two years of "aquinomics"

7/31/2019 Two Years of "Aquinomics"

1/9

3

cenSEI

CONTENTS BUSINESS NATION WORLD TECHNOLOGY HEALTH/LIFESTYLE

Two Years ofAquinomics

The economys growth andcredit ratings are up, but watchout for investment, prices,poverty and jobs

STRATEGY POINTSin place since 2006, the economy is showingincreasing strength under President Aquino

Beyond GDP growth and credit ratings, whateconomic development needs are reforms toboost competitiveness and investment

The rise in self-rated hunger, poverty and

unemployment despite P50 billion in CCTunderscores the need for jobs, not stipends

G

enuine, meaningful change. That was

two years of President Benigno Aquino IIIs

term. The Palace statement added: No longer

is the Filipino mired in paralysis and despair; he

The message builds on its :

In one year, apathy has been replaced by

a renewed sense of partnership between

government and the people..

There are undoubted gains, as may be expected

massive infrastructure and 7.6% growth by the

previous administration. After a disappointing

2011 due to government underspending and

global slowdown, the Philippine economy

appears off to a rousing start this year. Its

6.4% growth

many economists expectations, and made the

Philippines the second fastest-growing major

economy in East Asia, after China.

After dropping sharply in late 2010, business

as measured by the Bangko Sentrals

By Verbo Bonilla

BUSINESS

70

60

50

40

30

20

10

0

-10

-20

-30

-40

2001 2002 2003 2004 2005 2006 2007 20

Current Quarter

Next Quarter

PREVIOUS PAGE NEXT PAGE


2/9

4

cenSEI

quarterly survey, has been on the upswing

through last year until mid-2012, though it is

down for the coming quarter. Foreign direct

investments (FDI) showed a huge 72.4%

increase in January-March over a year ago.

The local stock index is trading above its highest

ever. And the countrys credit rating has been

seeing upgrades by several agencies since the

start of Aquinos term, the latest being last

months reratingby Standard & Poors to BB+,

the best since 2003.

Exactly how much of these positive

developments have been due to genuine,

meaningful reforms instituted by the

present administration? More importantly,

how much of the reported gains so far

would prove long-lasting? And what major

initiatives should the President and the

Cabinet prioritize to boost long-term growth

and development?

Competitiveness is key. Not all news

has been positive, of course. Just late last

month, in the midst of the surge in investor

optimism, Ford Philippines, the countrys

sole motor vehicle exporter, announced its

decision to close its assembly plant due to

lack of a broad supply base for car

components, as there is in Thailand.

With its closure, there were fears voiced by

remaining players in the automotive assembly

industry that others might follow Fords

example if meaningful reforms are

not undertaken.

The countrys overall competitivenessalso remains low compared to its peers, as

assessed by the Swiss-based Institute for

Management Development in its latestWorld

Competitiveness Rankings. The 2012 grades

released in May, had the Philippines drop two

notches from its previous perch. And foreign

direct investments into the Philippines still

lag behind its neighbors. Perhaps the most

disappointing statistic is the one project bid out

among 22 under the public-private partnership(PPP) program touted by President Aquino in

two years ago.

THE PHILIPPINES BOUNCES BACK

Charts by Bangko Sentral ng Pilipinas

Two years of Aquinomics

2009 2010 2011 2012

55.4

44.6

33.0

31.840.5

44.5



3/9

5cenSEI


In her

Philippine

Daily

Inquirer

column

last week,former

economic

planning

secretary

Solita

Monsod

raises

similar

concerns

about

investment,

citing the

World

Investment

Report 2012

recently

published

by the U.N.

Conference

on Trade

and

Development. The University of the Philippines

professor summed up the UNCTAD assessment

of the country, based on low rankings in

FDI attractiveness and contribution despite

investment potential better than most countries:

The Philippines is among the least attractive

it attracts contributes the least (relative to

other countries) to our development. Hence,

the country is deemed to be doing below

expectations (see PERFORMANCE AND

POTENTIAL table).

It is consistent and persistent concerns like

these about the Philippines competitiveness

and sustainability that puts a damper on many

glowing reports and makes premature any

chest-thumping by the government. And the

Aquino administration does acknowledge that a

lot remains to be done.

So what exactly

has been

achieved?

