Economic missteps in 2019, hope for 2020

The
last debris from the fireworks and firecrackers have been cleaned up.
Now everyone is starting to look ahead to what’s up for the economy
and the people in 2020. What are the prospects based on the Duterte
administration’s policies and how the economy performed in 2019?

The traditional optimism at the start of every New Year is all-important because problems chronically pile up in the course of the Old Year. It is a vital defense mechanism rekindling hope and renewing strength. Both are needed, more than ever.

The
Duterte administration has been busy making the economy even more
pro-business and pro-profit, notwithstanding some yearend
anti-oligarch posturing. This was at the expense of the people and
their welfare. A few populist social measures were a smokescreen to a
weakening economy, persistent structural poverty, and deteriorating
social services.

Slowing
growth

The
economy has been on a downward slide since the start of the Duterte
watch. Gross domestic product (GDP) growth of 6.9% in 2016 slowed to
6.7% in 2017, 6.2% in 2018, and then just 5.8% in the first three
quarters of 2019.

Economic
growth is falling further and further below the administration’s
original target 7-8% in its Philippine Development Plan (2017-2022).
The target was lowered to 6-7% but growth is still not reaching even
that. Growth had averaged 6.2% over the 2010-2015 period under the
previous Aquino administration.

The
economy is slowing despite the best efforts of the economic managers
at debt-driven pump-priming Public spending keeps increasing and,
measured relative to GDP, is already at its highest in over 15 years.
The Php3.4 trillion in national government expenditure in 2018 was
equivalent to 19.6% of GDP or the highest level since 2002.

Part
of the increased spending is financed by higher taxes on the poor
from the Duterte administration’s regressive Tax Reform for
Acceleration and Inclusion (TRAIN) program. These have not been
enough though and the fiscal deficit is still slowly increasing. The
Php558 billion deficit last year was equivalent to 3.2% of GDP or the
highest in almost a decade.

The
deficit is financed by growing debt. On average, the Duterte
government is borrowing almost three times as much as the Aquino
government and over twice as much as the Arroyo government per month.
The outstanding debt of the national government is growing at an
average of Php49 billion monthly – compared to Php19 billion under
Aquino and Php21.2 billion under Arroyo – and was Php7.9 trillion
already as of October 2018.

Growing
spending

The
biggest driver of economic growth is government spending. The most
visible and hyped is for infrastructure development. Public
infrastructure disbursements have soared from Php537 billion in 2016
to Php890 billion in 2018, reaching the equivalent of 5.1% of GDP.
Appropriations for infrastructure are even higher at some Php900
billion in 2019 and Php1.2 trillion in 2020.

But
the government has also been putting money into the economy in other
ways. These include some Php125 billion in cash transfers for the
country’s poorest households – consisting of the Pantawid
Pamilyang Pilipino

Program (4Ps) conditional cash transfers and the TRAIN-related
unconditional cash transfers. Hiked public hiring and salary
increases have increased government personnel expenses to Php1.1
trillion in 2019.

Government
spending is however a short-term measure and unsustainable. It is
dependent on the availability of revenues. Debt-financing also has it
limits. Moreover, spending on infrastructure cannot go on
indefinitely. At some point, additional infrastructure spending is no
longer financially or economically viable.

Weaker
production

On
the other hand, strong agriculture and robust Filipino industry are
the more reliable and sustainable sources of growth. They expand
employment, increase the purchasing power of the vast working
classes, and can build domestic productive capacity for future
growth.

Yet
agriculture and manufacturing are both weakening. Though it slightly
recovered to 1.5% growth in the first three quarters in 2019 from the
0.9% slowdown in 2018, the agriculture sector continues its general
decline in terms of its share in the economy and employment. There
was an increase in fishing and aquaculture work but the agriculture,
hunting and forestry subsector continued to shrink.

This
will only worsen with the implementation of the rice liberalization
law last year. Designed to drive rice prices down to discourage rice
farmers from planting and harvesting, the law threatens to displace
as much as 250,000 to 350,000 of the country’s least productive
farmers. Millions of rice farmers and their families are already
suffering collapsing incomes from drastically lower palay
buying prices. Rice imports are growing and food security is eroding.

The
so-called manufacturing resurgence has apparently petered out.
Manufacturing slowed drastically from 8.4% growth in 2017 to 4.9% in
2018 and just 3.7% in the first three quarters of 2019. The sector
even shed around 56,000 jobs by the end of the year, falling to 3.6
million employed.

The
chances of a manufacturing recovery are slim. The sector is overly
dependent on foreign firms producing for a global market. The world
is however still grappling with a protracted slowdown and increasing
protectionism. Government’s industrial policy is meanwhile still
oriented to attracting low value-adding foreign investors instead of
strengthening Filipino industry.

The
government’s debt-driven stimulus is a weak boost to manufacturing.
For instance, much of high-value construction inputs and even many
related services are imported rather than produced locally by
Filipino firms. The import-dependence of existing manufacturers and
construction firms are the main reasons for the trade deficit
reaching record highs under the Duterte administration.

