By Cai U. Ordinario & Bernadette Nicolas
THE Philippine economy, some experts say, is purring like an expensive sports car; and it’s all because of the policies implemented by the current administration in its first three years.
Socioeconomic Planning Secretary Ernesto M. Pernia said that while the economy was hit by setbacks—the 2019 budget impasse and the election ban prevented government from implementing billions-worth of infrastructure projects—things will look up in the second half of the year.
The economy sped past high commodity prices, ending the 2018 race against inflation with a full-year growth of 6.2 percent. Prior to last year, GDP growth was higher at 6.7 percent in 2017 and 6.9 percent in 2016.
Such performance of the economy is considered by Presidential Spokesman Salvador S. Panelo as accomplishments by President Rodrigo Duterte.
“You compare what this President has done vis-a-vis the old Presidents; the past Presidents are no match to this President. Look at his accomplishments,” Panelo said in an interview with the BusinessMirror at his office overlooking a restaurant once the home of the freedom-fighting Roces family members.
“If you remember, economic growth slowed in the first quarter of 2019 due to the impasse in Congress when the [passage of the] national budget was [delayed],” added Panelo, who said offhand he doesn’t read business news.
The Palace spokesman, likewise, noted that the Philippine peso strengthened 0.8 percent in February “and that is considered to be the best performance among Asian countries.”
“And 17 regions grew in 2018, with Bicol region growing the fastest at 8.9 [percent], followed by Davao with 8.6 and the country’s inflation was reduced [to] 2.7 percent in June, the lowest recorded since September of two years ago,” said Panelo, wearing a black jacket embroidered with SPOX/OPLC in white letters at the right breast.
Rice trade liberalization
PANELO also attributes the tempering of inflation to the Rice Trade Liberalization (RTL) law “plus the measures adopted by the economic managers.”
University of Asia and the Pacific School of Economics Dean Cid Terosa agrees, saying that policies such as the RTL law contributed to the slowing of inflation.
Terosa added that efforts to address the country’s infrastructure deficit through the Build, Build, Build (BBB) program is also one of the best policies the government crafted.
“While this is one expensive undertaking, the benefits of these investments are long term and would “yield profitable returns in the future.”
He said programs such as the Condition Cash Transfer (CCT), which was institutionalized under the current administration, also enabled the government to take matters into its own hands to help the poor.
“Indeed, economic policies for the last three years have helped the country navigate troubled economic waters and remain mightily afloat,” Terosa told the BusinessMirror.
Investments needed
PRIVATE sector economist Calixto V. Chikiamco told the BusinessMirror that the same reasons have also helped make the growth rate of 5.5 percent to 6.5 percent possible, even without much structural reform.
However, Chikiamco and Ateneo Center for Economic Research and Development (ACERD) Director Alvin P. Ang believe that more needs to be done to push the economy’s growth engines further given its current capacity.
Chikiamco said a growth of 7 percent to 9 percent, which “the economic managers are crowing about,” requires more reforms that will boost growth in the trade sector.
Ang added that the economy is not built to post a growth of 7 percent or 8 percent. He said more investments are needed to make this happen and meet the targets set out in the Philippine Development Plan (PDP), the country’s medium-term socioeconomic blueprint.
“You cannot expect a 1300-engine car to run like a 2500; so don’t dream that we will grow 7 percent every time because the engine is not built for that yet,” Ang told the BusinessMirror. “We are still getting this infrastructure to run.”
‘Considerably slowed’
BOTH Chikiamco and Ang agree that more needs to be done to boost growth in the manufacturing and agriculture sectors.
Chikiamco said the country’s manufacturing sector has “considerably slowed” since 2017. Put simply, Ang said, the manufacturing sector “seem to be losing steam.”
Ang earlier said the manufacturing sector has been slowing since the fourth quarter of 2017. Except for a slight growth in the last quarter of 2018, factory output has followed a downward trajectory.
Chikiamco said the government needs to address the structural weaknesses in the manufacturing and agriculture sectors given the lack of each sector’s capacity, a lack being blamed for the spike in imports.
He noted that the country’s cement, steel, rice, and meat imports have increased significantly in the past few months. Chikiamco said it’s also ironic the Philippines imports fish despite the fact the Philippines is archipelagic.
Ang said the government should boost the agriculture sector not only by addressing the needs of rice farmers but of all farmers. He said the Department of Agriculture is aware of this and knows where best to plant certain crops.
Agriculture, agri-business
ANG believes there’s a need to undertake a “rebooting [of] agriculture” given that a third of the country’s labor force heavily relies on the sector. He explained that for a “largely agricultural population” such as the Philippines’, more private investment is needed in agriculture.
