Economic managers
- Boo Chanco (The Philippine Star) - June 8, 2018 - 12:00am

The top economic managers of the Duterte administration are still the bright spots of this government. But they are also feeling the heat and losing their cool. Ben Diokno and Ernie Pernia have sounded insensitive lately. Sonny Dominguez has been testy.

That’s understandable. Inflation is up and beyond the central bank’s target range. People are blaming the first package of tax reform for aggravating a bad situation created by rising oil prices.

And the opposition to TRAIN package two is rising even among traditional allies of the economic managers. They are warning that TRAIN 2 may dampen enthusiasm for investments in an important industry like the BPOs, a big dollar earner.

The three economic managers found it necessary to issue a joint statement asking the people not to falter in their support. An increasing number of doubters are urging them to consider alternative paths, a Plan B.

But Diokno emphasized, there is no Plan B. They are committed to their program despite the change in the economic environment here and abroad. They are sure their reforms and programs are good for the long term.

“The administration is steadfast in the conviction that we can build a prosperous, high-income economy with a predominantly middle-class society by 2040,” the joint statement insists. “Staying the course will not always be easy, but we owe it to our people, our children, and future generations. We know that we are going through a challenging period.”

The problem they are facing is all too familiar. Economic policy makers offer long term gains. But the politics that will enable them to make those policy changes are dependent on the severity of short term pains, not on visions of sugar plums 10 or more years from now.

This reminds me of the Stanford marshmallow experiment. In a series of studies, a child was offered a choice between a marshmallow, a cookie or a pretzel or two such rewards if they wait for a short period, approximately 15 minutes, during which the tester left the room and then returned.

In follow-up studies, the researchers found that children who were able to wait longer for the preferred rewards tend to have better life outcomes, as measured by SAT scores, educational attainment, body mass index (BMI), and other life measures.

Dominguez, Diokno, and Pernia are telling us to bear the pains we are feeling now for a future that’s brighter than if we insist on getting a marshmallow now. Unfortunately, people have been feeling the pain for decades and understandably, few can really see beyond today’s dinner table.

Worse, some of the policy prescriptions are controversial even among policy wonks in the government and private sectors. The Conditional Cash Transfer program is now being attacked by no less than the agriculture secretary. The poverty alleviating objectives of the program is not clear even to members of the Cabinet.

The economic managers are urging Congress to quickly pass the rice tariffication bill into law to bring down the price of rice. That will bring down the cost of goods and services in the consumer basket and reduce the pain of rising inflation. But the corrupt and rent seekers seem more powerful than the President in influencing Congress to change the current system.

The economic managers are also not budging from their original strategy of using ODA and GAA to finance the Build Build Build program. The stubbornness continues even with the reality that TRAIN 1 cannot deliver the increased tax revenues for financing BBB. And ODA seems all talk still, specially for projects that China is supposed to finance.

Indeed, it seems the aversion to partnering with the private sector is strong, specially within the NEDA bureaucracy. It is frustrating to see ready to go projects totally at private sector risk taking time to get final government approval.

Many voted for Duterte because of his dislike of red tape, but it seems the reform measures being proposed by his economic managers expand government’s control over private business. TRAIN 2 is a good example of presumably good intentions translating to a worse environment to do business.

Calixto Chikiamco, president of the Foundation for Economic Freedom (FEF) and a natural supporter of the economic managers, has strongly protested some aspects of TRAIN 2.

“From paying a simple to follow five percent of gross income tax, TRAIN 2 would want BPOs to pay 25 percent of net income, which would be a financial shock and subject the industry to harassment from the Bureau of Internal Revenue.”

Furthermore, TRAIN 2 “would centralize approval of all incentives in a superbody called the Fiscal Incentives Review Board (FIRB), dominated by the Department of Finance (DoF). This means that all companies seeking incentives must do a song and dance before the FIRB and, like a Roman emperor, the FIRB will give the applicant a thumbs up or down, based allegedly on whether the applicant has ‘new’ technology, is big enough, or its projects are in accordance with the government’s plan…

“History shows that the Philippine government is incompetent in picking winners, and even creates losers… the Board of Investments then under the Department of Trade and Industry was creating oligopolies by prescribing ‘measured capacities’… I do believe in industrial policy, but not the kind where government throws money at ‘winners.’

“To my mind, effective industrial policy is determining the constraints of each industry and doing something about them.

“For example, the real constraints to the tourism industry are lack of infrastructure and peace and order. Tax incentives to hotel operators and multimillion-peso promotional projects like Ms. Universe and Buhay Carinderia are a waste of the people’s money.”

It is good that the economic managers are feeling the heat. Hopefully that will lead to a better appreciation of policy prescriptions as implemented at ground level. That’s the only way we can look up to them for leadership and forgo the marshmallows for the meantime.

Boo Chanco’s e-mail address is bchanco@gmail.com. Follow him on Twitter @boochanco

BEN DIOKNO DUTERTE ADMINISTRATION ERNIE PERNIA SONNY DOMINGUEZ
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