite of outsourcing U.S. jobs overseas.
If politicians ban or restrict foreign investment, Heritage Foundation's
James Carafano said, "They're going to destroy the American economy."
If Congress places higher barriers on foreigners who want to invest in
the United States, foreign firms and governments could pull out a large
chunk of the $1.5 trillion they now have in American firms, analysts
warn.
And, other countries are likely to retaliate by restricting U.S.
investments, said Dan Ikenson, a trade policy analyst at the libertarian
Cato Institute.
Already, many Third World countries restrict foreign investment, said
Heritage's Carafano. "Do they want us to act like Venezuela?" he said,
referring to that country's socialist-leaning government.
A poll by the Organization for International Investment last month found
that three-fourths of registered voters believe foreign investment in
U.S. companies is beneficial to the American economy.
"This poll shows that Americans are still aware that foreign direct
investment – or insourcing – makes an important contribution to
the U.S. economy," said Todd Malan, the organization's president. The
group represents international companies with U.S. subsidiaries.
The federal Committee on Foreign Investment in the United States is
responsible for approving foreign acquisitions, like DP World's port
deal. Proponents of foreign investment caution against drastic changes
to the agency.
"The system is not failing, it's the best we got," said Cato's Ikenson.
He suggested minor changes in the system to force compliance, set fines
and give veto power to the Pentagon and departments of Homeland Security
and Justice.
America can have national security and foreign investors, argued
Heritage's Carafano.
"It's guns and butter, stupid," he said. "Not guns or butter."
---
THE ARGUMENTS AGAINST FOREIGN INVESTMENT
WASHINGTON – The Chinese almost bought Unocal last year. This month,
a Dubai firm announced it would give up its recently acquired terminal
operations at six U.S. ports.
Congressional and public outcry thwarted both deals over fears of
foreign control.
And, the specter of national security has fueled further debate and
legislation over who should own the backbone of America – the
critical infrastructure of ports, utilities, power plants,
transportation systems, oil and gas facilities and defense contractors.
Many Republicans and Democrats, conservatives and liberals, in the House
and Senate, have spoken out against foreign ownership.
Among the loudest voices has been Rep. Duncan Hunter, R-Calif., chairman
of the powerful House Armed Services Committee.
He has introduced legislation to block or severely restrict foreign
firms from owning any system or asset "on the national defense critical
infrastructure list."
American ownership would guard national security, he said. While the
Pentagon and Homeland Security would determine what constitutes
"critical infrastructure," Hunter and other sponsors hope to spread a
wide net over ports, power plants, airports and other systems.
"To those who say my views smack of protectionism," Hunter said at a
hearing, "I say America is worth protecting."
His bill also would require the inspection of all incoming cargo
containers. Currently, only 5 percent of containers arriving by ship are
inspected.
Sen. Hillary Clinton, D-N.Y., also wants greater scrutiny of foreign
ownership of U.S. firms, particularly port operations.
Former Homeland Security inspector general Clark Ervin raised a red flag
about foreign investment during a phone interview
"My position in the age of terrorism is we can't allow foreign
governments and foreign companies to be in control of key strategic
assets," said Ervin, now Homeland Security Initiative director at the
Aspen Institute.
He said the Bush Administration and Congress should consider who might
own or operate seaports, airports, the electric power grid, water
supplies, chemical plants, pipelines and other infrastructure.
Ed Gresser of the Progressive Policy Institute said investments by China
and oil-rich Arab countries are potentially troubling.
"Some investments of the next few decades aren't going to be from
America's allies," said Gresser. The policy institute is affiliated with
the Democratic Leadership Council.
He added that most foreign investment is beneficial but safeguards are
needed in vetting acquisitions and mergers.
Foreign ownership of utilities worries Lynn Hargis of the Public Citizen
consumer group.
"You have all kinds of security concerns," said Hargis, an energy
attorney. "You don't suspect any particular group, but you've just
turned over a key part of the country to another country."
Not only terrorists could harm the electric distribution system, she
said, noting that energy marketers can manipulate prices and supplies of
electricity and natural gas.
"You have the economy factor as well as a security issue," she said.
Since last year's repeal of a longstanding utility regulatory law,
foreign firms are free to invest in U.S. electric and gas companies with
few restrictions.
"I think there will be an explosion (in foreign ownership)," Hargis
said. "It's just a matter of time."
While support for his bill is uncertain, Hunter said he might insert
some provisions in other defense bills handled by his committee.
James W. Crawley is a national correspondent in Media General's
Washington Bureau.
