By AMADO P. MACASAET

Like all businessmen, Aurelio Montinola III, president of the Bank of the Philippine Islands, looks deeply at the downside of the economy, then gets some optimism by examining the upside.

The downside is not that vast, says Montinola. Rising prices of essential commodities is the most critical. Questions of confidence in the economy is another, he says.

Looking at the upside, Montinola starts by saying that the non-performing loans of the banking system are now down to 4 percent. It hit a high of 17 percent at the height of the Asian contagion. How this happened is nowhere close to ingenuity. He said that some banks sold good assets because there were profits to take from them.

The special purpose asset vehicle must have accounted for around P300 billion in reduction of non-performing loans, says Montinola.

Montinola, president of the Bankers Association of the Philippines, also said that during the first six months of the year, bank loans went up by 15 percent.

However, a good portion of it was used as working capital not for new projects and expansion. This, he explained, is a natural result every time prices go up.

There are big potentials in tourism which he said is relatively labor-intensive. He said in spite of Filipino complaints against high prices, foreign tourists get the best value for their money in the Philippines.

Domestic tourism is growing fast. Money comes from remittances of overseas workers.

That is why, he said, there are medium to low level results in practically all provinces that have beaches to speak of.

Outsourcing is extremely attractive, Montinola said. There are call centers in many provinces. They create jobs and utilize talent which otherwise would be used in other countries.

Foreign firms contract professional services to the Philippines. Very little capital is required, Montinola said. He explained that the benefits in terms of additional employment and foreign exchange earnings are enviable.

At the end of the day, we may find the economy slowly but steadily depending on services as a big factor for growth.

Manufacturing, he said, is stymied by globalization which removed tariff protection for its products. But in the end, he said, it is still a question of survival. There are lessons to learn from competition. That is what globalization seeks to accomplish: a market-driven, free-enterprise system where only the fittest are entitled to survive.

The property sector, he said, is mixed to good. Mixed in the sense that developers who do not have enough money have to borrow from banks and take a risk.

However, he said, property development is good because there are foreigners coming in massively into apartment construction.

Montinola noted that even rich people have come to terms with reality. He pointed out that many residents of Forbes Park have transferred to expensive apartments and make handsome money renting their homes.

This is a remarkable departure from the property development decades ago when the market for apartments were rich speculators who never had plans of using the units for themselves.

Now there is a genuine demand from users.

Montinola does not believe that the property market will go bust like it did in the United States. "We have learned enough lessons from our own experience and from the sub-prime rates crisis in the United States," he explained.

The property boom happened in the term of President Ramos. It went bust when the Asian contagion hit the region starting in the United States.

The Philippines was hurt most, he said, because there was a large number of property developers who chose to finance their projects with foreign borrowings, attracted mainly by what then appeared as a strong peso and by unusually low rates abroad compared to the Philippines.

Then it went bust. Loans were foreclosed because the peso started to deteriorate. More pesos had to be paid for the same amount of borrowed dollars.

At the end of the day, the banking system found itself with 17 percent (of total portfolio) in non-performing loans, largely to the property development sector.

Overseas Filipino workers are also a huge potential market in the property development sector. According to Montinola, the Filipino professionals working abroad have started "invading" the property market by buying middle and high class apartments.

There is a sector in the market, Montinola said, which buys strings of apartments to rent to expats. Some build the apartments themselves.

Critical to over-all development in these difficult times, Montinola said, is public spending on infrastructure. He admits that temporary pressure on inflation will be felt but in the longer term, costs of production will be reduced.