HOSTING the 50th Association of Southeast Asian Nations (Asean) summit in 2017 will give the Philippines the opportunity to push for greater services liberation among its 10-member economies.
“There is some hope that President (Rodrigo) Duterte will make a strong push for further integration. After all, it is in the interest of the Philippines to promote services liberalization given its sizeable surplus labor force,” said HSBC Ltd. economist Joseph Incalcaterra in the bank’s latest Asean Perspective report.
The economist has observed that the Asean Economic Community (AEC), which officially entered into force last Dec. 31, 2015, has not brought about much economic benefits in the region.
In fact, HSBC said, intra-Asean trade has contracted by 3.5 percent year-on-year in the first nine months of the year since the implementation of the AEC.
The report cited two reasons for the plummeting figures.
First is the drop in oil commodity prices, which has caused export values to shrink. The second factor is China’s competitiveness in the electronics supply chain which turned out to be unfortunate for the Asean-based players.
Cost of education shortages
“For Asean to maintain its competitiveness in key supply chains such as electronics, much more needs to be done to reduce non-tariff barriers and improve services liberalization. On the labor front, Asean has already implemented region-wide mutual recognition agreements (MRAs) to incentivize the flow of skilled labor, a key pillar of the AEC,” HSBC said.
However, the creditor noted “significant labor market mismatches” in the Asean, stemming from underinvestment in education.
It cited the case of JETRO surveys and the International Labor Organization’s (ILO) survey on the AEC that show foreign firms have been often complaining about the lack of skilled labor such as technicians and engineers needed for certain operations.
In the Asean summit 2017 in the Philippines, HSBC believes pushing for services liberalization would be key in fast-tracking the benefits of the AEC.
‘Onerous requirements’
Department of Tourism 7 Officer-in-Charge Judy Gabato said in November that Cebu, in particular, will be hosting five meetings in the Asean summit 2017.
At present, services liberalization in the region is hampered by “onerous language and re-licensing requirements” among member-countries, said HSBC.
For the Philippines, the creditor said the country surpassed both market and HSBC expectations when it grew by 7.1 percent year-on-year during the third quarter, making it one of Asia’s strongest growth performers.
In addition, strong overseas workers remittances boosted private consumption, and the government’s infrastructure programs led to a robust gross fixed capital formation (GFCF) growth. The country also posted a headline inflation of 2.5 percent in November likely due to the weakening peso.
Given the Philippines’ low inflation and debt levels, HSBC sees further space for fiscal expansion and expects the central bank to keep policy rates by the end of the year and in 2017.
However, a 100bps reserve requirement ratio cut is possible in the next six months to improve the management of liquidity in the banking system, HSBC added.