Chikiamco also noted that the agriculture sector growth of 0.56 percent growth in 2018 was significantly lower than the country’s population growth rate of 1.5 percent. This could cast doubt on the sector’s ability to produce its own food.
What is needed, Chikiamco said, is an increase in investments in the manufacturing and agriculture sectors. However, he said, investments are not coming in because of, among others, rigid labor laws and populist legislation, which makes hiring expensive relative to worker’s productivity.
Other hurdles to investments include: weak infrastructure particularly in ports, shipping and airports; and, restrictive laws on foreign investment in transport and telecommunications.
“In the case of agriculture, the persistent uncertainty in property rights in rural land is a major deterrent to more investment and the growth of agribusiness,” Chikiamco said. “Most of our farms are atomized, due to the Comprehensive Agrarian Reform Law’s prohibition of land ownership beyond five hectares.”
Inequalities, investments
HOWEVER, attracting investments, particularly those made through privatization, are not that welcome, particularly in utilities, according to Eduardo C. Tadem of the University of the Philippines Center for Integrative and Development Studies.
In his presentation at the “State of the People’s Address” on Tuesday, Tadem said the global crisis in the 1980s forced governments to favor privatization to spur economic development and deliver public services. He said privatization aimed to reduce the government’s involvement in businesses; promote competition, efficiency and productivity; stimulate entrepreneurship; avoid monopolies; and, cut red tape.
Unfortunately, Tadem said, these promises were left unfulfilled and created new problems such as crowding out small and medium-sized enterprises. He added that these firms turned into monopolies, subsequently causing inequalities in the delivery of social services. On top of these, he said, patronage and corruption continued.
Tadem said water privatization efforts in the Philippines also failed to meet what was promised to citizens. This became evident in the recent “artificial water shortage” episode in Metro Manila, which led to households having little to no water for days, he said.
Old, new problems
THE water shortage led to the decision of the Metropolitan Waterworks and Sewerage System (MWSS) to slap Manila Water Co. Inc. with a total fine of P1.134-billion.
The decision included a P534.050-million fine and a required additional P600-million fund for the development of a new water-supply source. The decision was jointly announced by MWSS Chairman Franklin J. Demonteverde and Administrator Reynaldo V. Velasco. This, after the MWSS Board unanimously approved the recommendation of the MWSS Regulatory Office on the imposition of the penalty relative to Manila Water’s failure to comply with Article 10.4 of its concession agreement with the MWSS.
However, Tadem said, water privatization created other problems such as: a class bias in the pricing of water; profit-taking that went “beyond allowable limits”; poor water sanitation and wastewater treatment services; and, non-involvement or diminished role of local governments and communities, among others.
“Twenty years later, however, studies have shown that the goals of Philippine water privatization continue to fall short of what it promised to do,” Tadem said.
Reforms, resolutions
IN the medium to long term, Ang saw a need to focus on efforts to address the poverty and inequality not only in Metro Manila but in all regions.
Aside from the water crisis, the government also needs to address airport and traffic congestion, especially in Metro Manila; slow Internet; corruption; large housing backlog; the drug war; and the long running armed struggle waged by the Communist Party of the Philippines.
Chikiamco added that the solution to the country’s economic woes cannot be solved by the services sector and overseas Filipino worker (OFW) remittances, which have been the traditional sources of growth in the past several decades.
Headwinds are in the horizon, Chikiamco said, and the Philippine economy needs to gird its loins for what’s to come. For one, as the oil fields dry up in the Middle East, the jobs of over a million Filipinos are under threat. Further, the onset of artificial intelligence poses a threat to “local dollar earners” who are working in the business-process outsourcing sector.
“What does the government have to do in the next three years? Make the environment for investments in manufacturing and agriculture more favorable,” Chikiamco said. “This means: liberalizing foreign investment restrictions, particularly those restrictions in the Constitution, modernizing the labor code, and removing the 5-hectare limitation on agricultural lands and allowing consolidation by rent or ownership to encourage the growth of agribusiness.”
‘Death sentence’
HOWEVER, former Akbayan Party-list Representative Walden F. Bello said liberalization brings with it its own problems.
According to him, the recent passage and signing of the RTL law was the “final nail in the coffin” of Filipino farmers. It was nothing more than a “death sentence” for the local rice industry, he added.
By liberalizing the rice sector, Bello said the Duterte administration lifted the only protection for Filipino farmers. He said countries like Thailand and India are providing direct and indirect subsidies to their farmers, allowing them to survive even without quantitative restrictions.
But in the Philippines, Bello said decades of underinvestment in the agriculture sector have made it difficult for farmers to cope. This is the reason, Bello said, why the quantitative restriction was the only protection of farmers from unfair trade and production woes.
