WSJ INTERVIEW: Philippine Prsident Sees Further Growth Despite Uncertain Global Outlook

-- Philippine economy to keep growing despite Europe weakness, says Philippines president
-- President says he expects more ratings upgrades to come
-- Faster budget disbursements will help speed growth, says president
-- Fight against corruption will also help boost long-term growth, says president


MANILA (Dow Jones)--The Philippine economy grew more slowly than expected last year, but President Benigno Aquino III says he is optimistic that a series of anti-corruption steps and tax reforms will help the economy expand despite the uncertain global outlook for 2012--and also help secure upgrades from international credit ratings agencies.

Some analysts have suggested Aquino's bid to shake up the Philippines could be disruptive in the short term and alarm potential investors. Elected in 2010, he has moved aggressively to counter the corruption that has plagued the country for decades and which stumped his mother, former President Corazon Aquino.

In recent months Philippine authorities have charged Aquino's predecessor, Gloria Macapagal Arroyo, with corruption and vote fraud. Arroyo's former chief of staff, Supreme Court Chief Justice Renato Corona, is undergoing an impeachment trial in the Philippine Senate.

Both Arroyo and Corona deny any wrongdoing and describe the prosecutions as politically motivated. Some political analysts worry a constitutional crisis could be brewing between the two branches of government and the judiciary that could damage the president.

However, in an interview in Manila's presidential palace late last week, Aquino argued that the political drama is steering the country in the right direction. He said his government has been working on eliminating waste in spending and improving transparency, as well as freeing up more funds to spend on education and infrastructure projects that could help drive the economy forward after growing just 3.7% last year, below the government's target of 4.5% to 5.5%. This year, Mr. Aquino's government is projecting growth of 5% to 6%.

"Government salaries are over 90% downloaded already," Aquino said, providing one example of how the government is front-loading its spending to kick-start growth this year.

"The general principle is to get all the government departments all their allocations by the start of July," he said, with disbursements even running ahead of that schedule.

Problems remain, however. Exports were especially weak last year, falling 6.9% from 2010 in part because of supply chain disruptions from natural disasters in Japan and Thailand and patchy demand in Western markets.

Poverty is endemic, and the predominantly Christian nation faces Islamist and Communist insurgencies that weigh on the agricultural economy.

In addition, analysts say the Philippines still finds it difficult to attract foreign direct investment at levels comparable to neighbors such as Vietnam or Indonesia, despite Aquino's efforts to cut red tape.

Corruption is still a problem, too. In Berlin-based Transparency International's annual index of corruption perceptions the Philippines is ranked alongside countries such as Honduras and Syria. Aquino also recently chastised the country's customs bureau for a poor collection record marked by both graft and, in some cases, incompetence.

In the longer term, though, the 52-year-old bachelor said he hopes his tough stand on corruption will help strengthen the country's fiscal position. Aquino's immediate goal is to secure additional credit ratings upgrades from Moody's Investors Service, Standard & Poor's and Fitch Ratings. After a series of upgrades last year, Fitch now rates the Philippines one notch below investment grade, with Moody's and S&P one step below that.

The Philippines last month sold $1.5 billion in U.S. dollar denominated bonds at a yield comparable to those of European countries such as Spain and Italy, suggesting that international financial markets already are reassessing the Philippines' place in the global pecking order.

Finance Secretary Cesar Purisima said yesterday he expects the Philippine peso to continue to strengthen against the U.S. dollar as sentiment toward the tropical archipelago continues to improve. The peso ended 2011 at 43.48 to the dollar, roughly the same level at which it finished 2010, but had appreciated to 42.59 by Thursday morning Asia time. Next week, Mr. Purisima will embark for Europe on a non-deal roadshow to talk up the Philippines' prospects to investors in London, Frankfurt, Geneva and Zurich.

"I guess we are being rewarded in that we are no longer a basket case. We are being run properly and there is a basis for the upgrades we have been getting," Aquino said.

He pointed out that the Philippines could become self-sufficient in rice production later this year and that the country continues to receive strong infusions from a booming outsourcing and call-center industry that now is now worth over $11 billion a year.

Filipinos working abroad--around one-tenth of the country's 100 million population--sent home $20.1 billion in 2011, up 7.2% from 2010 and around 9% of the country's entire gross domestic product. That helps fuel domestic demand and buffers the economy from the precarious global environment.

The president's greatest challenge, though, might be to institutionalize his reforms and make them last beyond his own single term in office, which ends in 2016. By law, Mr. Aquino is limited to one six-year term.

"When we came in we had six years to effect a transformational change that will have such momentum that it will be very difficult to go back to the previous status quo," Aquino said. "We have four years and four months left to accomplish this."