Economy

PH economy in 2011 (Last part): Dim growth prospects for 2012

Analysts say that the 2012 global economic condition could be worse than the 2008 crisis (Photo from inquirer.net/AFP)

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.

Serious implications

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. #

Also read

Part 1 – Flawed development plan

Part 2 – Elusive “inclusive growth”

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Economy

Aquino could not hide worsening economic crisis and poverty behind Corona impeachment trial

Anti-Arroyo groups trooped to the Senate on the opening day of Corona's impeachment trial.

Cause-oriented groups yesterday (Jan. 16) marked the opening of the impeachment trial of Supreme Court (SC) Chief Justice Renato Corona with a mass action near the Senate. Among those present was political satirist Mae Paner who came as Jus-tiis Juana Change (see video below). Activists deem the conviction of Corona a positive step in making Mrs. Gloria Arroyo accountable for her many abuses. But they are also warning against a possible scheme by President Benigno S. Aquino III to control the judiciary for selfish political and economic ends.

It is important to note that the ongoing impeachment trial of Corona is also happening amid a very real threat of global recession. Given the amount of national attention that is being devoted to this historic trial, which could last for several months, there are valid fears that the country might be caught flatfooted when the impact of the global economic contraction kicks in. But beyond government’s and the media’s apparent preoccupation with Corona’s impeachment trial, there are more fundamental reasons why we should be anxious. For one, the Aquino administration has not put in place an emergency program to ease the blow of the looming recession, much less reorient the economy to substantially address its external vulnerabilities.

(For more discussion on the latest economic situation and global prospects, read here and here)

Meanwhile, the people continue to be impoverished by the defective policies of deregulation and privatization. We greeted the New Year with fresh hikes in deregulated oil prices and privatized water rates. More increases are forthcoming in the costs of petroleum, toll, transportation, power, etc. Social services for the poor like health, education, and housing continue to be undermined with insufficient allocations in the 2012 budget, which as usual prioritized debt servicing as well as the public-private partnership (PPP) program. Violent demolitions of urban poor communities (such as in Corazon de Jesus in San Juan) amid lack of sustainable relocation, and the privatization and commercialization of public schools and hospitals further aggravate the plight of the people. The youth-led Mendiola campout last month tried to highlight these economic issues and engage the Aquino administration but was aggressively suppressed by security forces.

In a paper entitled “It’s the economy, student”, Arroyo also tried to draw attention to the deteriorating economic situation under her successor, claiming that Aquino squandered the supposed gains achieved by the economy during her nine-year reign. But reading the paper, the only accurate assertion made by Arroyo is when she said that Aquino “has simply not replaced my legacy with new ideas and actions of his own”. Indeed, Aquino merely continued Arroyo’s anti-people and anti-development legacy of heavy dependence on exports and foreign capital and markets; high prices and depressed wages; lack of social services and privatization; unemployment, job insecurity, and labor export; indebtedness and debt servicing; lack of genuine land reform; dole-outs, etc. that deepen the poverty of our people and backwardness of the economy.

(Read more on the economic legacy of Gloria Arroyo here)

Amid all this, there are legitimate concerns that the impeachment trial will just be used by Malacañang to distract the public and conceal its inability, or unwillingness, to address the pressing economic issues facing the people. It does not help that the degree of coverage that mainstream media is giving the trial tends to displace many important issues such as developments in the global economy, its impact on the country, what government intends to do about it, etc.

But while the mainstream media tend to focus more on the impeachment trial, an overwhelming portion of the population continues to feel strongly about the economy. The latest (Nov. 2011) Pulse Asia survey on the state of the economy shows that 8 out of 10 Filipinos feel that the economy either did not improve or deteriorated compared to the previous year. The said survey also indicates that economic issues remain the biggest source of the people’s disenchantment with Aquino, and the more bad news for the government is that this trend is worsening. Those who feel that the economy deteriorated more than doubled from 16% (Oct. 2010) to 38 percent (Nov. 2011). The disapproval rating of Aquino in terms of reducing poverty worsened from 21% in May 2011 to 36% in November 2011; on job creation (from 11 to 21%); on prices/inflation (from 21 to 37%); and on wage hike (14 to 25%).

Indeed, as much as the people long to make Arroyo and her minions accountable for their many crimes, the Aquino administration could not hope that the public would be forever distracted by the ongoing impeachment trial. Unless real reforms are implemented soon, even the conviction of Corona and Arroyo could not bail out the weakening popularity and legitimacy of the Aquino administration. #

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