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Typhoon Haiyan has dealt the Philippines an incredible blow, perhaps the worst natural disaster in its history, if not the region. Our team will be watching the situation in the Philippines with interest, and sends its people our condolences and our heartfelt well-wishes. Some global investors have reacted by selling shares of Philippine stocks, sending the market sharply lower in the aftermath of the storm. We still believe in the great potential of the Philippines and believe, while not easy, the nation can and will recover.
I’d like to share a personal story of an experience I had in the country that resonated. Many years ago when I was exploring a remote part of southern Luzon, I became very ill with a stomach infection. I was in a small village with no hospitals around. The villagers, recognizing my plight, insisted that I rest in one of their homes. Then they found a doctor from a neighboring town to treat me. I could hardly work in the condition I was in and rested for a day and night under their care. When I tried to pay them, they flatly refused. This, of course, is typical of the Filipinos. Their generosity and kindness should be well known by now, so our hearts go out to them at this time.
For now, it’s difficult to calculate the impact of Typhoon Haiyan on the economy of the Philippines, which had been expected to see GDP growth of 6.8%, higher than Indonesia, Vietnam, Thailand or Malaysia’s growth projections1 this year. Storm-related economic losses are expected to be in the tens of billions of dollars. In the US Northeast, Superstorm Sandy in 2012 knocked only about 1 percent off GDP; given its much-smaller economy, the economic impact on the Philippines is likely to be far more severe than that storm. However, I think the impact on growth from the typhoon should be relatively short-lived. We have seen examples of this in other countries; for example, Thailand was able to bounce back from a devastating tsunami in 2004 and floods in 2011.
The Philippines should be able to rebuild, and with it, we think growth could be restored. Cash remittances sent from Filipinos working abroad, particularly in the US ,the Middle East and Europe, are very important to the economy and should factor into its recovery. For the first eight months of 2013, overseas workers sent home more than US$14 billion.2
From a monetary and fiscal policy perspective, I think the Philippines should have enough flexibility to respond to any fallout from the typhoon. In October, the nation’s central bank held its benchmark interest rate at a record-low 3.5%, but there could be room to move lower if policymakers deem appropriate.
A leader in the region, the Philippines was a founding member of the Association of Southeast Asian Nations (ASEAN), formed to accelerate the economic growth, social progress and cultural development in the region through joint endeavors, as well as promote peace and stability. For quite some time now, we’ve had confidence in the prospects for the Philippines, which we still feel has significant potential. An English-speaking labor force with close US ties has given the country an edge in terms of business outsourcing and the like.
President Benigno Aquino’s administration has engaged in reforms in recent years to make the country more attractive to foreign investors, and it has seen its global credit rating rise to investment grade. This recent calamity, and his ability to put the Philippines back in business, will mark a true test for Aquino, and could lead to more widespread reforms and progress which could ultimately prove beneficial for the economy. I think he, and his people, will rise to the challenge.
1. Source: “World Economic Outlook,” October 2013. © International Monetary Fund. All Rights Reserved.
2. Source: Bangko Sentral NG Pilipinas.