Weak Economic Recovery With Rising Political UncertaintyThe Philippines is gearing up towards the upcoming presidential and congressional elections inMay 2010, amid a rising level of political uncertainty. Indeed, the ruling Lakas-Kampi-CMD will befacing a resurgent opposition benefiting from a revival of democratic fervour stemming from thedeath of former president Corazon Aquino, who was instrumental in overthrowing the despoticMarcos administration via the 'People's Power' revolution in 1986. But a fragmented oppositionwith multiple presidential contenders will mean that the incumbent Lakas-Kampi-CMD still has afair chance to remain in power. Meanwhile, the economy is expected to register positive growthof 1.5% and 2.6% in 2009 and 2010, respectively, on the back of robust remittances and effectivefiscal measures, despite a languishing external environment.Following the death of democracy icon and former president Corazon Aquino in August 2009, weforesee that Senator Benigno 'Noynoy' Aquino III ' the only son of the revered stateswoman ' willrise to become a formidable challenge to the incumbent Lakas-Kampi-CMD camp in the forthcomingMay 20 presidential elections. Aquino, who belongs to the opposition Liberal Party, announced hiscandidacy on September 9 2009, after former standard bearer Mar Roxas stepped down in favourof him. Nevertheless, the existence of other popular contenders ' especially Senator Manuel Villar,who topped opinion polls in August 2009 ' may split opposition votes, allowing the ruling Lakas-Kampi-CMD to retain power.The economy expanded by a stronger-than-expected 1.5% y-o-y in Q209, which was a markedimprovement on the 0.6% growth registered in the preceding quarter. Notably, growth in privateconsumption ' which comprises more than 75% of real GDP ' accelerated to 2.2% from 1.3% inQ109, boosted by robust growth in remittances. Indeed, remittance inflows increased by 2.9% y-o-yin January-June 2009 to reach a record US$8.5bn, led by a surge in non-US contributions. Goingforward, we expect strong remittances and ample fiscal stimulus to push the economy towards asomewhat higher growth trajectory, therefore revising our 2009 and 2010 growth forecasts upwardsto 1.5% and 2.6%, respectively.Importantly, the Philippines still faces a number of structural weaknesses that may undermine theeconomy's long-term growth potential. Indeed, the country's score for infrastructure in our businessenvironment ratings comes in at just 40.1 (out of 100). Furthermore, the Philippine government stillsuffers from pervasive corruption, lack of transparency and regulatory inconsistency, suppressingthe institutions score, which is only 37.1. On the other hand, the Philippines' relative openness totrade and investment serve as a positive boost to businesses, leading to a market orientation scoreof 57.6. In all, the business environment rating score is 45.0, ranking 86th out of 167 countries.

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Philippines Business Forecast Report Q4 2009
Published on September 2009
Report Summary
Weak Economic Recovery With Rising Political Uncertainty
The Philippines is gearing up towards the upcoming presidential and congressional elections in
May 2010, amid a rising level of political uncertainty. Indeed, the ruling Lakas-Kampi-CMD will be
facing a resurgent opposition benefiting from a revival of democratic fervour stemming from the
death of former president Corazon Aquino, who was instrumental in overthrowing the despotic
Marcos administration via the 'People's Power' revolution in 1986. But a fragmented opposition
with multiple presidential contenders will mean that the incumbent Lakas-Kampi-CMD still has a
fair chance to remain in power. Meanwhile, the economy is expected to register positive growth
of 1.5% and 2.6% in 2009 and 2010, respectively, on the back of robust remittances and effective
fiscal measures, despite a languishing external environment.
Following the death of democracy icon and former president Corazon Aquino in August 2009, we
foresee that Senator Benigno 'Noynoy' Aquino III ' the only son of the revered stateswoman ' will
rise to become a formidable challenge to the incumbent Lakas-Kampi-CMD camp in the forthcoming
May 20 presidential elections. Aquino, who belongs to the opposition Liberal Party, announced his
candidacy on September 9 2009, after former standard bearer Mar Roxas stepped down in favour
of him. Nevertheless, the existence of other popular contenders ' especially Senator Manuel Villar,
who topped opinion polls in August 2009 ' may split opposition votes, allowing the ruling Lakas-
Kampi-CMD to retain power.
The economy expanded by a stronger-than-expected 1.5% y-o-y in Q209, which was a marked
improvement on the 0.6% growth registered in the preceding quarter. Notably, growth in private
consumption ' which comprises more than 75% of real GDP ' accelerated to 2.2% from 1.3% in
Q109, boosted by robust growth in remittances. Indeed, remittance inflows increased by 2.9% y-o-y
in January-June 2009 to reach a record US$8.5bn, led by a surge in non-US contributions. Going
forward, we expect strong remittances and ample fiscal stimulus to push the economy towards a
somewhat higher growth trajectory, therefore revising our 2009 and 2010 growth forecasts upwards
to 1.5% and 2.6%, respectively.
