PH economy in 2011 (Part 2): The elusive “inclusive growth”

Activists mark today's (Jan. 6) Three Kings feast by reminding the Aquino administration to address the pressing economic issues facing the people and not only squeeze political brownie points from the Corona impeachment trial

First published by The Philippine Online Chronicles

(Read part 1 here)

Government’s so-called “inclusive growth” outlined in the Philippine Development Plan (PDP) 2011-2016 rests on a target of 7 to 8% annual expansion in the gross domestic product (GDP). But due to various factors, GDP growth for 2011 – the first full year of the Aquino administration – is hoped to grow, at best, by 5.5%. This is the official forecast of the interagency Development Budget Coordination Committee (DBCC), an optimism that is not shared by most analysts and institutions. Both the International Monetary Fund (IMF) and the World Bank, for instance, project a moderate growth of just 3.7% in 2011. (Read here and here.)

Indeed, the promised inclusive growth of President Benigno S. Aquino III remains elusive as ever. Unlike the common criticism, however, the poor GDP showing in 2011 is not simply the result of government underspending. Rather, the slowdown actually highlights the structural defects of the economy that has since time immemorial depended too much on the volatile world economy. Further, beyond the quantitative failure to meet the target for inclusive growth are the far more important qualitative issues hampering long-term development and poverty alleviation in the country.

Slow GDP growth

The National Statistical Coordination Board (NSCB) reported in November that the GDP for the third quarter of 2011 grew by just 3.2 percent. While slightly higher than the recorded 3.1% in the previous quarter, the latest data continued the downward trend in the country’s economic performance. Since peaking at 8.9% in the second quarter of 2010, GDP growth has progressively decelerated. Also, the average GDP growth through the three quarters of 2011 is pegged at 3.6%, way below the 8.2% it posted during the same period in 2010. (See Chart)

2010, of course, was an election year. As such, it artificially boosted consumption and production due to election-related spending (including the cost of greasing the contending politicians’ fraud machineries). There was also the base effect of the low growth in 2009 due to the global recession. However, the huge drop of 4.6 percentage points in GDP growth last year was equally compounded by the continuing and worsening crisis facing the world economy.

Export-oriented domestic production is thus vulnerable. Philippine exports from January to October 2011 declined by 4.3% compared to the same period in 2010, according to the National Statistics Office (NSO). Electronic products, which comprised more than 50% of the total value of exports, fell by 21.9 percent. Almost 74.5% of electronic exports were semiconductors, which contracted by 24.9 percent.

Falling demand in the country’s major foreign markets explain the decline. Some 45.3% of Philippine exports in 2011 went to Japan, the US and Europe, which all confronted a substantial slowdown in their economy this year. The country’s total exports to the European Union (EU) – currently dealing with a grave sovereign debt crisis – fell by 19.5% while exports to the US fell by 6.9 percent. These significant declines offset the 15.5% increase in exports to Japan. Meanwhile, exports to its Southeast Asian neighbors, which accounted for 18.4% of total exports, declined by a huge 23.3% this year. Many of these exports actually end up in Japan, the US and Europe, accounting for the big drop.


But despite the slowdown, government claims that economic growth is becoming more inclusive as unemployment supposedly eased last year. The October 2011 round of the Labor Force Survey (LFS) of the NSO reported that the jobless rate declined to 6.4% from 7.1% in the same period last year. For the whole year, official unemployment rate averaged 7%, which was lower than 2010’s 7.4 percent.

Official employment data, like the poverty data, are unfortunately not a reliable yardstick to measure the extent of joblessness. The NSO, for instance, does not count as unemployed those who are seeking work but for one reason or another (e.g. school or family obligations, illness, etc.) will be unavailable for work despite an opportunity within two weeks after the survey.

Despite this defect in determining the volume of jobless, trends in the quality of employment in official statistics still could not conceal a deteriorating jobs situation. Underemployment worsened to 19.3% last year, according to NSO data, from 2010’s 18.8% or an increase of 525,000 workers. Underemployed refers to all employed persons who want to have additional hours of work in their present job or an extra job, or to have a new job with longer working hours.