A
few service sectors are the biggest centers of wealth creation. The
country’s oligarchs including the president’s closest big
business allies continue to amass wealth not from production but from
trading, real estate, hotels and restaurants, utilities, and related
financial services. Yet these are not the sectors vital for long-term
growth and development.

Disguised
jobs crisis

Agriculture
and manufacturing are falling and failing to create the jobs needed
by the growing population. Tens of millions of Filipinos are instead
forced either abroad or into all sorts of erratic and low-paying
service work.

In
the October 2019 labor force round, the government reported a surge
of 1.8 million additional employed and unemployment falling to 2.1
million. Taken at face value, this is welcome but does not indicate
long-term development taking place.

New
jobs created were overwhelmingly in wholesale and retail trade,
transportation and storage, and construction. These sectors can be
profitable for a few economic elites but however do not create the
economic base needed for long-term growth and development;
agriculture and Filipino manufacturing are needed for that.

The
quality of work created is revealing and reflects the limits
especially of backward service sector work. Three of four new jobs
were in part-time work of less than 40 hours per week; the number of
those who worked without pay also continued to increase.

Official
unemployment figures moreover underreport the true state of
unemployment. IBON’s initial estimate is of some 4.1 million
unemployed Filipinos or more than double the officially reported.
This higher figure includes discouraged workers and others
immediately unavailable for work that the government has stopped
counting.

Disguised
poverty

Among
the biggest economic news last year was the reported decline in
poverty in 2018 to just 12.1% of families and 16.6% of the
population, corresponding to 3 million families and 17.6 million
Filipinos.

This
decline in poverty is however illusory in using a very low poverty
threshold of Php71 per person per day on average, or just Php10,727
per month for a family of five. This is officially deemed enough for
Filipinos to meet their food and non-food needs and no longer be
poor.

Setting
such a low income standard obscures how the conditions of tens of
millions of Filipinos are not fundamentally improving. For instance,
the same family income data would show that 12.4 million Filipino
families or over half of the population actually tries to survive on
just Php132 or much less per person per day.

The
low ‘poverty threshold’ also does not capture so many other
dimensions of poverty that tens of millions suffer: income
insecurity, lack of decent work, lack of education, insufficient
nutrition and poor health, inadequate housing, lack of clean water,
sanitation and electricity, degraded ecology, lack of assets,
exploitation and other vulnerabilities.

Official
income poverty figures, like for unemployment, need to be revisited
to reflect rather than obscure key socioeconomic realities especially
for the country’s poorest and most vulnerable. Statistical
misdirection will only reinforce economic problems.

Economic
missteps

It
is natural to expect the economy to serve the needs of the majority
rather than of just a few. By that standard, the optimism of the
economic managers that “the Philippine economy is strong and ready
to soar” is misplaced.

The
economy is slowing and its most important sectors are weakening.
Poverty and unemployment are high but concealed by misleading
official statistics.

Still,
the administration has spent the past year, and will spend this year,
pursuing the sorts of policies that distort the economy and thwart
development. It is out to complete the liberalization of agriculture
starting with rice last year and the sugar industry this year.
Agricultural livelihoods and food security are at stake.

It
is so keen on foreign investment that it is surrendering vital policy
space for national industrial development. Amid growing worldwide
protectionism, the Duterte government is still doggedly seeking
foreign investment liberalization – in utilities, retail trade, and
even wholesale charter change if it can.

There
was a show of anti-oligarch rhetoric particularly around Metro Manila
water services. But the government’s insistence on water
privatization not just in the capital but the rest of the country
means that water barons will remain and only get richer.

The
government is also pressing to make the tax system even more
regressive, pro-rich and pro-capital. The TRAIN law’s Package One
burdening poor consumers with higher consumption taxes is entering
its third year. The rich who TRAIN favored with lower taxes on their
income and wealth are set to get even more tax cuts with subsequent
packages lowering corporate income taxes and taxes on capital and
financial investments, among others.

Optimism
and hope

The
Duterte administration knows that people sense if their conditions
are really improving or not. That disappointment easily leads to
restlessness and, eventually, greater protest, and even revolution.
Last year, it started to pay more attention to managing unrest from
an economy that was making a handful rich while keeping the majority
poor and unemployed.

There
were populist social measures to take the edge off underdevelopment.
There was also insistent propaganda that the economy is getting
better. There was also notably a crackdown on activists pointing out
social problems and consistent in proposing the radical solutions
needed but opposed by economic elites.

Organized groups have long been advocating concrete measures and far-reaching reforms to build an economy that keeps on improving the lives of the many. The economy is heading in many wrong directions but the possibilities of People Economics to replace bankrupt neoliberalism gives much reason to be optimistic. Things will not get better on their own, and the administration’s fears are well-founded – more and more Filipinos are going to spend the New Year standing up to change things for the better. ###

Facebook Comments