What and how is Dutertenomics?

The DU30 economic team had a local roadshow of Dutertenomics in the last 2 weeks. This economic initiative of the DU30 government is actually in the 10-Point Program which was presented in the early days of this administration, and the recent presentations are to put more emphasis on the government investment spending in infrastructures, which will kickstart the economy on a higher growth path. From the current Gross Domestic Product growth of 6.3 percent in the 1st quarter of 2017, the objective is to bring this up to 8 percent to 9 percent starting in 2018.

As presented by the economic managers, Dutertenomics is build, build, build. The plan is to spend P8.4 trillion for infrastructures in the next five years, an average of P1.68 trillion a year. To put this in perspective, the annual budget of the Philippine government this year is P1.4 trillion and the GDP of the country last year at current prices was P14 trillion. These planned infrastructure spending is huge and will involve private-public participation, more domestic and foreign borrowings by the government, and more revenues for the government in terms of taxes and other income. Considering the good economic performance of the country in the last seven years and with it the improved credit ratings, foreign loans will be available from multi-laterals like WB, ADB, AIF and the foreign commercial banks. Given the healthy and liquid Philippine Banking System, government borrowings from the local banks can be done, especially if the tax reform proposed by the Department of Finance will become a law in 2018.

The economic rationale of this massive infrastructure spending is a classic Keynesian economic theory of deficit spending to increase the share of government investment spending in the GDP or the economy. For so many years, it has been consumer spending (C), that constituted 70 percent of the GDP while private and government investments (I+G) contributed the balance.

As has been proven in other countries, like Japan, Malaysia, and most recently China, massive infrastructure spending gives a big jolt to economic growth. Consumption expenditures in the Philippines are already very high, fueled by the OFW remittances, BPO salaries and other private sector incomes, and it will be growing slower. Private sector investments are also at levels that will taper off, if expectations for higher economic growth are uncertain. It is really appropriate at this time for the government to step in with huge investments.

Can the current government afford to make these massive infrastructure investments? While our government is not as fiscally sound as Norway, Finland, or even Malaysia, we have built up our financial ratios well enough in the past seven years to make as a good debtor. Our total public debt is only 54 percent of our GDP, better than many countries including Japan. Our government budget deficit at less than 4 percent of GDP is very comfortable to service making us eligible to borrow more. Our Gross International Reserves at over $90 billion can cover six months of imports and the debt servicing of all existing foreign loans.  So, P8.4 trillion over five years, while large in relation to our National budget and our GDP, is financially doable with the participation of the private sector in various mechanisms.

What are the possible problems or snags to this Dutertenomics? Mainly it will be politics. A perception of a drift towards an authoritarian government will dry up the funding as is happening now in Turkey. An unreasonable populist program of entitlements that will be costly for the government to sustain will siphon funds to another direction away from infrastructures.

Look at Venezuela. While it is impossible to insulate government programs from politics, it is best to give the economic managers a wide leeway and less political interference. Lastly, the government has to have the trust and support of the people for this program to succeed.