Still using the NSO data, between 2010 and 2011, the share of productive sectors to total employment declined. Industrial jobs fell from 15% to 14.8%, with manufacturing falling from 8.4% to 8.3 percent. Similarly, the share of agricultural jobs declined from 33.2% to 33 percent. In contrast, the share of services to total employment increased from 51.8% in 2010 to 52.2% this year. While these annual changes may seem small, they continue the long-term trend of declining employment in the productive sectors.

Also, the services sector accounted for the largest number of workers permanently displaced and firms resorting to permanent closure/retrenchment due to economic reasons last year. January to June 2011 data from the Bureau of Labor and Employment Statistics (BLES) show that out of 14,598 workers displaced due to economic reasons, 8,697 (59.6%) were service workers. In addition, out of the 968 firms that closed shop or retrenched workers, an overwhelming 729 establishments (75.3%) were from the service sector. In 2010, services accounted for 67.9% of workers displaced and 76.5% of firms resorting to permanent closure/retrenchment due to economic reasons. These numbers highlight the unsustainability of job creation that has been increasingly relying on the less productive service sector.

Meanwhile, a more realistic count of unemployed is provided by the Social Weather Stations (SWS). Unemployment rate this decade, based on compiled SWS survey results, has averaged by almost 20% a year from just 10% in the 1990s. In its last survey on adult unemployment in March 2011, the SWS reported that 27.2% or around 11.3 million workers are jobless.

Labor export

As always, labor export has filled in a portion of the gap in domestic jobs available and labor supply due to lack of a long-term and effective government program. Deployment of overseas Filipino workers (OFWs) from January to October 2011 increased to 1.35 million from 1.28 million during the same period in 2010. Furthermore, OFW remittances have also become a significant contributor to domestic consumption, propping up an otherwise cash-strapped consumer market. From January to October last year, OFW remittances reached $16.53 billion, which was 6.9% higher than 2010’s similar period.

But again, because of the deteriorating crisis and worsening overall global economic condition, labor export is becoming less and less reliable as a source of remittances and even jobs. Compiled data from the from the Philippine Overseas Employment Administration (POEA) show that from an annual deployment growth of 6.9% in the 1990s, the figures have slowed down to 5.6% in the 2000s, and to about 4.3% in the past two years. OFW remittances are slowing down even more sharply, based on data from the Bangko Sentral ng Pilipinas (BSP). From a robust 23.2% annual growth in the 1990s, it has declined to 10.3% in the 2000s, and to just about 7.6% in the last two years.

The still increasing, albeit slower, deployment of OFWs amid the declining economic opportunities abroad means even more intense exploitation and oppression for desperate migrant workers in the form of depressed wages, harsher working conditions and other forms of abuse. According to Migrante International, more than 120 OFWs are in death row while some 7,000 are in jail in various countries worldwide. Every day, as high as 10 migrant workers are being sent back home dead due to various causes. Crisis and poverty are forcing more and more migrant workers to illegal activities including drug trafficking that led to the execution of four Filipinos in China last year alone. The sorry plight of migrant workers is aggravated by government neglect like budget cuts and missing funds for OFW welfare. #

To be concluded (read here)


PH economy in 2011 (Part 1): Flawed development plan

There is nothing in the 400-page Philippine Development Plan (PDP) 2011-2016 that could create the conditions for inclusive growth as it adheres to the same flawed development paradigm of neoliberal globalization (Image from the NEDA)

First published by The Philippine Online Chronicles

The political noise generated by the showdown between Malacañang, the Arroyo camp, and the Supreme Court (SC) towards the end of 2011 drowned concerns on the anemic performance of the economy. Critics of President Benigno S. Aquino III even argue that the energy of government is being spent too much on going after Mrs. Gloria Arroyo. Consequently, they said, important issues like the slowdown in economic growth are left unaddressed. The most rabid allies of Arroyo even go as far as claiming that Aquino is reversing the supposed gains achieved by the economy during the previous administration.

However, the deteriorating economic performance and social conditions are not simply the result of Aquino’s mismanagement as often alleged by critics and the political opposition. Much of it is due to the lack of real policy reforms that can shift the course of the economy from that taken by Arroyo and previous governments. This has been the underlying reason behind Aquino’s continuing failure to turn the economy around and improve the lot of our people.

Inclusive growth?

