By Carlos H. Conde
International Herald Tribune
Published: September 7, 2007

MANILA: A year ago, Bernadette Sembrano took a gamble.

Using her savings and some money borrowed from the bank, she bought a piece of land in a middle-class suburb here and built two rows of townhouses on it.

She intended to sell the units to overseas Filipino workers, the main drivers of a property boom in this island nation of 85 million. But so far she has only found one buyer for the eight units.

“I am such an optimist,” said Sembrano, who works days as a television journalist.

Her optimism is widespread in the Philippines these days, where the government last week reported that the economy grew at an annual rate of 7.5 percent in the second quarter, the fastest rate in 20 years. It is a remarkable event for a country plagued by political scandals and military mutinies – two perennial problems that have prevented the country from emerging from an economic rut.

Stronger economic growth is already changing the lives of many ordinary citizens, who have new jobs and see bridges and roads springing up.

There are doubts about the true vigor of the economy – related to increased government spending ahead of an election and the sustainability of fiscal overhauls.

And, like elsewhere in Southeast Asia, the Philippines is vulnerable to a possible slowdown in the U.S. economy if problems in the housing market begin to spill over into other sectors.

But for a country that has seen so much turmoil and poverty since the 1970s, the Philippines’ recent economic resurgence, however fragile, has nevertheless been a welcome surprise to economists.

President Gloria Macapagal Arroyo, a U.S.-educated economist, has taken credit for much of this, having implemented measures – she imposed higher taxes and improved revenue collections, to name two – that her political opponents and critics relentlessly questioned and opposed.

“While our economy has reached a new level of maturity and stability with one of the strongest macroeconomic fundamentals in two decades, we should not rest,” Arroyo said after the release of the latest growth figures. “We’re the only administration that has not experienced negative growth in any quarter. ”

One person benefiting is Alisa Lugar-Escanlar, 31, who quit her job as a restaurant manager early this year and applied as a call-center agent at eTelecare Global Solutions, one of the country’s largest call-center companies.

She is happily riding out a boom in the Philippines’ growing services sector, which makes up half the economy and grew 8.4 percent in the second quarter.

Outsourcing services are transforming the lives of thousands of Filipinos in ways not seen in the past three decades.

Call centers have been credited with reducing the number of unemployed and creating a new class of moneyed, mostly young Filipinos. The Asian Development Bank estimated that 11 percent of those entering the labor force up to 2010 would be hired by call centers.

“I didn’t want to work in a call center at first but I tried it and realized that I liked it better than my old job,” Escanlar said. Her life, she said, has been much better since then because she and her husband are now able to save money and buy more.

One of the most visible areas of growth is public construction, which grew at an annual rate of 39.6 percent in the second quarter. New bridges and roads are everywhere, particularly in the capital.

Although the government admitted that the rise in public infrastructure spending is linked to election spending in May, Arroyo emphasized last week that funding for infrastructure was “in the front line in our campaign to reduce poverty.”

Such spending could continue, said Luz Lorenzo, an economist at ATR Kim Eng Securities in Manila. “Who is doing the spending? The government,” Lorenzo said. “Will it stop? No. Do they need to borrow money? No, because most of these are domestically financed.”

The optimism has also given a lift to the stock market, attracting ordinary individual investors for the first time.

Phillip Hagedorn, president of the Mutual Fund Management Company of the Philippines, called the increase in retail investors “unprecedented,” which he said indicated a growing confidence in the market among Filipinos.

The benchmark stock index in the Philippines is up 11 percent so far this year, compared to a 23 percent gain for Vietnam and a 23 percent rise for Thailand. China’s CSI 300 index is up 164 percent this year.

Arroyo said last week that the challenge now is to ensure that this growth trickles down to the poorest Filipinos, many of whom are skeptical about the government’s pronouncements of development.

“My life, as well as that of my family, certainly has not improved,” said Maricel Sevillano, a 21-year-old farmers’ daughter who moved to Manila after her parents’ death five years ago and has been working as a housemaid since. Three other sisters are also working as maids. Unable to finish high school, Sevillano left Bukidnon Province, in the south, to try her luck in Manila – a familiar story among poor Filipinos.

Indeed, much of the skepticism toward Arroyo and her administration has to do with the myriad of problems the country continues to face.

Average income is less than $2 a day. Health care is meager, with malnutrition still among the leading causes of death among children and infants. Forty-seven percent of Filipinos rate themselves as poor, according to the Social Weather Stations, a Manila research institute.

On top of these problems, the country is saddled with communist and Islamic insurgencies that are driving away investment.

Although some major companies, like Texas Instruments, have chosen the country over China or Vietnam, wariness remains among investors, mainly because there is still much to be done.

“Power cost remains expensive. Infrastructure should also be developed; ports such as airports and seaports and expressways are not yet completed,” Toshifumi Inami, president of the Japanese Chamber of Commerce and Industry of the Philippines, told reporters last week. He pointed out that in the last five years, the number of Japanese companies in the Philippines remained unchanged, at 550.

Arroyo appears aware of the need to attract investors. “Her mantra nowadays is ‘Invest. Invest. Invest,’ ” her press secretary, Ignacio Bunye, said Monday.

Defaults on risky mortgages in the United States have been sending shivers throughout global financial markets, affecting places as far away as here. In August, nervous foreign investors – in an apparent effort to shield themselves from potentially risky emerging market economies – sold Philippine stocks and other assets, making the country’s peso the worst-performing of Asia’s 10 most actively traded currencies, according to Bloomberg.

The U.S. subprime crisis is beginning to spook some property developers here, too. At least one developer, Landco Pacific, disclosed last week that more than half of the revenues from its projects in the Philippines were from Filipinos working abroad, most of them in the United States.

“The trouble is, it seems nobody has an idea how big this thing is and where it is headed,” said Landco’s chief operating officer, Francis Ceballos. “There’s a lot of uncertainty. What we have right now is an uneasy calm.”

The Philippines – like neighboring Thailand and Indonesia – is largely dependent on exports, with most of them going to the United States, Japan and China. Volatile oil prices and a potential slowdown of the U.S. economy pose risks to the economy here, the government said.

Sembrano, the television journalist who still has seven townhouses for sale, said that she honestly believes things will get better. But even she admits, “Building the property was the easy part” – selling it was another matter.