Influx of Chinese
APART from rice, Bello said government’s recent decision to allow more foreign investments in the country paved the way for real estate prices to skyrocket, especially in Metro Manila. The influx of Chinese investments and workers in the country has made real estate prohibitive for OFWs and millions of employees in the megacity.
He noted that real-estate prices in Makati, Pasay and Manila have seen “massive” increases. This is because Chinese investors and workers would tell real estate developers to “name their price” and they would pay it.
“The Chinese workers are not the enemy,” Bello said. “These people are just as much victims of this illegal industry that is mainly servicing gambling interests in the mainland because they cannot operate legally there, so they have to ship their operations to the Philippines.”
Not helpful
CHIKIAMCO said ultimately, the biggest risk to the economy is “uncontrolled populism” which paves the way for a lot of free services such as free irrigation, free college tuition and free fees for first-time job hunters.
The list includes increased Social Security Systems (SSS) pensions; a 105-day Maternity Leave Law; and, more nonworking holidays, etc.
Further, he said populist policies include restrictive labor laws, particularly the impending security of tenure bill and administrative orders outlawing contractual labor. These would likely drive away much-needed investments.
“The risk is that the increased tax revenues will not go into productive investment spending but will go to populist giveaways. Instead of raising the country’s productive capacity, inflation and stagnation will be the result,” he said. “With national elections in 2022, this risk of uncontrolled populism will only grow.”
Additional taxes
APART from these freebies, Freedom from Debt Coalition (FDC) Board Member Tony Salvador said efforts to introduce tax reform through the Tax Reform for Acceleration and Inclusion (TRAIN) Law and the pending Tax Reform for Attracting Better and High-Quality Opportunities (Trabaho) bill did not lead to positive results.
Salvador said the TRAIN Law only increased diesel prices and the tax breaks granted to those earning P250,000 and below did not benefit the poor. He said minimum wage earners were already tax-exempt to begin with, while informal sector workers also did not pay any tax.
Further, the failure to distinguish between compensation tax and professional tax under the TRAIN resulted in a larger disparity in Personal Income Tax (PIT). Salvador said that 87 percent of PIT is paid for by the compensation tax of employees averaging P16,000 per year.
Professional taxes paid for by lawyers, certified public accountants, doctors, and other professionals accounts for 13 percent of the PIT. This amounts to an average of around P13,000 per year, or P3,000 less than ordinary workers.
Rebuilding the economy
IN terms of the proposed Trabaho bill, the reduction of corporate income tax is expected to go down to as low as 20 percent. Salvador said this is not peanuts since a mere 10-percent reduction could lead to billions worth of losses for the government.
In the coming years, Salvador said the impact of these tax reforms could undermine the government’s ability to raise revenues, especially for health and education where millions of Filipinos depend on.
In order to reform the economy, FDC President Rene Ofreneo said it’s time to consider what they call “A People’s Economy” approach which promotes inclusion, equality and balanced development.
Ofreneo said this means rebuilding the economy through genuine structural reforms by implementing an industrial policy; integrated agriculture and agrarian reform; trade arrangements; consumption-production nexus; and sustainable finance.
He added that the alternative economic approach means going green to create green industries and jobs that will be good for the people and planet; increasing productive capacity through social protection and reforms; building a grassroots-based economic movement; and establishing an activist propeople government.
In women’s defense
UNDERTAKING the alternative economic approach means, Ofreneo said, encouraging Public-Poor Partnerships by raising research and development spending and scaling up domestic value addition in industry and agriculture and adopting redistributive reforms and social protection together.
He said the economy’s policies must come from the cooperation and solidarity of informal grassroots entrepreneurs, MSMEs (micro, small and medium enterprises) and associative sector, such as cooperatives and social enterprises.
The future of the economy, Ofreneo said, is also female, given that many of the successful cooperatives and social enterprises are female-led. There are also many lessons learned from various instances when women take up the leadership in communities.
“Lessons from [Supertyphoon] Yolanda and other disasters show that women are the ones who stay in the community to keep the family together, weather the storm and its impact by reaching out and exchanging experiences with other mothers in the community, and, in leading successful cases of community recovery,” Ofreneo said. “We are simply stating the bare truth: women are in the best position to lead economic solidarity network, especially at [the] community level.”
Optimistic journey
ECONOMISTS and the government may seem to have infinite knowledge about the economy and what can be done to respond to challenges. But one thing that they will not be able to determine is what lies ahead for this country, especially in the next three years.
Nonetheless, it is clear that much needs to be done and accomplish. It is time that we realize that economic growth is not just about a number but a number that is made up of many moving parts just like any vehicle.
The road is long and Filipinos need a car that is dependable. It must have the horsepower that can carry the country through to its destination.
Image credits: Antonio Oquias | Dreamstime.com