According to

the Philippine

DevelopmentPlan (PDP)

2011-2016, the

administrations

overarching

goal is inclusive

growth: broad-

based,

cross-sectoral

development

majority of

the population

especially the

poor. Broad

economic

strategies under

the PDP include

boosting

industry

competitiveness

to generate

more employment, improving access to

infrastructure.

The Social Contract with the Filipino People,

which lists Aquinos campaign promises,

provides additional economic targets for

the administration: impartial government

policies, rural development, anti-poverty

programs that are not dole-outs, private sector

competitiveness, and local opportunities for

OFWs. In assessing the administrations

economic performance, this article will discuss

achievements in business competitiveness,

job generation, infrastructure investment, and

poverty alleviation.

Industry needs policy and infrastructure

support. On competitiveness there appears

little done in the past two years by way of

Country FDI Year onYear Growth

FDI (in billionUS$ - Q1 2012

% of Total

Philippines 72% 0.85 5%

Vietnam 0.8% 2.5 13%

Indonesia 30% 5.6 30%

Malaysia 15% 2.3 12%

Thailand 106% 7.3 39%

Total 18.55 100%

WHERES THE MONEY?

Foreign Direct Investment, January-March 2012

ailand39%

Malaysia12%

Indonesia30%

Vietnam14%

Philippines5%

So What?", June 13, 2012 blog entry on antipinoy.com



4/9

6

cenSEI

genuine, meaningful reforms for industrial

development. Many long-standing policies,

mining, for instance, new policy guidelines to

for the longest time been forthcoming but neveryet issued.

For the business-process-outsourcing industry,

sometimes billed the economys lone bright

spot, President Aquino recently announced

500 million for training its workers

continuation of a policy started by his

predecessor. Of bigger and possibly detrimental

consequence to the industry may be Aquinos

abolition of the Cabinet-level Commission onInformation and Communication Technology,

while the bill creating a Department of ICT has

yet to be enacted.

The administration still has no

industrialization roadmap to speak of,

although efforts are already being takentowards its development. Industrialization

has been key to the success of many

neighboring countries in Asia. In Taking

the Right Road to Inclusive Growth,

a comprehensive Asian Development Bank

study about Philippine development, author

Norui Usui said that without dynamic

industrial development, the country will

continue to suffer from the long-standing

problems of high unemployment, slow povertyreduction, and low investment.


1st

quartile

Chad, Liberia, Madagascar,Niger

Albania, Bahamas, Congo,Congo (DemocraticRepublic of), EquatorialLuxembourg, Mongolia,

Mozambique, Zambia

Israel, Nigeria, Norway,Panama, Turkmenistan,Uruguay

Australia, Belarus,Belgium, Brazil, Chile,China, Colombia, HongKong (China), Kazakhstan,Malaysia, Peru, Poland,

Russian Federation,Saudi Arabia, Singapore,Switzerland, Ukraine,United Kingdom, Viet Nam

2nd

quartile

Nicaragua, Saint Vincent and the

Honduras, Kyrgyzstan,Libya, Maldives, Malta,Namibia, Seychelles,Sudan, United Republic ofTanzania

Brunei Darussalam, Croatia,Dominican Republic, Egypt,Estonia, Iraq, Portugal,Uzbekistan

Austria, Canada, CzechRepubic, France,India, Indonesia, Meico,Netherlands, Romania,Spain, Thailand, Turkey,United Arab Emirates,United States

3rd

quartile

Antigua and Barbuda, Belize,Cape Verde, Central AfricanRepublic, Djibouti, Dominica,Tome and Principe, Vanuata

Barbados, Botswana,Cameroon, Lao People'sDemocratic Republic, theof Macedonia, Mauritius,Moldova, Myanmar,Uganda, Zimbabwe

Algeria, Azerbaijan,Jamaica, Latvia, Morocco,Oman, Pakista, Syrian ArabRepublic, Trinidad, andTobago

Argentina, Finland, Iran(Islamic Republic of), Italy,JApan, Korea (Republicof), South Africa, Sweden

4th

quartile

Afganistan, Benin, Bhutan,Burkina Faso, Burundi,Comoros, Cote d' Ivoire, Eritrea,Kiribati, Lesotho, Malawi,Mauritania, Nepal, Rwanda,Samoa, Sierra Leone, Suriname,Swaziland, Togo, Tonga

