A scintillating 7.9 percent GDP growth?

Election-related spending acted as some sort of “stimulus” to an otherwise anemic economic growth in the first half of the year (Photo from 2010presidentiables.wordpress.com)

Maybe the government thought that after the terribly mishandled Quirino Grandstand hostage crisis, Filipinos could certainly make use of some good news. Thus, the National Statistical Coordination Board’s (NSCB) declaration today (Aug 26) of a scintillating gross domestic product (GDP) growth of 7.9 percent. The country just posted back-to-back quarterly growth of more than 7 percent, the NSCB said, after the GDP expanded by 7.3 percent in the first quarter.

But the truth is nothing in the supposedly scintillating growth is scintillating. Note, for instance, that the year-on-year GDP, which at constant 1985 prices is valued at P383.91 billion, is being compared to a very low base that barely grew from its previous level, and thus will naturally result in a high growth rate. In second quarter 2009, GDP was valued at P355.69 billion which only grew by 1.2 percent compared to 2008 (P351.57 billion) as the economy started to feel the impact of the global crisis. So if you remove this “base effect” and compare the 2010 second quarter GDP to the same period in 2008, and similarly compare 2008 to 2006 GDP figures (P313.11 billion), economic growth has in fact decelerated by more than three percentage points.

Source: National Statistical Coordination Board

Even so, it is still a “major, major” recovery from the previous year’s slowdown, the NSCB may argue. But what are the circumstances behind the supposedly scintillating recovery? Was the spurt caused by sustainable and long-term growth drivers and by a fundamental shift in macroeconomic direction? Were the gaping holes of economic vulnerabilities that expose the Philippines to the harsh impact of the still raging global crunch finally plugged by correct policies?

Election-related spending

The second quarter result is actually less anticipated than how the GDP will fare starting in the third quarter which covers the start of the new government. For one, the relatively high economic growth under the old Arroyo administration has long been exposed as hollow and meaningless in terms of addressing poverty and job scarcity. Aquino’s economic managers described the economic growth of the previous years as “poverty-inducing, narrow-based, and jobless growth” and the latest GDP figures are no exception.

Growth in the last nine years stood on shaky ground as macroeconomic policies did not address structural issues long beleaguering the economy. The GDP has instead relied on unsustainable growth drivers such as remittances from overseas Filipino workers (OFWs) for domestic consumption and export markets and foreign capital for production.

Apart from these unsustainable factors, the backward economy also got momentary spurts from four national elections held since 2001. This year’s second quarter GDP, for instance, has been inflated by election-related spending similar to the 7.3 percent growth it had in the first quarter. All in all, according to Arroyo’s NEDA, poll spending could contribute 0.34 percentage points to real GDP growth this year. NEDA, of course, wanted to downplay the actual impact of the elections on the economy in order to highlight government policies in relation to high GDP performance.

The NSCB itself noted that the last time the country posted similar successive quarterly growths of more than 7 percent was in the first two quarters of 2004, which like the first two quarters of 2010, covered a period expensive presidential elections.

In truth, the economic impact of the last elections, considered as the costliest yet in Philippine history, was without doubt higher than the NEDA estimate. For one, the agency wrongly assumed a total election spending of just P15 billion that already cover the combined spending of the Commission on Elections (COMELEC) and all the candidates. But the COMELEC alone already had a budget of P11.3 billion, of which P7.3 billion went to the lease of the controversial precinct count optical scan (PCOS) machines.

Computing the maximum spending allowed under Republic Act (RA) 7166 or the Synchronized Election Law of 1991 of the 18 presidential and vice presidential bets and 64 senatoriables that participated in the last elections would already yield around P10.34 billion. Note that there were 50,247 candidates (from presidential to municipal council bets) that participated in the May polls and many of them certainly spent way above the limits imposed by law.

For example, the Philippine Center for Investigative Journalism (PCIJ) estimated that national bets and party-list groups spent P4.31 billion on TV, radio, and print advertisements alone during the official 90-day campaign period. Candidates with larger war chests spent an additional P1.1 billion for “pre-campaign” political advertisements.

Out of the P4.31 billion in ad spending, presidential bets spent P1.11 billion, the PCIJ study said. However, based on their submitted campaign expenditure reports to the COMELEC, the presidentiables claimed to have spent a TOTAL of only P1.19 billion. The COMELEC explains that the cap on election spending is outdated which forces candidates to mis-declare their actual expenses.

Add to these enormous amounts the even larger cost of greasing the fraud machinery and maintaining political patronage that characterize elite-dominated and undemocratic Philippine elections. During the May polls, various incidents of vote-buying indicate that the buying rate per ballot now ranges from P150 to as high as P1,400.

Aside from spending their own money, candidates also got financial boost from big landlords and businesses to pay for both the legitimate and illegitimate expenses of waging an electoral campaign. Thus, the actual cost of “election-related spending” is much higher and how it distorts domestic economic growth is much deeper than what the NEDA estimate indicates.

Global crunch

Besides the one-time boost from election spending, the export-oriented, foreign investment-led economy has gained as well from the slight improvement in the global economy. But despite such improvement, vital indicators show that the global economy effectively remains in a state of depression and belie claims that the latest flare-up in the boom-and-bust crisis of monopoly capitalism is over. Even some mainstream economists point out that the global economy confronts a very real threat of double-dip recession.

North America, Europe, and Japan – major centers of monopoly capitalism – all face a raging public debt crisis and continuing destruction of jobs even as their production and consumption are again slowing down. Thus, external trade, foreign investment, and OFW remittances, most of which come from these major centers, could not sustain their “growth-inducing” impact on the GDP.

Philippine neocolonial trade, for example, has remained concentrated with the US and Japan, which took in almost one-third of the country’s total exports from January to June this year, based on data from the National Statistics Office (NSO). While shipments to China, Singapore, Hong Kong, South Korea, Thailand, and Taiwan are also significant (together they accounted for 39.7 percent of total exports in the first half of the year), a portion of these exports were re-exported to the US, Japan, and Europe.

Exports, which soared by 27.4 percent in the second quarter – the highest since third quarter 1986, the NSCB noted, but in reality simply recovered from an equally huge 18 percent contraction in 2009  – face a major slowdown or even contraction in the coming months. Latest data show that imports are substantially slowing down as the year progresses, which signals lower job orders from the US and other major export markets of the Philippines since our main exports are dependent on imported inputs.

Furthermore, as the richest capitalist countries grapple with rising debts and decelerating monopoly profits, foreign direct investment (FDI) that actually flowed into the Philippines has immensely declined. Bangko Sentral ng Pilipinas (BSP) data show that year-on-year FDI from January to May 2010 fell by 68 percent. Meanwhile, OFW remittances, based on BSP data, have also substantially slowed down to a year-on-year growth of 6.9 percent from January to June 2010. Prior to the global crisis, OFW remittances have been posting double-digit expansion every year.  

In a way, election-related spending acted as some sort of “stimulus” to an otherwise anemic economic growth in the first half of the year. But obviously it can no longer be relied upon – at least until the 2013 midterm polls – to moderate the impact of the still unfolding and protracted global financial and economic crisis.  

Real reforms in economic policies and priorities are urgently needed to lessen our vulnerabilities to the global crunch and create sustainable growth that produces jobs and boosts income. Unfortunately, based on the medium-term development blueprint that the economic managers of the Aquino administration have presented in broad strokes during their first economic briefing last August 18, no meaningful reorientation of the domestic economy is forthcoming. On the contrary, the Aquino administration is turning out to be an even fiercer advocate of flawed and long discredited neoliberal policies of privatization, liberalization, and deregulation.

Advertisements

What do you think?

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s