IN June I wrote about “Aquinomics”, which promotes good governance as good economics. But what has it brought to the Philippine economy? While critics continue to ignore its palpable gains, good governance has definitely contributed to a higher level of economic growth in the past four years, several credit-rating upgrades, and vast improvements in Transparency International and the World Bank’s cost-of-doing-business rankings. These higher ratings have enhanced the country’s reputation in a major way and boosted its credibility in managing the economy. In fact, a number of research institutions and think tanks expect the Philippines to be one of the leading “high growth” countries in the next few years. The trend path of gross domestic product (GDP) is already at a high 6 percent to 7 percent, despite the recent dip of 5.3 percent in the third quarter of this year.
This situation is in stark contrast to the “lost decades” of our economy—the 1980s and 1990s—that earned the country the unfavorable reputation of being the “sick man of Asia” (see table below). As other Southeast Asian economies grew rapidly between 6 percent and 9 percent during this period, the Philippines’s GDP grew lethargically at about 1.8 percent to 2.2 percent. This was due to the various economic and political crises that the country experienced during that time. It seemed so difficult then for the economy to get out of that hole and of being regarded as a basket case in Asia.
But today the Philippines is finally a “breakout nation,” as Ruchir Sharma of Morgan Stanley describes the economy’s recent emergence from the doldrums. For so many years the country was a victim of “path dependence”, in which the momentum of the past haunts the current situation, pulling the economy down to a low-level equilibrium trap that is similar to a poverty trap. Path dependence also explains why a good reputation is built for many years, while notoriety is very difficult to erase, even after a very long period. The only way to get out of this rut is through a coordinated action by the state and its citizens. The process of rebuilding our standing in the world economy has been painstaking, and current efforts have been gaining ground, although a lot still remain to be done.
Thus, sustaining good governance is important and strategic. While the Aquino administration’s record is not perfect, given its protracted war against corruption, its main accomplishment has been the renewal of the country’s image, from having an infirm economy to a healthy one. As we see today, corrupt practices and systems continue to be exposed, the most recent of which is the life of luxury enjoyed by high-profile prisoners in the New Bilibid Prison. Definitely, difficult reforms still need to be implemented, and the next year-and-a-half will not be enough to do it. The 2016 elections will, therefore, serve as a crossroad where the country decides whether to continue treading on a straight path or turn in another direction.
The next administration must be able to continue to build on the Aquino administration’s reputation of good governance and economic reforms. The next president must not be tainted by corruption and must have the political will to effect major changes in managing the bureaucracy. He or she should have the temerity to fire corrupt and inept officials, even if these people are in his or her inner circle.
Aside from integrity, there is also a need for greater competence, as good governance requires both. The next administration must be able to organize a capable and credible Cabinet. It should include reform-minded politicians who will be able to craft difficult policy changes, and professionals who will be able to implement such changes.
Last, the next president must provide a long-term vision for the Philippine economy. How do we attain inclusive growth? How will the country industrialize? How will the resurgence in manufacturing be sustained? What are the reforms to be implemented for agriculture? Should our people continue to work abroad? We need a visionary who will guide the country in achieving a robust and developed economy toward the middle of the 21st century.
Integrity, competence and vision—these qualities should define the character of the next president, who will hopefully sustain good governance for the betterment of our economy and our citizens.
****
For more of our views on and forecasts for the Philippine economy and the financial markets in 2015 and beyond, we would like to invite you to attend the Eagle Watch Economic Briefing at the Justitia Room of the Ateneo Rockwell Campus in Makati City, from 9 to 11:30 a.m. on January 22, 2015. For inquiries, call (632) 263-3221 or send an e-mail to info@ifpmphilippines.org.
Fernando T. Aldaba, PhD, is a professor of economics at the Ateneo de Manila University and a senior fellow of Eagle Watch, the university’s macroeconomic and forecasting unit.