Angola, Bangladesh,Bosnia and Herzegovina,El Salvador, Ethiopia,Paraguay, Senegal,

Kuwait, Lithuana, NewZealand, Philippines,Slovakia, Slovenia, Sri Lanka

Venezuela (BolivarianRepublic of)

4rt quartile 3rd quartile 2nd quartile 1st quartile

PERFORMANCE AND POTENTIAL

Matrix of Foreign Direct Investment Attraction and FDI Potential Indices, 2011

Above expectations In line with expectations Below expectations

FDI

AttractionIndex

FDI Potential Index HIGHLOW

HIGH

Table from UNCTAD World Investment Report 2012, page 32



5/9

7cenSEI


The ADB senior economist added that

boosting the industry sector could lift more

people out of poverty because it, unlike

the service sector, is capital-intensive and

provides jobs even to individuals with low

recommendations to help craft the Philippine

industrialization roadmap are contained in the

report. Also worth government attention are

prescriptions for building competitiveness and

attracting investment in the UNCTADWorld

Investment Report 2011 (see How to Attract

Investment table).

ActionsSelected measures on the part of...

LCD governments Development partners

Strengthen

public-privateinfrstructuredevelopmentefforts

sectors and stable regulatory frameworks toensure competitive outcomes and protectthe national interestwith pipeline of projects and regionalcoordination

fund focused on infrastuctureparticipation and lending on softtermsregulation and implementation ofinfrastucture PPPs

Boost aid forproductivecapacity

and vocational trainingprocedures

funds, including support fortechnical and vocational trainingand entrepreneurship

sizes to captureLDC oppotunities

investors"with opportunities for fast technologicalcatching-up, e.g. telecom services,renewable energy

the national level to service SMEFDIEPA coordination mechanisms,"impact investments" regulatoryframework

Foster localbusiness andease access to

development banks

bank lending and strengthen infrastucturebusiness development

infrastucture and regulatory andinstitutional environment

and credit guarantee schemesfor SMEs

Start the nextwave of regulatoryand institutionalreform

aspects of regulations that shape FDI impactand strengthen State institutions, includingtaxation and competitionavoid command and control regulatorybias, establish systematic consultationmechanisms with investors on draft laws

under top to bottom zero-tolerance policy

assistance on key regulatoryissues, including taxation andcompetitionengineer avoidance, oversight ofbusiness practices by TNCs

THE UNCTAD FORMULA

Table from UNCTAD World Investment Report 2011, page 78



6/9

8

cenSEI

(NSO) reported 6.9% unemployment as of

April, down by tiny 0.3 percentage point from

a year ago. But the private Social Weather

Stations (SWS) surveyof May 24-27 estimated

the jobless at 26.6%, down from the usual

after graduation, but up from 22.9%, the more

may get longer in the current quarter, when

rains limit construction work, idling tens of

thousands of building workers.

The fact is, despite Aquinos avowed goal

of inclusive, job-generating growth, thegovernment still has no comprehensive

job generation program up to now. In all

LOOKING FOR WORK

SWS and NSO Unemployment Data


Chart and data from Social Weather Stations

SWS Adult Unemployment Rate*

SWS and NSO Unemployment RAte*, Philippines, SEp 1993-May 2012



7/9

9cenSEI


probability, this problem is linked to the

earlier discussed absence of any clear

industrialization plan. Regardless, this is

time and again raised against him since the

start of his administration.

With regard to public works, the

administration has made PPP the centerpiece

of its infrastructure development program.

But none of the big-ticket infrastructure

projects announced by government in

2010 has been awarded. Only the medium-

sized Daang-Hari road project was

contracted in late December, and it has

yet to commence construction.

State infrastructure projects have also

suffered from slow implementation.

Last year, government underspending

largely contributed to the sharp decline in

economic growth to 3.7%. This year it

remains a concern. Economist and former

budget secretary Benjamin Dioknowritesin

hisMalaya newspaper column that the Aquino

spending goal by some 46 billion.

Despite

accelerated budget

disbursements

2012, only 27% of

the 287-billion

total public

infrastructure and

capital outlays

program in 2012

been disbursed

as of June. With

the rainy season

slowing down

most construction

work, it is doubtful

whether the

infrastructure

agencies will be

able to make much

of a dent in the remaining 209.7 billion, or 73%

of the 2012 program, between now and the end

of the year. This will have an impact not only on

growth and jobs, but also on competitiveness

and investment, given that inadequate

infrastructure is a perennial business complaint.

