'The economy after one year of President Aquino'

It is now beyond one year in the Noynoy Aquino presidency. It is possible to make some temporary judgments and assessments about the way we are led. In general, the country has moved forward well. In another vein, much more needs to be done. He promises transformational leadership. In some areas, we get passive leadership that is dangerously close to drift.

“The Five-Year Development Plan.” Some weeks ago after midyear, the new five-year economic development plan was released without the public notice that such a major document deserves. The plan is comprehensive covering economic and social issues and plans and projects for the future, including macroeconomic targets.

In his foreword, President Aquino promises transformational leadership with a development plan that adopts inclusive growth, “high growth that is sustained, generates mass employment, and reduces poverty. With good governance and anticorruption as the overarching themes of each and every intervention, the Plan translates into specific goals, objectives, strategies, programs and projects all the things we want to accomplish in the medium term.”

The Plan states that inclusive growth will be achieved through massive investment in physical infrastructure, through transparent and responsive governance, through human development. All these require an increase in resources – both private and public – to make it work well.

“Silent on the important reform issues.” Judging from the long term evolution of the economy and the manner in which problems have cumulated, the country faces unique economic policy reforms that need to be undertaken.

But happily I can count them with the fingers of one hand. The first is to improve governance and reduce corruption. This reform is the flagship idea of the Aquino presidency.

Three other reforms are the passage into law of the reproductive health bill; revision of the restrictive economic provisions on foreign direct investment in the Constitution; and reform of labor market policies that permit flexibility in order to absorb in gainful employment the bulk of the labor force that is underemployed and poorly occupied.

I might add a fifth reform. This is to bring in greater competition among the generators of electricity in order to reduce its cost to the economy. The country has one of the highest electricity cost in the East Asian region. This is inimical to economic efficiency and hence further investments.

“Not in the priorities....” Except for the anti-corruption drive, the president has played a passive role in terms of the other major reforms issues. These are issues in which presidential leadership is terribly wanting. In fairness, he has not put a stamp of outright disapproval. But he is almost guilty of neglect of them!

For a leader to show disinterest in a major reform could only mean one thing. He might be against it; or he might be unconvinced; or he might be guided by interests that are opposed to these reforms.

All the economic managers are following the line of thought that governance improvement is sufficient. But this is sorely inadequate.

Except for political partisans who might wish otherwise, most Filipinos would wish the President enormous success. His success means a better life for all, especially for the next generation of Filipinos.

“A good first year in office.” In general, the first year in office of President Aquino has been a good one for him. His high popularity rating is sustained. His anti-corruption rhetoric has resonated with the citizenry.

It might be tactical not to risk his enormous political capital to espouse deep reforms that initially incite unpopular or contrary reactions. But true leaders often have to risk their political capital to achieve objectives.

“Sound on first impression, but .....” The economy performed well during the year. The macroeconomic fundamentals continued to improve despite the hostile and un-encouraging climate for world economic expansion with the US recovery faltering and Europe faced with a debt crisis.

Remittances continue to improve despite these difficult times. OFW remittances come mainly from countries with appreciating currencies versus the depreciating US dollar, the currency of remittance into the country.

The fiscal deficit has been under control with decent rises in government revenues and an apparent control of total public spending. This projects a deceptive improvement in fiscal position because the government has held back on economic development expenditure. In particular, programs supporting public investment had suffered.

This has made the country’s gross saving rate bulge because of the balance of payments surplus. The result of this is a glowing picture of success during the first year from an international viewpoint.

The country’s sovereign credit rating has improved. The reward of these changing perceptions is guarded optimism about the country reflected in improved credit ratings and in the advance in country rankings in competitiveness.

“Continuing structural weakness in some sectors.” In general, the appearance of improving macroeconomic fundamentals is weakened by an investment deficiency. Investment expenditure is far behind the savings that the economy is generating. The government’s highly touted “public-private partnerships” (PPP) to generate new infrastructure investments was a dud during the first year of implementation.

The result is that public investment is not spurring sufficient economic expansion. Private investments might be rising in some sectors but they are not really absorbing the highly liquid position that rising saving resources are generating.

“Consumer driven rather than investment driven growth.” The economy for many years has been essentially consumer driven. Though there has been a high level of construction boom in commercial and housing construction, which has kept the economy afloat, much of this response has been due to demand for additional space for business operations catering to the information technology industry and one in response to OFW money inflows. This type of growth needs to be supported by new demand arising from investment activities that raises the economy’s productive capacity.

In general, the area of export growth is being held down in view of the poor world economic conditions. US economic recovery is faltering. Europe is facing economic decline due to the debt problem. In our world in Asia, Japan and China are facing internal reassessment.

All the above would mean lower expectations about the future unless the economic leadership is able to lift it. The serious floods in the country have aggravated infrastructure facilities and put a downward impact on agricultural production. This is likely to affect a spike in food imports. Hence, there is room for more aggressive public expenditure to perk up the economy.

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