Importantly, the Philippines still faces a number of structural weaknesses that may undermine the
economy's long-term growth potential. Indeed, the country's score for infrastructure in our business
environment ratings comes in at just 40.1 (out of 100). Furthermore, the Philippine government still
suffers from pervasive corruption, lack of transparency and regulatory inconsistency, suppressing
the institutions score, which is only 37.1. On the other hand, the Philippines' relative openness to
trade and investment serve as a positive boost to businesses, leading to a market orientation score
of 57.6. In all, the business environment rating score is 45.0, ranking 86th out of 167 countries.
Table of Content
Executive Summary... 7
Weak Economic Recovery With Rising Political Uncertainty
Philippines Business Forecast Report Q4 2009 Page 1/5

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Chapter 1: Political Outlook...... 9
SWOT Analysis9
BMI Political Risk Ratings....... 10
Domestic Politics.....11
Despite 'Cory Magic', Fractious Opposition May Still Fail
Former president Corazon Aquino's death in August 2009 has led to a resurgent opposition, and a number of
politicians have rallied behind her son, opposition leader and senator Benigno Aquino III.
Table: Politica l Overview.. 11
Domestic Politics II...13
Civilians At Risk As Abu Sayyaf Grows Desperate
The Abu Sayyaf has been severely weakened following the spate of military operations against the al-Qaeda-linked
terrorist groups.
Long-Term Political Outlook ...14
Is Charter Change The Solution'
The Philippines faces a number of political challenges over the coming years, which if handled successfully could
improve governance.
Chapter 2: Economic Outlook. 17
SWOT Analysis.............17
BMI Economic Risk Ratings.... 18
Economic Activity....19
Staying In Positive Territory, But Slow Growth Ahead
We have revised our Philippine growth forecasts up to 1.5% and 2.6% for 2009 and 2010, respectively, in view of
upward revisions to export performance on the back of a nascent economic recovery in export markets.
tab le: ECONOMIC ACTIVITY.... 19
Monetary Policy.......21
BSP To Keep Rates On Hold Amid Weak 2010 Recovery
We are expecting the Bangko Sentral ng Pilipinas to keep its overnight borrowing and lending rates on hold at
4.00% and 6.00%, respectively, until the second half of 2010, in view of the lacklustre 2.6% real GDP growth that
we are expecting next year.
tab le: MONETARY POLICY...... 21
Fiscal Policy.............22
Weak Economy Necessitates Large 3.9% Budget Deficit
We expect the Philippine government to maintain an expansionary fiscal policy in order to prop up the economy
amid a weak external environment, raising the fiscal deficit to PHP291.5bn (US$6.0bn), equivalent to 3.9% of
GDP.
tab le: FISCAL POLICY............. 23
Currency Forecast...24
Peso To Appreciate On Greater Risk Appetite
We foresee that the Philippine peso will strengthen to PHP46.40/US$ by end-2009, in line with a return of
investor risk appetite towards emerging economies.
tab le: EXCHANGE RATE.......... 24
Chapter 3: 10 Year Forecast... 27
The Philippines Economy To 2018........27
Weak Infrastructure And Unrest To Constrain Growth
The enduring strength of domestic demand will continue to ensure that real GDP growth retains its robust
momentum out to 2018, with annual economic expansion forecast to average 3.8% over the coming 10 years.
tab le: Lo ng-Term Macro economic Foreca sts...........27
Chapter 4: Special Report....... 29
The Fate Of 'Chindia'..............29
Overview
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Although China and India will continue to grow during the global recession of 2009-2010, they are not immune
to the downturn, and face a number of risks in the near term.
China And India SWOT.............30
Chapter 5: Business Environment......... 37
SWOT Analysis.............37
BMI Business Environment Risk Ratings.............. 38
Business Environment Outlook.............39
TABLE: BMI BUSINESS & OPERATIONAL RISK RATINGS..... 40
Institutions ..............41
TABLE: BMI LEGAL FRAMEWORK RATINGS.......... 41
Infrastructure ..........43
TABLE: LABOUR FORCE QUALITY............ 45
TABLE: ASIA, FDI ANNUAL INFLOWS....... 46
Market Orientation ..46
TABLE: BMI TRADE RATINGS....47
Operational Risk ......49
TABLE: TOP EXPORT DESTINATIONS....... 49
Chapter 6: Key Sectors............ 51
Textiles ......51
Table: Textiles And Clot hing Product ion And Internat ional Trade, 2006-2013........ 52
Freight Transport.....54
Table Global Oil Prices, 2003-2013 (US$ per barrel)............ 55
Chapter 7: BMI Global Assumptions..... 59
Global Outlook.........59
TABLE: GLOBAL ASSUMPTIONS.............. 59
Table: GLOBAL And REGIONAL REAL GDP GROWTH.......... 60
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