Ateneo Center for Economic Research and Development Director gives overview for 2010 R.P. economy under PNOY

U.P.-AyalaLand Technohub at Diliman, Q.C.

BPOs and call centers only benefit a few and

not the broadest segments of society, says 

Dr. Cielito F. Habito

By Chanda Shahani

The rosy descriptions of a growing Philippine economy, by the government's economic managers and planners under the previous administration, fueled by call center growth and overseas foreign workers remittances in 2009 did not reflect the realities in the countryside and squalid urban areas where the people have become even poorer and hungrier, by their own description, said Dr. Cielito F. Habito, Director of the Ateneo Center for Economic Research and Development in a briefing before members of the public and the media at the Ateneo Professional Schools in Rockwell, Makati City on August 20, 2010.

Dr. Habito, speaking in a presentation entitled, “The Economy under PNoy: An Overview,” said that the new administration of President Benigno S. Aquino III could tackle the problems of uneven and equitable distribution of wealth; but that it was important to first understand many of the underlying conditions causing these imbalances in the first place before implementing any remedial measures.

The Economy has grown while the Poor have become even Poorer

Citing a March 19 to 22, 2010 pre-election national survey of the Social Weather Stations (SWS), he said that 43% of Filipinos felt poor in 2010 compared to 78% in 1984. While this might seem to be an improvement on the surface, in reality it was not, he said. He said that the same SWS survey also showed that a sampling of respondents nationwide showed that the degree of total hunger in households increased from nine percent in 1998 to 21.2% in 2010.

He said that of the four million households reporting hunger in March of 2010 only 2.6 million rated themselves as poor.

A significant 1.4 million who suffered from hunger did not consider themselves to be poor, he said. Dr. Habito, a former Director-General of the National Economic Development Authority (NEDA) said that living standards had dropped so low since 1984 that the standards of poverty had dropped, resulting in a seemingly lowered feeling of poorness figure that was contradicted by the actual increase in self-reported hunger levels.

He said official statistics showed that the average annual family income is down from PhP 148,000 in 2003 to PhP 144,000 in 2006 keeping both figures in constant 2003 prices. Meantime the net elementary school participation rate is down from 97% in 2001 to 85% in 2008 while the net high school participation rate is down from 66% to 62% while the malnutrition incidence is up.

“In 1960, the income of the Philippines was twice that of Thailand but now it is Thailand that has an income double that of the Philippines,” he said, adding that much of the growth was “top heavy,” but the needs of the broad sectors of the population were “bottom heavy,” causing a mismatch in the allocation of capital in favor of those who needed it least.

He said that broad-based growth was really necessary if the national leadership really wanted to tackle the issue of poverty once and for all. “Broad-based growth takes into account the sectors, geographic growth and is also temporal or time-bound,” he said, adding that assessing the economic performance of the country based on key yardsticks such as price stability, jobs and incomes were the criteria that were important.

In Republic Act 8425, or the Social Reform and Poverty Alleviation Act, it was declared that the State should adopt an area-based sectoral and focused intervention to poverty alleviation. Section 3 of RA 8425 defines 14 basic sectors as the disadvantaged sectors of Philippine society (for more information on the definition and breakdown of the 14 basic sectors, please click on this link: http://tinyurl.com/35cv748).

Dr. Habito said that the results of the 2009 poverty survey which the National Statistical Coordination Board (NCSB) did not release yet shows that 35% of Filipino live below the poverty line and that in prior years the poverty level was only 33% in 2006 and 30% in 2003 which means that the growth in the economy did not put a dent in poverty levels which even grew during the same time period.

Citing more statistics, Dr. Habito said that the Filipino people, in their entirety, were not doing so well, after all. For example, in 2009 price increases slowed, but this was due to the slow economy. Moreover, job creation fell behind in both quality and quantity. For example, while 972,000 new jobs were created in 2009, 1.2 million new workers entered the workforce creating a net deficit. Additionally, the newly created jobs were in low-level areas such as vending, minimally skilled repair services for appliances and household help services. Overall incomes also barely grew in the country resulting in 0.9% GDP growth in 2009, he said.

Oligarchies are holding back the rest of the country from benefiting from overall growth

Dr. Habito said that 80% of the country's gross domestic product (GDP) could be accounted for by a mere 150,000 of the country's population, whom he described as an "oligarchic structure."

The country's small and narrow industrial base highlighted overall growth in the first quarter of 2010 with manufacturing at 20.7% and  media, which benefited by election spending at 31.4% and real estate, which he described as mostly speculative, at 10%. But it is the agricultural sector, made up of mostly unskilled farmers who have suffered the most from the El Niño phenomenon resulting in in a -3.2 % growth rate in Q1 of 2010 compared to a 1.6% growth rate in Q1 of 2009. Communications also shrank from 9.2% in Q1 of 2009 to -1.3% in Q1 of 2010.

