Aquino
reforms leave potholes By
Richard Javad Heydarian
MANILA - Against
the gloomy backdrop of economic woes in the euro
zone, a lackluster recovery in the United States,
and growing anxieties among major emerging
economies such as China, the Philippines has
emerged as a countercyclical bastion of economic
optimism.
After years of fiscal trouble
and economic underperformance, President Benigno
Aquino's reformist administration has restored
local and foreign investor confidence in the
country's economic direction. In a growth-starved
global environment, the Philippine economy is on
track to grow by 5.5%-6% this year. Inflation and
interest rates are stable at around 4%, while
public debt hovers near historic lows.
Major international credit-rating agencies
have taken note of the
improved fundamentals by
upgrading their sovereign ratings. Ruchir Sharma,
chief emerging-markets economist at investment
bank Morgan Stanley, recently identified the
Philippines as among the most promising
developing-world markets. Goldman Sachs predicts
that the country will be among the top 20
economies within the first half of this century.
Growing confidence in institutions of
governance, improved macroeconomic conditions, and
an increased focus on infrastructure spending and
socioeconomic development programs leapfrogged the
country 10 notches on this year's Global
Competitiveness Index, rising from 75th to 65th.
Anti-corruption initiatives, including the
impeachment of high-ranking judicial officials,
have raised trust in state institutions and
boosted business confidence.
Those
shifting perceptions have contributed to a
real-estate boom. Manila recently opened one of
the world's largest shopping malls, while US
celebrities Paris Hilton and Donald Trump have put
their names to new high-end residential projects
for the growing local nouveau riche and
deep-pocketed expatriates. Billions of dollars are
being poured into casino projects and shopping
centers across Metro Manila's urban sprawl.
Aquino's socioeconomic policies, modeled
after redistributive policies made popular in
Latin America, especially Brazil, Chile and
Mexico, have been characterized as "neoliberal
economics with a human face". The government has
introduced a large-scale "conditional cash
transfer" program aimed at not only serving basic
needs but also boosting the human capital and
purchasing power of vulnerable populations.
There have been certain early signs of
success: Social Weather Station (SWS) survey
center found that between the first and second
quarters of this year hunger rates declined from
23.8% to 18.4% of the population. Those gains were
followed by an aggressive administration push for
the passage of a controversial reproductive-health
bill that could give the executive branch new
tools to control the country's ballooning
population.
These policies and programs
have boosted Aquino's approval ratings. He
registered a record high satisfaction rate of 77%
in August, a remarkable 25% jump from last May's
survey, according to SWS. Yet all of this good
news has masked two underlying issues that have
been left wholly unaddressed, namely: the
Philippines still high relative vulnerability to a
global economic meltdown and stubborn structural
imbalances in the distribution of economic growth
and opportunities.
Decoupling
challenge Since the 2008 global financial
crisis, regional economists have debated whether
emerging economies will be able to sustain strong
economic growth irrespective of disruptions in
traditional export recipients and growth engines
in the European Union, the US and Japan.
Proponents of the notion have emphasized the
ability of emerging economies not only to sustain
high growth rates but also to serve as engines of
global recovery thanks to sound macroeconomic
policies and growing domestic consumer demand.
With increasingly strong macroeconomic
fundamentals and a relative lesser reliance on
international trade, the Philippines is in some
ways better positioned than many of its peers to
deal with potential global economic "black swans",
or low-probability but potentially high-impact
events ranging from the dissolution of the euro
zone to new wars in the oil-producing Persian
Gulf.
This is why the Philippines is among
the least vulnerable to exogenous shocks among the
Asia-Pacific region's leading economies, according
to a recent report by Roubini Global Economics, a
private economic consultancy. Yet it would be
folly to assume that the Philippines is safe from
future global economic and financial turbulence.
The Philippines is among the most
foreign-remittance-dependent economies in the
world, currently accounting for around 10% of
gross domestic product. The country's legions of
overseas workers have long served as a source of
economic buoyancy during downturns,
balance-of-payment stability through around US$20
billion worth of annual foreign-currency
transfers, and domestic consumption through funds
sent to family members.