© 2004, Media General, Inc. All
Rights Reserved
Terms & Conditions
Norman, EPIC25
US Financial Crisis: The Philippines’s Economic Debacle
PUBLISHED ON September 29, 2008 AT 3:41 PM
http://www.pinoypress.net/2008/09/29/the-us-financial-crisis-and-the-philippiness-economic-debacle/
Having produced only disastrous results, economic management can no longer be left in the hands of an elite corps of bureaucrats and technocrats who ape lock, stock and barrel models purposely to make corporate profits bigger at the expense of workers, farmers, and other marginal sectors.
By the Policy Study, Publication and Advocacy
Center for People Empowerment in Governance (CenPEG)
September 29, 2008
The opposing views proliferating in the media on whether the U.S. financial meltdown will have an extensive impact on the Philippine economy are expected and time may help settle this debate. By zeroing on the element of “impact”, however, these divergent views – voiced largely by economic authorities, bankers, and financial analysts – only miss the truth about the country’s economic anchors, a core issue that is hardly touched every time a financial crisis in the U.S. happens. They forget that neo-liberalism, enforced in most parts of the world by U.S.-led global capitalism, has left billions of people more marginalized and their lives more miserable by the day.
The Philippine economy has been fettered by prolonged unequal ties with its former colonial master – the U.S. - and by being made an appendage to global capitalism. This imbalanced relationship takes its roots, among others, in post-war onerous impositions, one-sided trade agreements, bitter debt payment programs, and unilaterally-enforced credit arrangements.
At the heart of this historical imposition is the Philippine presidency and its economic generals who have perpetuated this unequal relationship for decades, keeping the Philippines always at the receiving end of global capitalism’s periodic crisis. The current U.S. financial crisis - a result of the unregulated speculative financial sector leading to a housing mortgage mess and credit crunch - should compel everyone to reject this inherently disastrous economic model and work toward an independent, people-oriented economic policy.
“Dark age”
To begin with, the Arroyo government is lying through its teeth when it assures the business community not to fear as the country will ride out America’s financial meltdown even if this has all the makings of a second Great Depression or what European groups call a modern “dark age.” However, as early as January this year, even the International Monetary Fund (IMF) foresaw the Philippines and the rest of Southeast Asia – and other developing regions - as bearing the brunt of the global impact from a major economic slowdown in the U.S. The recession, the Fund said, will trigger a stiffer export competition from China at the expense of the Philippines and other export-driven countries in the region such as Thailand, Indonesia, and Vietnam.
Making a similar forecast, the economic intelligence center Euromonitor projected that the Philippines and other countries in Southeast Asia heavily dependent on exports to the U.S. will be hit by the economic slowdown as the export demand by the world’s biggest economy declines.
Indeed, the U.S. remains a major destination for Philippine exports. About 20 percent of the country’s exports go directly to the U.S. Another 50 percent of the exports go to Japan, China, Hong Kong, South Korea, Taiwan, and Malaysia but these are actually components assembled into products that end up in the U.S. market. All these mean that cuts on the U.S. export demand could be potentially devastating to 70 percent of the country’s exports.
Aside from export manufacturing, highly dependent on the U.S. market are the information technology-enabled industry and the business process outsourcing (BPO) sector. In 2005 these accounted for 90 percent of BPO export revenues and over two-thirds of foreign equity.
At the receiving end
Each time the U.S. economy tumbles, the Philippines and the rest of the world are bumped aside. Being in the clutches of the U.S. economic hegemony since colonial times, however, the Philippines is at the receiving end of the crisis of capitalism that America passes on to small, developing countries and emerging economies.
To recall, America bought the Philippines from Spain at the end of the 19th century in the period of U.S. capitalist expansion and its conquests for market, cheap labor, and raw materials in Asia Pacific. A strong lobby mounted by U.S. producers against Philippine exports during the Great Depression of the 1930s led to the transition that ended with the granting of independence.
But the grant of independence in 1946 was conditioned upon onerous agreements that tied the Philippines to a “free trade” allowing the unrestricted entry of U.S. exports with parity rights for American citizens to exploit the country’s natural wealth, and own properties and strategic industries. Emerging from the war in control of more than half of the global wealth and awash with trade surpluses, America had to keep the Philippines and other countries in its grip where it could dump its excess commodities, exploit their cheap raw materials, expand finance capital operations, and extend a new-found military hegemony. Accordingly, national security doctrines during the period emphasized the importance of maintaining a pro-U.S. government in the Philippines that would guarantee America’s over-arching economic and military objectives.