Other developments in the economy

Dr. Habito also highlighted the following developments to round off the picture of the national economy:

•  In 2003 net inflows or remittances grew by 12.8% in 2004 but tapered off to only 5.6% in 2009
• The government's fiscal balance worsened with a budget deficit of PhP 153.4 billion between January to June 2009 and which increased to PhP 196.7 billion for the same period in 2010. He said the government's official target was 280 billion in 2010 but that the newly-installed Aquino administration has now revised this to PhP 302 billion.
• The Philippines' GDP shrank in 2008 and 2009 in the following four regions: National Capital Region, Regions I, III and IVA while Bicol grew the fastest.
• Inflation was 3.2% in 2009 but is expected to reach 4.2% in 2010. Nevertheless, this is still an overall trend improvement over 2006 inflation levels which reached 6.2% and 2008 inflation levels which reached 9.3%.
• External threats to the national economy are the realization of a double dip recession in the United States and economic instability coming from European countries such as Portugal, Ireland, Greece and Spain which would slow down exports and foreign currency remittances back to the Philippines.
• The Philippine government, the Asian Development Bank (ADB) and Dr. Habito himself all project at least a five percent GDP growth in 2010.
• In 2010, there has been a surge in investment of 24.3% with government spending also increasing by 18.9%
• Exports have increased by 43% in dollar value terms or 17.9% in real terms.
• Consumption has increased to 5.9% in 2010 compared to three percent in 2009.
• At current rates of per capita income growth, it would take the Philippines more than 200 years to reach the average per capita income of the OECD or developed countries.

Dr. Habito proposes a model for economic development under the PNOY Administration

Although the country "may take generations" of consistent economic growth to catch up with European countries or even more progressive Association of Southeast Asian (ASEAN) member countries such as Malaysia and Singapore, the trick is actually for the Philippines to compete against itself, and more comparable neighbors such as Vietnam or Thailand where we have a better chance of doubling up our efforts in order to catch up with them, he said.

PNOY needs to leverage his "trust capital"

Dr. Habito said that President Benigno S. Aquino III and his administration needed to "leverage his trust capital" in order to attain the development goals of the government. He said that the power of the large vote he enjoyed in the May 2010 election and which accounted for 46% of the vote as well as the power and prestige of his office would improve tax compliance and cause corruption within government institutions to decline, which would help improve the country's deficit as well as overall confidence from investors and the general public alike.

The no "wang-wang" policy was a good symbolic start he said, saying that the presidential ban on almost all vehicles being able to traverse the nation's roads with impunity using over-the-counter sirens meant that there should be no special treatment for those who have more in life. However, he needed to back this up with more concrete actions to impress the public about his seriousness over genuine reform. At this juncture, Dr. Habito mentioned the issue of genuine compensation to the residents of Hacienda Luisita in Tarlac, where the Cojuangco family owns shares in the company managing this estate, Hacienda Luisita, Incorporated. Although President Aquino has since divested himself of his shares in the company, the public itself still has the perception that Aquino is still linked to this unresolved issue. He did not elaborate.

President Aquino's policy of no-frills governance such as fewer foreign travels was good in that it set the tone for less waste of government resources. Another positive note is Aquino's move to create more participation by and among the people by bringing the government to the people and the people to government. However, he needed to be serious about not giving cronies special favors and to shun giving special treatment to the oligarchic class, said Habito.

Bright spots in the economy

Dr. Habito said that the sectors that will bring further growth to the economy in 2010 and beyond are the following:

• Agriculture and agribusiness. However, budget reform is necessary such that the national government provides more guidance and less hands-on intervention, especially with respect to the Department of Agriculture (DA). It is necessary for the DA to empower and train Local Government Units to act on their own without waiting for the Metro Manila-based central government to act on many initiatives.
• Tourism. However, focused investments are needed as well as opening the skies to foreign and other air carriers under liberalized aviation policies because the more available seats there are out there, the lower will be the per ticket cost of flying to the Philippines which will create more jobs by encouraging the arrival of more tourists, as the average tourist spends $ 1500.00 per stay in the Philippines, which is equivalent already to the per capita income of the average Filipino.
• Business Process Outsourcing. However, the government needs to address through training and education the dwindling pool of skilled applicant to BPOs.
• Construction. This sector will grow because of the need of government to fill in the infrastructure gap coupled with unmet housing demand.
• Manufacturing. Food based manufacturing remains strong as well as design-based manufacturing which Filipino excel in. Despite the fact that China is now the factory of the world, Filipino designers are world-class and despite the penchant of Chinese companies to engage in industrial espionage and produce copy-cat designs at a lower cost, Filipinos can nimbly stay ahead of the competition by constantly innovating new designs.

Where to push

Dr. Habito said the government needed to push strongly in the following areas:

• Revenues. At a 12% of GDP so far, the government needed to restore the tax effort to its previous metric of 17% of GDP, mostly from collection and compliance boosts, trimming tax perks and collecting from sin taxes such as taxes on alcohol and tobacco.
• Infrastructure. A massive catch up program is needed as well as better Build-Operate-Transfer (BOT) rules otherwise dubbed as "Private-public sector partnerships" by President Aquino.
• The savings levels now exceed investment levels.What is needed is a boost in confidence for savings money to spill over into investments, he said.
• Growth needs to be democratized into the sectors through asset reform, revised anti-trust policies and giving small and medium enterprises and entrepreneurs a boost.
• The national government need to allow more development from below and not from above. This means that they should allow local government units to take on more work because they "can do things better." In fact, there are many award-winning local government initiatives to emulate, he said.
• He also said transparency and accountability by government institutions was a must, citing the experience of former Naga City Mayor Jesse M. Robredo (now Department of Interior and Local Governments Secretary) who posted the official budget of Naga City online at the Naga City government website where the average citizen can see how public monies are programmed for disbursement, and where it remains posted to this day at: http://www.naga.gov.ph/cityhall/2009/

(Chanda Shahani is the Editor of the Diliman Diary. He has a master's degree in entrepreneurship (M.E.) from the former Asian Center for Entrepreneurship (ACE) at the Asian Institute of Management)