Can CCT solve poverty? To uplift the poor,

the Aquino administration expanded the

Arroyo-era conditional cash transfer program,

dubbed Pantawid Pamilyang Pilipino, as its

centerpiece poverty alleviation strategy. From

an allocation of P10 billion in 2010, its budget

has been increased, to P21.2 billion in 2011

and P39.5 billion this year. The proposed

2013 government budget would raise the CCT

outlay to an unprecedented 45 billion, easily

exceeding some departments entire budgets.

This supposedly would increase the number of

current 3 million.

Critics say that reliance on CCT is a complete

turnaround from Aquinos campaign promise

of eschewing dole-outs. Its impact on poverty

remains uncertain, especially in the long-term,

Philippines, Apr 1983 to May 2012

POOR AND



8/9

10

cenSEI

and recipients still prefer jobs to stipends. Even

immediate, short-term results gleaned from

Average

self-rated povertyaccording to SWS polls has

risen from 48% in 2010, to 49% in 2011, to 53%

CCT allocation during the period. This is

accompanied byaverage severe hunger of 3.3%

in 2010, to 3.7% in 2011 and 5.3% in January-

May 2012.

More recent self-rated poverty and hunger

polls for the second quarter of the year

show slight improvements: 51% in self-rated

poverty and 4.8% in severe hunger. But these

are still higher than year-ago levels, whenthe CCT budgets were much smaller. With

results such as these, the increase in the

stipend programs budget has stirred

suspicions, in light of next years national

elections, that politics might play a role in the

continuation of assistance.

Reform remains slow. Summing up

two years of Aquinomics, three broad

realities emerge. First, President Aquinos

quest for credit ratings led to underspending,

which slashed 2011 growth and delayed

infrastructure two major investor concerns

which led to lower IMD competitiveness

rankings. Fortunately, the government

has since ramped up spending, even ifmany public works and PPP projects remain

stuck in neutral.

Second, poverty alleviation has largely

been left to the Department of Social

Welfares CCT program, with little stress

emergency employment, and other

livelihood programs pushed in the past

administration. With the CCT-centeredstrategy, self-rated hunger, poverty and

unemployment have hit record levels this

year, even if they have since come down.

That unimpressive outcome, despite the

disbursement of nearly50 billion in

monthly stipends, tends to cast doubt on

the overall strategy.

Lastly, despite repeated pronouncements that

its good governance program would make the

Philippines a

more preferred

business

destination,

the IMD and

UNCTAD

rankings show

that reforms

to boost

competitiveness

and investment

attraction still

have far to go.

And unless

those policy

moves make

solid advances,

gestures such

as the $1-billion

loan to the

International


UNGRY

Degree of Hunger in Households,Philippines, July 1993 to May 2012

Charts from Social Weather Stations, May 2012



9/9

11cenSEI


Monetary Fund to help stabilize the world

economy will do little to lift the Philippines in

the eyes of global investors.

Rather, it is imperative to deliver real

On this front, one more crucial barometer

is the World Bank-International

Finance Corporation annual Doing Business

report. In the 2012 rankings and indicators

for the Philippines, the country slipped two

notches to No. 136 overall among 183 countries

and territories. In the crucial Starting a

Business process, the country rated

even worse: 158th, behind Malaysia (50th),

Thailand (78th), Vietnam (98th), and

Indonesia (129th).

For a leader and an administration that

trumpets good governance as the key toeconomic growth and liberation from poverty,

cutting red tape and corruption in business

processes has to be a crucial measure of

government success. So far, in this key category,

President Aquino has yet to get a passing grade.

government success. And so far, in this key

category, President Aquino has yet to get a

passing grade.

EASE OF DOING BUSINESS 2012

Where the Philippines Ranks in Key Indicators


Starting a Business (158)

Dealig with Construction Permits (102)

Registering Property (117)

Getting Credit (126)

Protecting Investors (133)

Paying Taxes (136)

Trading Across Borders Paying (51)

Enforcing Contracts (112)

Resolving Insolvency (163)

Getting Electricity (54)183


two years of "aquinomics"

Documents