In March, the Aquino administration approved the Philippine Development Plan (PDP) 2011-2016 which details the policies and programs that it intends to pursue throughout its term. Supposedly, the primary aim of the plan is inclusive growth that is unlike the trickle-down and jobless growth the economy had in the past. To achieve inclusive growth, the PDP promotes good governance and anti-corruption that are expected to create massive job opportunities and reduce poverty.

But aside from being couched in good governance and anti-corruption rhetoric, the PDP does not offer anything substantially different from past medium-term plans. There is nothing in the 400-page document that could create the conditions for inclusive growth as it adheres to the same flawed development paradigm of neoliberal globalization. Like its predecessors, Aquino’s PDP is skewed towards building the most favorable environment for profit-seeking foreign business and their local partners.

Even the much ballyhooed good governance campaign of the administration has been reduced to issues that affect investment decisions and cost of doing business in the Philippines, including the enforcement of contracts and competition measures. Such pro-business environment could only come at the expense of the toiling masses and other oppressed sectors including small Filipino industries.

To conceal the bankruptcy of globalization policies like its centerpiece program public-private partnership (PPP), Aquino is scaling up the foreign debt-funded conditional cash transfer (CCT) scheme. According to the PDP, the CCT “shall be the cornerstone of the government’s strategy to fight poverty.”

By insisting on a development model that depends on unreliable external sources of growth mainly from the US and other advanced capitalist countries, Aquino’s PDP is oblivious to the glaring failures of past medium-term plans and the lessons of the ongoing global crisis. Since 2008, many developed countries have been implementing protectionist measures, which for the PDP, are “policies that distort competition” and “are the main impediments to growth.”

For big business

To achieve inclusive growth, the PDP has set a target of an annual expansion in the real gross domestic product (GDP) of 7-8% and an annual net employment increase of one million jobs from 2011 to 2016. The PDP aims to do this by promoting what it described as areas with “the highest growth potentials and generate the most jobs.” The PDP listed them as tourism; business process outsourcing (BPO); mining; agribusiness and forest-based industries; logistics; shipbuilding; housing; electronics; and infrastructure.

It is not by chance that these are the same priority areas being lobbied for government promotion by the Joint Foreign Chamber of Commerce of the Philippines (JFC) to supposedly increase investment and create jobs in the country. The JFC is composed of the chambers of commerce of the US, Japan, Europe, Canada, Australia-New Zealand, and South Korea as well as the Philippine Association of Multinational Companies Regional Headquarters.

This underscores how medium-term plans, including Aquino’s PDP, are shaped not by the specific development needs of the country and its people, but by the particular interests of outside investors forever looking for the most profitable means to cash in on the domestic economy. Filipino micro, small, and medium enterprises (MSMEs), on the other hand, are still reduced to mere adjuncts of foreign business and exporters, and not as dynamic players in domestic production.

The PDP’s priority areas are long held as supposed drivers of growth and employment but have until today continued to fail to induce sustained economic growth, much less address the chronic job scarcity and reduce poverty. They fail because while they may attract some capital and create some jobs, they are not anchored on any long-term national industrialization plan that promotes and relies on domestic production and consumption. They have always been driven by what is profitable for foreign investors and what meets the appetite of the global market, specifically of the developed world.

This has been the case, for instance, in foreign-dominated extractive industries like mining, agribusiness, and forestry which have only plundered the country’s natural wealth to satisfy the need for raw materials of advanced capitalist economies. Export-oriented manufacturing, including electronics, has only exploited cheap Filipino labor and has no significant linkages to the domestic economy. The fast rising BPO industry, meanwhile, is also illustrative of how “growth” has become detached from the specific requirements of the domestic economy as it caters to First World industries and produces jobs that are alien to most unemployed Filipinos.

Labor export

Whether or not these industries could help generate a million jobs a year remains to be seen, but as it is, the target is too modest for the promised economic growth under the PDP to be inclusive. Job scarcity has been at its worst since the past decade, mitigated only by the growing export of overseas Filipino workers (OFWs). In 10 months this year, the country has been deploying 4,441 OFWs every day, higher than last year’s 4,214.

