Crossroads (Toward Philippine Economic and Social Progress)
Philippine Star, 4 March 2015


When it comes to economic performance, the Benigno Aquino III administration can claim to some element of swagger and boast.

Overshadowing poor past performance. In the eyes of national economy watchers, the growth rate has risen above historical performance. We now deserve good notice in many international surveys of economic and social indicators among developing countries, including in the Asean. The sovereign credit rating has reached investment grade, increasing our visibility within the international development community.

Moreover, as the saying goes, a rising tide raises all boats. Higher economic growth improves public resources. It is then possible to address urgent social problems that need redressing. We see this happening in the allocation of more funding for education and public health. It is helping poverty alleviation, although this will take a long time to succeed.

Good luck supports economic performance. The successful outcome that is apparent from this economic record needs emphasis. The management of the fiscal side of government operations has been kept under a tight budgetary framework, making it possible to work within the boundaries of sound macroeconomic balance.

But the maintenance of sound macroeconomic fundamentals is partly and importantly helped along by “good luck” rather than by internal efforts at economic reforms.

Two main factors that contribute to the sound macroeconomic conditions are the result of “good luck”: (1) High dollar earnings due to homeward remittances of migrant workers from foreign shores and, to a large extent, the rising BPO service export earnings, and (2) Structural adjustments taking place in other countries which are prompting labor-intensive factories to look for new locations abroad. To these two factors, we could add a third: (3) The drop in energy prices, which will strengthen the balance of payments even more.

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Rising OFW remittances. The rise of foreign remittances is the beneficial outcome of a perverse domestic policy problem: the failure to adopt labor market and development reforms that improve job generation at home.

This explains the continued migration of Filipino labor because they cannot find productive and remunerative jobs at home. They have to go for employment in different countries to support and sustain the families that they leave behind.

The substantial rise of service exports from BPO (business processing operations, such as call centers) began before the Aquino administration. In this sense, it has been reaping the success of a past administration’s efforts .

New wave of FDI inflows. With respect to the second good luck element, a new wave of foreign direct investments is likely to come as a result of structural changes in countries that have succeeded ahead of us.

In particular, China’s wages have risen so much that factories located there are migrating toward new locations where labor is cheaper. Moreover, Japan, South Korea, and Taiwan continue to experience an exodus of some of their companies as part of their own development needs and expansion.

Assessing five years of performance. When Aquino took the helm of government, its main economic message was to improve governance by attacking corruption.

In the course of battling with corruption or its manifestation, his administration has dealt with “big fish.”

He has caused the removal of the Chief Justice of the Supreme Court, and, on the basis of “plunder charges” which are not bailable, has put on continuing house arrest  the former president Gloria Macapagal  Arroyo, and three serving senators of the Republic.

These actions seem to have impressed international observers. His government has raked in good notice on the fight against corruption.

On the other hand, President Aquino has not articulated the need for economic reforms that the country needs badly to sustain and raise economic performance.

In fact, despite many public discussions concerning the need for some specific reforms – for instance, those related to liberalizing provisions in foreign direct investments – the government has remained very quiet.

Despite the aversion for economic reforms, three important social and public policy health issues were adopted during this term.

The first of these was to lengthen elementary education by one year. This was designed to keep children in school by one more year in line with the need to improve educational output.

The second reform is one on family planning (cum “reproductive health”): the government finally passed a law that allowed the government to help poor families with reproductive health assistance.

A third is the enlargement of a conditional cash transfer program to help poor families with income transfers while assuring that they send their children to school.

These three programs are very costly. But they have implications on helping the poor and on poverty alleviation on a long term basis.

Many gaps unfilled and hopes still to be fulfilled. There are many things left unattended and still major infrastructure problems to modernize. In some projects, the government has been much delayed. Major economic issues still need to be conquered.

Some government departments have disappointed very badly. But the general climate of achievement permeates still. The government must move toward some critical investment and economic reforms to raise the opportunity for larger participation of foreign direct investments if the economy is to move toward a higher level still of accomplishment.

All these will no longer be within sight in the same political administration because there is only one year left, however.

Contrast: Economic reforms in India under Prime Minister Modi. Last year, a new government was installed in India. The new prime minister is most committed toward strengthening economic reforms, breaking down rules that deterred business and attracting foreign direct investments.

His most articulate emphasis in his program is to instil economic reforms, to free the highly bureaucratized economy further, to attract foreign direct investments, and to get the domestic economy to perform according to new tenets of business friendliness.

The Philippines and India operate from two different platforms and different points of origin. But it is useful to see what happens in India. There are many similarities between the two countries.

Reform fatigue and the onset of internecine politics weakened the previous government. But now, new dynamism and a thrust toward major economic reforms are again calling in India.

It bears to watch what will happen in India. Will Modi’s government succeed? A directly reform conscious government puts in place economic and business friendly reforms and processes ahead of many projects.

The approach appears to be in contrast to that chosen by Aquino, which is to focus on governance first.