First published by The Philippine Online Chronicles
(Read Part 2 here)
President Benigno S. Aquino III has described his first full year in office a fruitful year, citing the supposed gains in reducing poverty and corruption. Aquino claimed that he was able to increase this year’s budget for health and education without raising new taxes. This was supposedly due to savings from tighter procedures for implementing programs and projects. Savings also came from improved rice production that allowed the country to import less rice. As of September 2011, the President said government savings have already reached P42 billion.
Brighter New Year?
For Aquino, prospects for 2012 can only be brighter, repeating the favorite mantra of Mrs. Gloria Arroyo about the resiliency of the Philippine economy amid the global crisis. Better use of resources, and not underspending, Aquino said, has given government more fiscal space to step up spending for infrastructure this year. Officials have already announced the planned bidding of 16 major projects under government’s centerpiece program public-private partnership (PPP). Aside from infrastructure and agriculture, Aquino also pins his hopes on tourism. The Department of Tourism (DOT) has unveiled last week its new program “It’s more fun in the Philippines” in a bid to revitalize the industry. Together with agriculture, the President expects infrastructure development and tourism to be the lead growth drivers in 2012, which he hopes “will insulate us from whatever happens overseas.”
In fact, government is keeping its 5-6% target in gross domestic product (GDP) growth this year despite the global uncertainties. According to Cayetano W. Paderanga Jr., Director General of the National Economic and Development Authority (Neda), the target can still be achieved through increased government spending and full implementation of the PPP program. In fact, the country may even have a “pleasant surprise” if efforts to boost construction and services were successful. Note, however, that under the Philippine Development Plan (PDP) 2011-2016, the target annual growth is 7-8% to supposedly make a dent on poverty.
But the more bad news is that the brewing global economic implosion in 2012 could be much severe that what Malacañang is anticipating, with some analysts predicting a crisis even graver than the 2008 financial and economic crunch. And worse, the country is ill-prepared for the turbulent year ahead not only due to the misguided optimism of government, but due to the lack of a real policy shift towards the reorientation of the domestic economy.
Gloomy global economy
After selling the illusion that the global economy has started to recover from the 2008 crisis in the latter part of 2009, governments and institutions of the industrial world have been forced to recognize the hard reality that the crisis – described as the worst of the capitalist system since the 1930s Great Depression – is actually still unfolding. Some of them, like International Monetary Fund (IMF) chief economist Olivier Blanchard, are even warning about “the real possibility that conditions may be worse than we saw in 2008”.
Indeed, as noted by a recent article by Reuters, leading political strategists, academics and economists are predicting another round of global recession this year that may cause “political upheaval on a scale not seen since the 1930s” especially after seeing the extraordinary transpire in 2011 such as the unprecedented credit rating downgrade of the US.
Such pessimism is being fuelled by the weakening growth across the industrial world that started as early as the second quarter of 2010, which continued and hardened in 2011. For instance, real US gross domestic product (GDP), data from the IMF’s World Economic Outlook database show, rebounded from negative growth rates in 2008 (-0.3%) and 2009 (-3.5%) and grew by more than 3% in 2010. But after three quarters in 2011, its GDP growth decelerated to just 1.2 percent, according to data from the US Bureau of Economic Analysis (BEA).
The same trend is observed in other rich countries, with the IMF predicting that the collective GDP growth in 2011 of the G-7 countries (Canada, France, Germany, Italy, Japan, UK and US) will fall to 1.3% from 2.9% in 2010 (after contractions of 0.3% and 4.2% in 2008 and 2009, respectively). In the euro area, which has been facing a deteriorating sovereign debt crisis, the GDP is anticipated to further slow down to 1.6% in 2011 from the already weak 1.8% in 2010 (after growing by 0.4% in 2008 and declining by 4.3% in 2009).
Projections for this year are even dimmer with indicators showing that the euro zone “may be in a recession that could last well into 2012” (GDP likely contracted by 1.8% in the last quarter of 2011, said global financial institution ING) while there is a 50% chance that the US will fall into recession amid prospects of a European sovereign debt default. Japan has been in recession again in 2011 with negative GDP growth rates in each of the three quarters of the year. (See Chart)
Other important indicators such as employment data also paint a grim scenario, especially considering that the labor market situation has remained dismal even when the global economy was supposedly recovering in 2010. Unemployment in the euro zone remained at a historic high 10.3% as of November 2011, with 16.37 million jobless workers – the worst since the euro area started compiling such data in 1995, according to Eurostat, the European Union’s (EU) statistics agency.
Unemployment in the US, on the other hand, appears to be improving a bit as it declined to 8.5%, the lowest in almost three years, although it remains way above the pre-crisis level of 4.6 percent. Also, while the US economy added 1.6 million jobs in 2011, it still needs to create some 6 million more jobs to get back to its pre-crisis levels. Overall, the International Labor Organization (ILO), in its World of Work Report 2011, noted that the global economy needs to create nearly 80 million jobs in 2012 and 2013 to reach pre-crisis employment rates. But the slowdown in economic activity since 2010 suggests that only half of this may be created, and consequently, employment in the advanced economies will not return to pre-crisis levels until 2016.