Sustained
disruptions in major global economies would
inevitably impact the employment prospects and
earning power of the now more than 8 million
overseas Filipino workers (OFWs) scattered across
the world. In particular, potential geopolitical
disruptions in Syria and Iran and/or a major
downfall in global oil demand would directly
threaten millions of OFWs currently based in
oil-and-gas-exporting Middle Eastern countries.
Philippine export industries have also
shown vulnerability to external market shocks,
specifically in 2008-09 and in the second quarter
of this year in response to economic weakening in
Europe and sluggish recovery in the US. The
trade-disrupting Fukushima nuclear disaster in
Japan and major flooding in Thailand both hit the
Philippines especially hard, slashing by some
estimates as much as 2.2 percentage points off GDP
growth.
Structural imperatives
Vulnerability to external variables
underscores the Philippines' many stubborn
structural imbalances. While Aquino's reformist
administration has resuscitated business
confidence and restored a modicum of trust in
state institutions, its policy responses to
lopsided economic and wealth distribution that
favors only certain sectors of the economy have
been shallow and short-term-oriented.
In
March 2008 the World Bank issued a report titled
"Accelerating Inclusive Growth and Deepening
Fiscal Stability" that warned against the
country's high dependency on only a few growth
areas, namely services and overseas employment, at
the expense of strategic and potentially more
sustainable sectors such as manufacturing and
agriculture.
These sectors have received
little, if any, government attention under Aquino.
While his administration has identified a dozen
major public-private partnership (PPP) projects to
boost the nation's creaky infrastructure and
enhance its attractiveness to foreign investors,
only one of them, a 1.4-billion-peso (US$33.5
million) road project, has concluded bidding.
The capital's main roads are poorly
maintained and heavily congested, while the
rural-urban infrastructural divide is yawning,
especially outside of the Metro Manila region. So
too is the urban-rural wealth gap. A lack of
strategic foresight and infrastructure, as well as
an incoherent patchwork of regional and
international trade regimes, has made the country
into the world's largest importer of rice, the
Philippines' staple food.
Official neglect
of the agriculture industry and the absence of an
effective land-reform program for poor landless
farmers have contributed to rising rural poverty
levels and rural-to-urban migration. Rural
insurgency, often rooted in local grievances
against Manila's perceived misrule, is still a
reality in many areas of the country, ranging from
the islands of Luzon to Visayas to Mindanao. The
conflicts have deepened poverty and suffering in
many rural areas.
Among its regional
peers, namely Thailand, Indonesia and Malaysia,
Philippine manufacturing has been the weakest in
terms of moving up the value-added ladder and
creating jobs. That poor performance reflects a
weak state industrial policy that has consistently
failed to provide sufficient protection for local
nascent industries, build a network of supporting
backward and forward industrial linkages, and spur
the emergence of an entrepreneurial class capable
of globalizing national champions.
As a
result, the Philippines has some of the worst
rates of underemployment, poverty and malnutrition
in the region. Real wages have remained flat over
the past three decades, contributing to a large
informal economy that some economists estimate
represents as much as half of GDP. With rising
worker desperation, many employers exploit legal
loopholes to "contractualize" short-term
employment, a scheme that undermines job security,
weakens labor unions, and reduces health, bonuses
and other related benefits.
In a recent
speech, Aquino gushed: "We are witnessing the
growth for our nation, reaching its fullest
potential ... From Luzon to Mindanao, the gears of
development are turning, providing opportunities
and possibilities that we could only imagine in
the past." But in a period of high external
uncertainty, his administration has done little to
address the Philippines' lopsided economics,
leaving the country vulnerable to a sudden
reversal of fortunes and empty political rhetoric.
Richard Javad Heydarian is a
Manila-based foreign-affairs analyst, focusing on
development issues and international security. He
has contributed to or been quoted in The Diplomat,
UPI, Foreign Policy, Foreign Policy In Focus,
Tehran Times and Russia Today, among others. He
can be reached at jrheydarian@gmail.com.
(Copyright 2012 Asia Times Online
(Holdings) Ltd. All rights reserved. Please
contact us about sales, syndication and
republishing).
Head
Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street East,
Central, Hong Kong Thailand Bureau:
11/13 Petchkasem Road,
Hua Hin, Prachuab Kirikhan, Thailand 77110
