THE fates of the Philippines and South Korea are increasingly being intertwined by two monumental events that are set to happen a year apart from each other. In December last year the 25th year of relations between the Association of Southeast Asian Nations (Asean) and South Korea was highlighted by a commemorative summit held in Busan, South Korea. With “Building Trust, Bringing Happiness” as the chosen theme for the occasion, Asean leaders met with South Korean President Park Geun-hye and issued a joint statement promoting increased political, economic and sociocultural cooperation.
Come end-December this year, the Asean Economic Community (AEC) will be marking its official culmination. The AEC envisions the transformation of Asean into a region with free movement of goods, services, investment, skilled labor and capital.
Indeed, these events could augur well for the growth and prosperity of the countries involved. Given the growing interaction among Asean nations, together with the growing interaction between Asean and South Korea, how can the Philippines take advantage of these relations and maximize its participation in the Asean-South Korea partnership?
As far as economists are concerned, part of the answer requires a broad review of the economic prospects and policy challenges of the Philippines and South Korea. The Asian Development Outlook 2015 (ADO 2015) serves as a useful piece of reference, and its data suggest that the economic outlook for both countries is generally positive, with low and stable inflation expected to support output growth.
The ADO 2015 also notes that the main policy challenge for the Philippines is to stimulate investment to help make economic growth more inclusive. For South Korea it needs to diversify its international trade market to cope with slower growth and structural changes in China, which has been its largest export destination since 2003. Southeast Asia appears to be a logical choice for South Korean expansion, so the Philippines should actively seek opportunities to increase its trade share. Definitely, enhanced economic relations with South Korea could benefit the Philippines in several areas, and with the limited space here, perhaps, four important areas are worth highlighting.
First, there is infrastructure, which South Korean investors can help build in the Philippines through public-private partnerships. Without question, South Korean infrastructure is more globally competitive than Philippine infrastructure. Also, as Dr. Cielito Habito opines in his weekly column, the Philippines must open its door wider so that foreigners can expand the pool of private sector partners who can quickly help take the Philippines out of its massive infrastructure backlog.
Second, there is tourism, which is considered to be an inclusive growth driver. Notwithstanding problems with its infrastructure, the Philippines was actually the second-largest Asean tourist destination for South Koreans in 2010. More recent data (as of July 2015) from the Department of Tourism indicate that South Korea still provided the biggest visitor earnings for the Philippines with 5.520 billion.
Third, there is official development assistance (ODA). Based on the 2013 ODA Portfolio Review published by the National Economic and Development Authority, South Korea ranks seventh among the development partners of the Philippines, with $524.76 million in loans and $83.96 million in grants, for a total of $608.72 million. It is expected that total South Korean ODA to the entire Asean region will double this year, as South Korea has vowed to give more assistance to narrow the development gap among Asean member-countries.
Fourth, there is trade in services. According to the 2014 Economic Survey for South Korea published by the Organization for Economic Cooperation and Development (OECD), South Korea needs to foster a so-called creative economy. While spending for research and development in South Korea was the highest among OECD members at 4.4 percent of gross domestic product in 2012, weaknesses in the innovation system limit the return. International collaboration in patenting and research is low, and the role of universities is small. The productivity gap between large and small firms is also widening, and this could reflect problems in services. So, by promoting the free exchange of scientists, scholars, and other innovators, South Korea can, perhaps, work more closely with the Philippines in fostering a creative economy, and it can look to the booming services sector of the Philippines to support its domestic needs.
Of course, to be in a position to enjoy the benefits of enhanced economic relations with South Korea, the Philippines must undertake reforms and assert its presence within the Asean region. Ironically, greater cooperation implies greater competition as well, and this whole arrangement is intended to push the Philippines to do the right things, as Habito would say. Finding its economic “Seoulmate,” as it were, should prove to be worth all the effort.
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This article was written by Ser Percival K. Peña-Reyes, Lecturer on Macroeconomics at the Department of Economics, Ateneo de Manila University.