The Survival of the Arroyo Regime:Why Growth Hype Won’t Do the

Trick

IBON Birdtalk Midyear 2006July 14, 2006

What crisis?

• Broad-based economic growth

• Robust exports• Vibrant consumption• Strong business

confidence• Revenue surplus• Better debt

management• Lower unemployment

rate• Higher wages• Lower inflation rate• Reduced poverty

incidence

What growth?• Prices of basic goods &

services continue to soar

• Wages & incomes continue to fall way below the cost of living

• Joblessness & economic displacement are worsening

• Government remains heavily indebted

• Poverty is worse than ever

We have strong macro-economic

fundamentals.

Source: National Statistical Coordination Board

6.2%7.0%7.2%Services

5.5%3.4%4.5%Industry

3.8%-0.5%8.1%Agriculture, Fishery, & Forestry

5.5%4.2%6.5%GDP

5.8%4.9%7.4%GNP

200620052004Indicator

GNP & GDP 1st Quarter Growth Rates, At Constant 1985 Prices

Source: National Statistical Coordination Board

6.2%7.0%7.2%Services

5.5%3.4%4.5%Industry

3.8%-0.5%8.1%Agriculture, Fishery, & Forestry

5.5%4.2%6.5%GDP

5.8%4.9%7.4%GNP

200620052004Indicator

GNP & GDP 1st Quarter Growth Rates, At Constant 1985 Prices

The GNP & GDP are growing at a

faster rate.

Source: National Statistical Coordination Board

6.2%7.0%7.2%Services

5.5%3.4%4.5%Industry

3.8%-0.5%8.1%Agriculture, Fishery, & Forestry

5.5%4.2%6.5%GDP

5.8%4.9%7.4%GNP

200620052004Indicator

GNP & GDP 1st Quarter Growth Rates, At Constant 1985 Prices

… and we had a broad-based

economic growth.

Source: National Statistical Coordination Board

6.2%7.0%7.2%Services

5.5%3.4%4.5%Industry

3.8%-0.5%8.1%Agriculture, Fishery, & Forestry

5.5%4.2%6.5%GDP

5.8%4.9%7.4%GNP

200620052004Indicator

GNP & GDP 1st Quarter Growth Rates, At Constant 1985 Prices

• Recovery from contraction

• Palay & corn production remains erratic

• Gap between rice farm gate & retail prices

• Influx of imports

Agri Trade Balance

(per year)

1980-95: $0.65B

1995-04: ($1.03B)

2005: Rice -

(499,897 MT)

Behind the growth in agriculture...

Source: National Statistical Coordination Board

6.2%7.0%7.2%Services

5.5%3.4%4.5%Industry

3.8%-0.5%8.1%Agriculture, Fishery, & Forestry

5.5%4.2%6.5%GDP

5.8%4.9%7.4%GNP

200620052004Indicator

GNP & GDP 1st Quarter Growth Rates, At Constant 1985 Prices

• Manufacturing value of production increases while volume falls (Factory output down by 14%; 14 out of 20 sectors posted slashed production)

• Firms closing down or reducing workforce are increasing

Behind the growth in industry...

Firms resorting to closure or retrenchment daily

22 2

76 6

8

99

6

8

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 b

b - Jan to Jun only Source of basic data: BLES

Between 1995 & 2000: average 4 firms daily

Firms resorting to closure or retrenchment daily

22 2

76 6

8

99

6

8

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 b

b - Jan to Jun only Source of basic data: BLES

Between 2001 & 2005: average 8 firms daily

Source: National Statistical Coordination Board

6.2%7.0%7.2%Services

5.5%3.4%4.5%Industry

3.8%-0.5%8.1%Agriculture, Fishery, & Forestry

5.5%4.2%6.5%GDP

5.8%4.9%7.4%GNP

200620052004Indicator

GNP & GDP 1st Quarter Growth Rates, At Constant 1985 Prices

• Growth continues to slow down

• Telecomm. Growth slowing down largely due to monopolization

• BPO, call centers unable to reverse trend

• Burning out? Not surprising due to lack of industrial & agricultural base

And behind the growth in services...

Indicator2004-

052005-

06GNP 4.91% 5.79%GDP 4.23% 5.52%Personal Consumption Expenditure

4.95% 5.07%

Government Expenditure 2.19% 9.39%Capital Formation -8.88% -2.68%Exports 1.36% 12.22%Less: Imports -2.18% 0.62%

GNP & GDP 1st Quarter Growth Rates, By Expenditure, 2004-2006

Source: NSCB

Spending is up, exports grew by more than 12%!

