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Benefiting from ‘Double Sweet Spots’

(Part 2)

Published

Bernardo M. Villegas

Bernardo M. Villegas

Another hapless country that is ageing before becoming rich is Thailand that used to be the darling of foreign investors in the last century. According to a recent report of the Japan Research Institute (JRI) Economics Department entitled “Thailand’s Efforts to Cope with a Rapidly Ageing Population,” demographic ageing has been especially rapid in Thailand compared with other major emerging Asian economies, especially the famous VIP (Vietnam, Indonesia and the Philippines) countries. The percentage of the Thai population aged 65 or over is expected to climb from around 10% at present to over 20% by the 2030s. Until the 1970s, Thailand’s total fertility rate (TFR) was consistently above 5.0 and its total population showed sustained annual growth of 3%. The birthrate, however, began to fall sharply in the 1970s in response to the governments’ efforts to reduce the number of children born by promoting family planning. By the early 1990s, Thailand’s birthrate had fallen below 2.1, the population replacement level or zero population growth. One of the reasons for this precipitous decline in the fertile rate was the aggressive family planning promotion campaign by the Population and Community Development Association (PDA), which was founded by former Minister of Public Health Mechai Viravaidya in 1974. Through the indiscriminate distribution of condoms in the Thai villages, Thailand’s birthrate declined to just below 1.5 babies per fertile woman, while the working population peaked in the first half of the 2010s and is now in decline. Today, Thailand’s birthrate is low even compared with countries that have similar income levels. Because of the shortage of workers in both the industrial and agriculture sectors, the growth of manufacturing and agriculture has been slowing down significantly.

Thanks to the pro-birth mindset still embedded in Philippine culture, the Philippines has avoided the demographic crisis plaguing most of its neighbors in East Asia. The young, growing and English-speaking population provides the manpower for the two leading engines of the growth of the Philippine economy, the Overseas Filipino Workers (OFW) and the BPO-IT sector which together contribute more than 15 per cent of the country’s GDP. OFW remittances from more than 10 million Filipinos abroad exceed $30 billion annually and have been growing without fail at an average of 3 to 5 percent annually whatever happens to the world economy. The BPO-IT sector employs about 1.2 million well paid workers and earns more than $25 billion yearly. These two sectors have helped the national economy to raise its savings rates to over 30 percent of GNP, already at par with most of its East Asian neighbors. They also have provided the consuming public with enough purchasing power to fuel a consumption-led growth which recently, through the multiplier effect, has also raised the level of investments, especially among the enterprises that sell to the domestic market. In fact, the Philippines is one of the least adversely affected by global financial crises (such as the East Asian Financial Crisis of 1997 to 1999 and the Great Recession of 2008 to 2012) because it has a relatively low export to GDP ratio. Whenever the global economy slows down, its businesses—both big and small—focus on the large domestic market. In the next year or so, if and when the US suffers a recession because of the trade war between the US and China and the uncertainties of a no-BREXIT deal in Europe, the Philippine economy is expected to continue growing at 6 percent or more on the strength of its domestic market and Build Build Build program of the Government.

The young and growing population also generates a big demand for domestic tourism. It is estimated that 60 million Filipinos travel regularly to tourism destinations among the 7,100 islands of the Philippine Archipelago. As more and better infrastructures are built all over the Archipelago, the strategic location of the Philippines in the Asia Pacific region will provide it with the second “sweet spot” which derives from its being very much part of the so-called Asian Century. As the twentieth century was called the American Century, the twenty first century is rapidly becoming the Asian Century. More strictly speaking, the American Century was a three-cornered competition among three economic powerhouses: the US, the European Union and Japan. In fact, when I was studying in the US in the 1960s, there were economists who were forecasting that Japan would surpass the US in per capita income and economic might before the end of the twentieth century. They had reasons for this expectation because back then Japanese workers had better work ethic than the Americans and their economy was investing heavily in research and development and superior basic education. They could afford to do this because they did not have to spend on building a strong military sector while the US was busy being the world policeman. Japan never became number one for reasons described above: they stopped producing babies and committed demographic suicide, very much analogous to what is happening to European and East Asian economies today. (To be continued)

For comments, my email address is bernardo.villegas@uap.asia.

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