Published on December 03, 2013,

Written by Randell Tiongson

A Forbes columnist recently wrote an article that stirred a hornets’ nest. The post called out the Philippine economic miracle as a bubble in disguise. While the author has some valid points we should not ignore, many of us do not agree. The Philippine economy is the fastest growing economy in Southeast Asia and one of the fastest in the world.
So, is the Philippine economic growth really a bubble in disguise? Our answer is a flat ‘no’!
I recently had a conversation with my colleague, economist Dr. Alvin P. Ang, who is also the president of the Philippine Economic Society. We both felt that the analysis was rather thin, not very accurate. Truth to be told, his analysis seems delinked from our reality.
Here are seven good reasons why the Philippine economic growth is not a bubble in disguise:
1. The Philippines has enough guarantees (learning even prior to 1998 Asian Crisis) on RE (real estate) bubbles. Banks are not allowed to lend beyond 25 percent of their portfolios to real estate. The RE market is clearly differentiated into segments and the large bulk affordable to people is not necessarily facing a bubble.
2. Debt to GDP ratio is now low. The majority of the current debts are long term in nature.
3. Stock market has already corrected, more or less mirroring GDP growth valuation.
4. Our consumer spending has been growing for years—this is financed largely by OFW remittances.
5. OFW remittances are not coming mostly from the United States. Our workers are spread all over the world—this is the reason why the 2009 crisis barely affected remittance growth. Besides, the BPO sector has become a significant contributing factor and is spreading beyond call centers to higher value added outsourced work. The current account position or the short-term foreign exchange payables are in surplus—a far cry from our situation in the ’80s and ’90s. Are reserves are now in record high!
6. Car sales are increasing not only due to low interest rates, but also because car prices have become lower relative to total income.
7. We are not having a credit bubble when loans to GDP is only 51 percent, one of the lowest in Asia. Non-Performing Loans (NPL) as a percentage of total loans is at all time low of only 2.7 percent, suggesting the better quality of loans.
Nonetheless, sustaining the current growth path and avoiding any bubble require that the country take advantage of the low interest rate regime by shifting to productive activities. The concern is the required structural adjustment to match the need for employment growth.
Furthermore, the rebuilding requirements of the devastated areas will push public spending higher, cushioning any potential RE bubbles. There is nothing wrong with government spending for infrastructure, as this is what is needed to sustain the growth.
With the rebuilding process, government will not be affected by external interest rate fluctuations as multilaterals like Asian Development Bank and World Bank will lend at concessional rates. This will most likely be followed by ‘bilaterals.’
Finally, it is time for local investors and entrepreneurs to believe in this country and not be swayed by external opinions. After all, we live here. Only we can disprove opinions expressed by those abroad who do not even come here to study the country in detail.
We must continue to pray with and for our nation: “Blessed is the nation whose God is the LORD, the people he chose for his inheritance.” —Psalm 33:12, NIV

(Randell Tiongson is a director of the Registered Financial Planner Institute Philippines and a leading personal finance advocate. To read his personal finance posts, visit