Indicator2004-

052005-

06GNP 4.91% 5.79%GDP 4.23% 5.52%Personal Consumption Expenditure

4.95% 5.07%

Government Expenditure 2.19% 9.39%Capital Formation -8.88% -2.68%Exports 1.36% 12.22%Less: Imports -2.18% 0.62%

GNP & GDP 1st Quarter Growth Rates, By Expenditure, 2004-2006

Source: NSCB

Amid stagnant wages & incomes,OPH & VAT,this could only be spurredby OFW remittances:$10 B (annual ave.);$3.7 B (as of April);8% of GNP

Indicator2004-

052005-

06GNP 4.91% 5.79%GDP 4.23% 5.52%Personal Consumption Expenditure

4.95% 5.07%

Government Expenditure 2.19% 9.39%Capital Formation -8.88% -2.68%Exports 1.36% 12.22%Less: Imports -2.18% 0.62%

GNP & GDP 1st Quarter Growth Rates, By Expenditure, 2004-2006

Source: NSCB

“Economic pump priming”?

Or

Cha-cha?

Indicator2004-

052005-

06GNP 4.91% 5.79%GDP 4.23% 5.52%Personal Consumption Expenditure

4.95% 5.07%

Government Expenditure 2.19% 9.39%Capital Formation -8.88% -2.68%Exports 1.36% 12.22%Less: Imports -2.18% 0.62%

GNP & GDP 1st Quarter Growth Rates, By Expenditure, 2004-2006

Source: NSCB

Industrialization?Neocolonial trade: • export-oriented but import-dependent• mere assembly hub• manufactured exports comprised 90% of total exports but semi- processed raw mat’ls & intermediate goods comprised 39%

Indicator2004-

052005-

06GNP 4.91% 5.79%GDP 4.23% 5.52%Personal Consumption Expenditure

4.95% 5.07%

Government Expenditure 2.19% 9.39%Capital Formation -8.88% -2.68%Exports 1.36% 12.22%Less: Imports -2.18% 0.62%

GNP & GDP 1st Quarter Growth Rates, By Expenditure, 2004-2006

Source: NSCB

Far from industriali-zing as capital formation continuesto fall

563.7

710.8

567.1

777.9

626.1

826.5

699.8

884.4

783.2

963.2

0

100

200

300

400

500

600

700

800

900

1000

P Billion

2001 2002 2003 2004 2005

Source: Department of Finance

NG Fiscal Position, 2001-2005

Revenues

Expenditures

-180-184.6-200.4-210.8-147.1Deficit

At least the budgetdeficit is falling.

Artificial increase in revenues by P21B

Fiscal Stability: At what cost?

Burden is on the people:1. Higher taxes, fees, rates and charges

• 2005: “Sin taxes” (P15 B), petroleum tariffs (P29 B), govt fees/charges (P17 B), power rates (P112 B)

• 2006: Increased VAT (P97-105 B)

2. Government lay-offs• 2005: 10,000 less gov’t workers• 2006: thousands more to be laid-off (with

P10 B for separation pay); target - 450,000 government workers for retrenchment

3. Cutbacks in social services

Better debt management? Total external debt is

$57.2 billion, 67% public; 57% from commercial credit; 73% of the GDP

Total outstanding national govt debt is more than P3.9 trillion (As of Feb 2006), almost half in foreign currencies

Total outstanding public sector debt is P5.1 trillion, 94% of the GDP

Govt borrowed P302B (Jan-Jul ’06), 78% used to pay for maturing debts

Still driven by debt Revenues increased by

12%, expenditure by 9% while debt service burden increased by 13%

For every P10 in revenues, P9 goes to debt servicing

Debt service burden accounts for 74% of the national budget

Arroyo is biggest borrower, biggest payor, best US client

Selected NG expenditures, 1986-2006p (P billion)

125.649164.5

205.396 227.843274.439

357.959

470

542.2

674.114721.668

0

100

200

300

400

500

600

700

800

1997 1998 1999 2000 2001 2002 2003 2004 2005p 2006p

Year

P bi

llion

Total debt serv ice

Education

Health

Housing

Defense

Declining REAL spending for social services 2001-2006 (CPI, 2001=100):

Debt service is 101% higher

Education is 5% lower

Health is 19% lower

Defense is 11% higher

   Source: NSO

36516,66116,296 Wage & salary worker

13912,44012,301 Own-account worker

2983,9223,624 Unpaid family worker

   By type of worker

05,2365,236 Industry

37816,36915,991 Services

42711,42010,993 Agri, fishery, forestry

   By sector

80333,02431,221Total employment

Diff.April 2006

April 2005Indicator

 Employment indicators in the Philippines (In thousands)

But I have created jobs!