Over the next 60 years, the Philippines’ economic dependence on the U.S. gave birth to treaties and policies allowing the entrenchment of U.S. strategic enterprises and investments, the export of raw commodities, heavy reliance on foreign investments, and the elimination of protectionism. This neo-colonial structure maintained the system of landlordism and a bourgeoisie that depended on the plunder of natural resources and export of cheap raw commodities. As a result, the local economy became lethargic and generally backward, unable to shield itself from the rise and fall of an increasingly globalized economy where modern agriculture, a strong industrial base, and protective barriers are the keys to survival.
Taking the Long View in Asia as the U.S. Financial Crisis Unfolds
By V. Bruce J. Tolentino
http://asiafoundation.org/in-asia/2008/09/24/taking-the-long-view-in-asia-as-the-us-financial-crisis-unfolds/#more-377
Bruce Tolentino is The Asia Foundation’s Director for Economic Reform and Development Programs. He can be reached at btolentino@asiafound.org.
Over the past few weeks, as the U.S. financial system has reeled from a shocking series of major “adjustments,” Asia’s economists and bankers remind themselves of the key lessons — painfully taught — by the Asian financial crisis of the late 1990s: (a) all markets are linked; (b) financial markets are much more volatile than others and thus require more stringent oversight and regulation; and (c) refocusing on economic fundamentals is key to long-term recovery and growth.
Taking the long view, the medium-to-long term impact of the U.S. financial crisis on Asia is likely to be muted. In the next 18 months or so we may expect a dip in aggregate economic performance in a period of international uncertainty, exacerbated by inflation in most countries due to higher fuel and food prices, and likely worsening existing welfare differentials within and across countries in Asia.
The impact of the current U.S. crisis is now spilling over into the broader world financial markets. Yet, it is still unclear how much of the volatility in the financial sectors will impact the “real” economic sectors – housing, labor, and manufacturing. The U.S. government has implemented major rescue and corrective actions, but the adequacy of these still needs to play out over time and will need to be carefully assessed, particularly in the period around the U.S. Presidential elections.
Although Asia’s exports may suffer from the slower growth in the West, strong domestic demand – driven by private consumption, investment in fast-growing countries, and fiscal accommodation – underlies Asia’s growth and thus should mute the impact of Wall Street’s “meltdown” on Asia. Unlike the build-up to the Asian Financial Crisis of 1997, there are currently no signs of excessive current account deficits. Countries in Asia have reduced their dependence on bank financing and improved the health of their banking sectors, particularly as oversight and regulation have been strengthened across the board.
Overall, consensus forecasts indicate that developing Asia’s economy grew 8.7% in 2007 but is projected to slow to 7.5% in 2008, and 7.2% in 2009. The slowdown is anticipated due to the combined effects of the downturn in the G3 (European Union, Japan and particularly the United States) economies, sustained high fuel prices, and the impact of inflation spiking at 3.9% in 2007 and forecasted at 6.1% in 2008 and 4.8% in 2009.
Asia’s currently healthy macroeconomic fundamentals underlie its resilience, enabling countries to adopt supportive fiscal and monetary policies and accumulate healthy foreign reserves. Government budget deficits throughout Asia have gradually declined — and in some countries have turned into surpluses.
Inflation – not Wall Street — is clearly the major macroeconomic challenge that is foremost in the minds of Asia’s economic managers. In the past year, China and Vietnam have already tightened their economic policies, helping moderate growth to a still rapid 10%. Central Bankers across the region, while nervously watching developments in the U.S., are cautiously implementing various controls on financial transactions and instruments.
Export-dependent economies in East and South-East Asia will see their exports contribute less to growth, but on-going expansion in China and the Middle East will continue to offer opportunities for both foreign and domestic investment. South Asian economies are traditionally driven by domestic demand and will therefore benefit from strong private consumption and investment – in addition to, in some countries, expansionary fiscal policy.
In the worst case scenario of a significant recession in the U.S. and a deeper depreciation of the dollar, the impact across Asia will be varied. Most vulnerable will be the exporters of high technology products, such as electronics, to the United States: Singapore, South Korea, and Taiwan. Also vulnerable are those countries with large garment and textile sectors whose main markets are the U.S. and the European Union. The anticipated lifting of restrictions by the European Union and the U.S. on some categories of garments and textiles produced by China will pose severe challenges to South Asia.
However, the Indian and Chinese economies will remain reasonably resilient, as strong domestic demand should partly cushion the external shock.
Overall, Asia is likely to readily weather the relatively short-term global uncertainty in 2008 and 2009.
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