And as if an implied admission of the absence of a comprehensive program for domestic job creation, the PDP endorsed labor export as a policy, defining employment generation as “all forms of employment… whether at home or abroad.” On top of mitigating the jobs crisis, labor export, said the PDP, has also become a steady source of foreign exchange and capital, and help fuel domestic consumption. These are the supposed “benefits” of labor export that the Aquino administration is unwilling to forego and instead pursue through strong domestic job creation. But aside from the incalculable social dimension of forced labor migration, labor export is also anti-development in the long run as the domestic economy is deprived of invaluable human resources.

Justified by its stated goal of creating jobs, the PDP is explicit in its intent to promote the interest of corporations. At the same time, it is silent on the quality of jobs that it intends to produce or in particular, how the rights and welfare of workers will be safeguarded and advanced. Due to the single-minded purpose of the PDP to attract more foreign investment to generate jobs, it is likely that the ongoing assault on workers’ rights to job security, to unionize, and to receive wages that allow for decent living, among others will continue and worsen. Under the PDP, tripartite councils shall be strengthened to ensure “industrial peace”, often a euphemism for subverting workers’ resistance, instead of the government assuming a more proactive role in defending the rights and welfare of wage earners.

Infra for profits

As envisioned in the PDP, infrastructure development will serve the overall goals of inclusive growth and poverty reduction in two major ways – first, as a priority area for private investment and as a producer of jobs; and second, as support to economic sectors and as a provider of equitable services, including housing, health, and education. At the heart of government’s efforts to accelerate infrastructure development is the PPP scheme, thus ignoring the decades of harmful experience under privatization. PPP first became a national policy through the structural reforms imposed by the International Monetary Fund (IMF) and the World Bank in the late 1980s during the first Aquino administration.

The case of privatized water and power infrastructure is most telling; private investors are assured of profits through over-generous and anomalous incentives and even bailouts, which exacerbated the fiscal burden of government. User fees have also gone up excessively to the great detriment of consumers especially because the target of privatization has been the basic infrastructure like utilities. These are the sorts of problems that the PDP will aggravate with its avowed promotion of PPP. Under Aquino, the fees at the country’s toll roads have already hugely increased while similarly exorbitant fare hikes face commuters of the LRT and MRT.

Meanwhile, the administration is also proposing specific amendments to the Build-Operate-Transfer (BOT) Law or Republic Act (RA) 6957 (as amended by RA 7718) to set the legal basis of the so-called regulatory risk guarantee. The said guarantee will oblige government to shoulder the “losses” of a PPP investor in case a local court, regulator, or Congress stopped it from imposing a questioned user fee. These issues easily offset whatever economic gains the country gets from additional and improved infrastructure. Worse, even the supposed economic gains are suspect. Due to the flawed neoliberal framework of the PDP, infrastructure development will merely serve the narrow profit agenda of foreign business and their local partners instead of helping lay down the foundation for genuine national industrialization.

Dole and smokescreen

Finally, the PDP has also set “social development” among its agenda, and will “focus on ensuring an enabling policy environment for inclusive growth (and) poverty reduction.” One of the main strategies to meet the social development component of the PDP is the provision of CCT to the poor.

Under Aquino, the scope of the CCT has been expanded tremendously and the program that Arroyo started with just several thousand beneficiaries in 2007 now intends to cover 4.3 million households by end of the PDP. For 2012 alone, the CCT program targets 3 million households with a proposed budget of P39.5 billion (from just P10 billion in 2010). This massive expansion in scope and budget is not backed by any thorough assessment on whether the program has actually contributed to sustained poverty reduction, not to mention that it is funded by $805 million in growing foreign debt that has long been debilitating the economy and depriving the poor of much needed social services.

As it is, even the target of 4.3 million households is still just a fraction of the ever growing population crippled by joblessness or lack of livelihood amid ever rising cost of living – social ills that ironically are being aggravated by the same globalization policies of the PDP. With the absence of programs that can produce long-term, productive jobs, and address the structural roots of poverty such as implementing genuine land reform and dismantling the neocolonial economy in favor of national industrialization, the CCT at best, could only provide temporary dole to a small portion of the poor. For Aquino, the CCT’s best purpose is to smokescreen the failed neoliberal policies of past Philippine development plans in order to justify the present. Meanwhile, questions on the CCT program have also been raised recently by the Commission on Audit (COA), which found out that cash allowances had been provided to families who are not qualified beneficiaries. #

To be continued (read here)