These developments have serious implications for the Philippines. The slowdown in GDP growth last year and possible recession this year in the industrial world means a further weakening of demand for the country’s exports, which have already contracted for seven straight months (May to November) in 2011. From January to November 2011, exports have fallen by 5.6% compared to the same period in 2010, data from the National Statistics Office (NSO) show. The Semiconductor and Electronics Industries in the Philippines, Inc. (SEIPI) projects electronics exports, which comprise more than half of total Philippine exports, to contract by as much as 25% in 2011.
The jobs crisis facing the rich countries will also weigh down on the Philippine economy not only in terms of labor export and dollar remittances but also in terms of export of services such as through the outsourcing industry. President Barack Obama, who is facing a presidential contest this year where employment is among the focal issues, is promoting “insourcing” of jobs in an attempt to win over American workers who have been hit hard by prolonged joblessness.
If implemented, this will adversely affect the country’s business process outsourcing (BPO) sector, one of the growth areas identified by Aquino in his PDP and once described as recession-proof by economic managers. The BPO sector is said to employ about 600,000 workers and generates close to $10 billion in annual revenues. Note that our BPO sector is heavily dependent on the US market where about 80% of exports of Philippine BPO services go, according to a 2008 survey of the Bangko Sentral ng Pilipinas (BSP).
Due to the dim outlook for the global economy this year, even prospects for tourism are not as bright as government depicts it to be. Data from the United Nations World Tourism Organization (UNWTO) show that the growth of the global tourism industry is expected to further slow down to as low as 3% in 2012, after an anticipated growth of as much as 4.5% in 2011 and actual growth of 6.6% in 2010.
Set the facts straight
As for Aquino’s claim of a fruitful 2011, in particular the imaginary gains in poverty alleviation, it is necessary to set the facts straight. On the issue of increased budget for education and health, for instance, it has been pointed out that in reality, social services remained the lesser priority of government. In the 2012 national budget, Debt Service Expenditures (interest payments and principal amortization) are almost seven times the combined education and health budget that will directly benefit the poor.
Also, while the budget allocations for education and health appear to have increased, they are still way below the minimum amount to meet the pressing needs of the people. To illustrate, the Department of Health (DOH) budget is about P40 billion short of its estimated requirements while the Department of Education (DepEd) budget could only meet 27% of the backlog in classrooms; desk, 19%; and teachers, 13 percent.
The so-called savings have been achieved not mainly because of wiser spending but due to inadvertent factors such as the failure of the PPP program to take off last year that slowed down disbursements. Also, the country imported less rice in 2011 than the previous year, resulting in less public expenditure, mainly due to improved weather conditions (see reports by the Bureau of Agricultural Statistics here) and the over-importation of rice by the Arroyo administration in 2010. Aquino said government saved about P7 billion from less rice imports, which is almost 17% of the total savings.
In reality, not much has changed in the spending priorities of the current administration. As in the past, a huge portion of public funds continued to be siphoned off by payments for government debts. Since July 2010 up to November 2011, Aquino has spent 40.3% of total expenditures (including principal amortization) for debt servicing, not much of an improvement from Mrs. Gloria Arroyo’s 41.5% during her nine-year reign. In fact, in absolute terms, Aquino is spending more on debt servicing at P55.12 billion per month compared to Arroyo, who spent P48.18 billion per month.
Not shared by the people
Aside from short-term doles in the form of the conditional cash transfer (CCT) program, which was first implemented in the country by Arroyo, the Aquino administration has no poverty reduction program to speak of. Also, it has no job creation program apart from the unsustainable four-decade old labor export policy.
Combined with the distorted priorities in spending public resources and continued implementation of neoliberal policies that inflate the cost of living such as privatization and deregulation, the failure of Aquino to alleviate poverty and generate long-term livelihood has naturally resulted to worse poverty and hunger for a great portion of the population. Based on the surveys of the Social Weather Stations (SWS), for instance, the number of Filipinos who consider themselves poor increased to 51% of families in 2011, up from 48% in 2010 while the portion that experienced hunger remained at 19% in the past two years.
Thus, it is not surprising that the optimistic sentiment of Aquino and his economic managers are not shared by the people. In its latest survey released last January 8, the Pulse Asia reported that 45% of Filipinos feel that the economy did not improve from a year ago while 38% said that it has actually even deteriorated. In the year’s first week, consumers were greeted by news of substantial increases in water rates and oil prices (with another round of larger oil price hikes expected this week), further dampening the little optimism that the people have for the New Year.
Aquino may be reaping political brownie points from its seemingly heightened efforts to make Gloria Arroyo accountable, including the upcoming impeachment trial of Supreme Court (SC) Chief Justice Renato C. Corona. But as much as the people long to make Arroyo and her minions accountable for their many crimes, they will not be forever distracted by the impending intramurals at the Senate. And unless real reforms that will reverse the policies that destroyed jobs and livelihood; increased profits of big foreign and local businesses at the people’s expense; and made the country highly vulnerable to the global crisis, Aquino’s legitimacy will very soon be challenged. #
Part 1 – Flawed development plan
Part 2 – Elusive “inclusive growth”