MANILA – US Ambassador Kristie Kenney told American businessmen in the Philippines the country is lagging behind its neighbors despite recent improvements in its economic performance. A few hours later, the Arroyo government lashed back and said the ambassador is misinformed about development in the Philippines.
In her first major public address since taking up her appointment last month, Kenney said rampant corruption and poor enforcement of intellectual property rights remain two of the biggest obstacles to rapid economic growth in the Philippines.

“On the economic side, I know there are great opportunities economically. The growth rate here looks extremely great, but compared to some of the dynamic, really fast-moving economies in Asia, the Philippines is not where it ought to be,” Kenney told a luncheon meeting of the American Chamber of Commerce at the Shangri-la Hotel in Makati City. “Again, corruption and intellectual property issues play a role here.”

“No, we are not kulelat [the tailender]. We have even beaten Thailand,” Economic Planning Secretary Romulo Neri said. “The US ambassador is misinformed, probably because she is new in her assignment,” said Neri, who is also director general of the National Economic and evelopment Authority.
Kenney’s observations were “not correct,” and she may have a mindset about the Philippines’ economic situation, he said. Presidential Spokesman Ignacio Bunye said the Arroyo administration was taking Kenney’s opinion as a challenge for the government to work harder in improving the economy and the lives of poor Filipinos.  “We note the opinion of US Ambassador Kenney and we take this as a challenge to work overtime on our goals sans the political noise that is pulling us down,” Bunye said.
“President Arroyo is determined to pull the nation up and has succeeded to a good extent in building up the Philippines as a strong player in the region.”
Bunye said the government was making progress, and that the majority of Filipinos were now feeling the benefits of an improving economy.  “We are making solid progress in our reforms, and the returns are coming in through better confidence, investments and jobs,” he said.
Kenney, a career diplomat and the first female ambassador assigned to Manila, said the United States had not given up on its former colony despite political strife and sluggish economic growth. She described US-Philippine relations as solid and “special.”
“Relations between our two countries today are more important than ever before,” she said. “Our two countries share a special bond of history which we value.” She noted that the United States remains the Philippines’ largest investor, largest foreign donor and biggest market for Philippine products.
Kenney said the Philippines should be a great place for investments because of its natural resources and its people. 
Kenney declined to comment on the political crisis hounding President Arroyo, which analysts have warned could derail economic recovery.
“This is for the Filipino people to work on. It is no secret anywhere in the world that stability leads to economic growth and development. But the Filipino people have the institutions to strengthen democracy,” she said. “From my various postings abroad, what I see here actually gives me real optimism that this can be a country that is peaceful and prosperous.”
Washington is closely watching Mrs. Arroyo’s economic reforms for results, particularly an improvement in the local business climate.  Corruption and intellectual property rights are two issues that highly concern Washington.
Robert Ludan, counselor for economic affairs of the US Embassy, earlier said the Philippine government needs to invest more in infrastructure, education and health care.
Kenney is optimistic of a breakthrough in the peace negotiations between the government and the More Islamic Liberation Front (MILF). “I think there is a real prospect for peace with the MILF and I think that will be something the US will be delighted by and continue supporting,” she said. But she admitted the threat of terrorism in Mindanao still worries Washington. “I think we all worry about terrorist activities anywhere in the world.”
Kenney added that the United States will continue supporting Philippine military reform but the amount spent will be up to the US Congress. Asked later how much that support would cost, Kenney said: “I don’t know. No one can predict what our Congress will do. But I can assure you we will continue to support the reform program.”
The Philippine military, which is battling communist insurgents and Muslim extremists, has one of the most poorly-equipped forces in Southeast Asia. It no longer has fighter aircraft and some of its warships date back to World War II.
The Philippines began a defense reform program in 2003 involving the total overhaul of the defense establishment but cash shortages have hampered modernization of the armed forces. The United States is seen as a key partner in the modernization program which is expected to take five years to complete.