   Source: NSO

36516,66116,296 Wage & salary worker

13912,44012,301 Own-account worker

2983,9223,624 Unpaid family worker

   By type of worker

05,2365,236 Industry

37816,36915,991 Services

42711,42010,993 Agri, fishery, forestry

   By sector

80333,02431,221Total employment

Diff.April 2006

April 2005Indicator

 Employment indicators in the Philippines (In thousands)

Employment grew by803,000 betweenApril 2005 and

April 2006

   Source: NSO

36516,66116,296 Wage & salary worker

13912,44012,301 Own-account worker

2983,9223,624 Unpaid family worker

   By type of worker

05,2365,236 Industry

37816,36915,991 Services

42711,42010,993 Agri, fishery, forestry

   By sector

80333,02431,221Total employment

Diff.April 2006

April 2005Indicator

 Employment indicators in the Philippines (In thousands)

No new jobs generated in the industry sector

   Source: NSO

36516,66116,296 Wage & salary worker

13912,44012,301 Own-account worker

2983,9223,624 Unpaid family worker

   By type of worker

05,2365,236 Industry

37816,36915,991 Services

42711,42010,993 Agri, fishery, forestry

   By sector

80333,02431,221Total employment

Diff.April 2006

April 2005Indicator

 Employment indicators in the Philippines (In thousands)

365,000 additional jobs for wage & salary workers: driven by demand of BPO, callcenters

   Source: NSO

36516,66116,296 Wage & salary worker

13912,44012,301 Own-account worker

2983,9223,624 Unpaid family worker

   By type of worker

05,2365,236 Industry

37816,36915,991 Services

42711,42010,993 Agri, fishery, forestry

   By sector

80333,02431,221Total employment

Diff.April 2006

April 2005Indicator

 Employment indicators in the Philippines (In thousands)

While unpaid familywork & self-employment continue to accountfor a significant portion of jobs created: 437,000 or 54% of total

Number of Unemployed & Underemployed Workers, 1996-2006 (Annual Average)

8,000

8,500

9,000

9,500

10,000

10,500

11,000

11,500

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Source: National Statistics Office

In '

00

0

19968.3 M

20018.7 M

2006

11.3 MNo. of jobless & underemployed grew by:

1996-2001: 66,666 per year

2001-2006: 433,333 per year

Unemployment rate annual average (2001-2005) of 11.4% - highest among all Philippine presidents

Daily, 158 workers (private sector) become jobless Privatization & rationalization to displace 450,000

government employees Plus 8-9 M OFWs whom can be considered as

unemployed; 3,000 workers go abroad daily Plus gov’t attempts to distort (reduce) unemployment arbitrary exclusion from labor force: new definition of

joblessness (April 2005): “not looking for work = not unemployed”

In reality, job scarcity affects 43% of the labor force

The truth is, there is a serious lack of jobs & Arroyo has no effective program to address it

Cost of living versus minimum wage in NCR

1999 2000 2001 2002 2003 2004 2005 2006

Source of basic data: NWPC, BSP

P pe

r day

DCOL

Ave. min. wage

Gap

P675.54

P300.00

P375.54

No increase in minimum wage!

P457.86

P210.75

P247.11

Between 1999 and 2006…

5.993.98

9.507.03

42.74

36.24

05

1015202530354045

P per Liter

BeforeDeregulation

Start of Deregulation

Present Price

Source of Basic Data: DOE

Comparative Pump Price of Gasoline & Diesel Before & Under Deregulation

Gasoline

Diesel

The price of diesel is now 9X its price while that of gasoline is now 7X its price before deregulation.

16.5613.82

42.74

36.24

05

1015202530354045

P per Liter

Start of Arroyo'sterm

Present Price

Source of Basic Data: DOE

Pump Price of Gasoline & Diesel At the Start of Arroyo's Term & At Present

Gasoline

Diesel

The price of diesel & gasoline is now 3X their price since Arroyo became president.

Water Rates in Metro Manila, 1997-2006

0

5

10

15

20

25

30

35

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Source: MWSS Regulatory Office

P per cubic meter

Maynilad

ManilaWater

4.02

7.21

32.05

19.72

Since MWSS privatization (1997-2006):Maynilad rates grew by 344%Manila Water rates grew by 391%

Water Rates in Metro Manila, 1997-2006

0

5

10

15

20

25

30

35

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Source: MWSS Regulatory Office

P per cubic meter

Maynilad

ManilaWater

32.05

19.72

9.18

4.77

Since Arroyo became president (2001-06):Maynilad rates grew by 249%Manila Water rates grew by 313%

Economy is “growing” but it is not translating into improved living conditions for the people

Due to backward, pre-industrial economy: Worsened by globalization policies

Trade & investment liberalization Privatization & deregulation

Privatization & deregulation of electricity (NAPOCOR)

Privatization of Petron and deregulation of the oil industry

Privatization/commercialization of schools and universities; deregulation of tuition hikes

Privatization/commercialization of health services & hospitals

Privatization/commercialization of other basic social and economic services

Why growth hype won’t save Arroyo?