Economic issues facing the next president

Whoever gets elected as president this May will face the following economic problems: Improve the growth performance (that is, get the economic recovery to move forward), increase employment opportunities for Filipinos, provide economic and food security for workers, improve the nation’s living standards, and more.

From the perspective of voters who are looking for improvement in their lives, their concerns can be summed up in terms of these issues.

Economic recovery. The first major problem associated with growth performance is how to restore the economy’s dynamism. It was doing well until the pandemic leveled it, creating a decline in economic activity. Thus, the new president will be inheriting a seriously battered economy.

Economic recovery is an ongoing activity right now, even though setbacks and delays have complicated it. The pandemic response, as outlined in the Bayanihan I and II programs to heal and to recover, have been providing the weapons to finance the government programs.

The government, so far, has been accomplishing moderate to erratic success. The control of the pandemic appears to be difficult to solve, a factor that has dampened any success. The virus is elusive, changing in virulence and in transmissibility. Earlier, the Delta variant was dominant, today the Omicron. The experience, however, is not unique to our country. All countries are experiencing similar reversals.

The government is committed to easing the lockdowns imposed on the movement of workers and residents, even though lockdowns have recently been slowed down. This has been assisted by a program of accelerating vaccination, which has resulted in a 48 percent fully-vaccinated count (today) of the population.

So, in all likelihood, the reopening of the economy has already commenced. Though the Omicron variant has taken over the essence of the pandemic because of its high transmissibility, it appears to be milder in causing serious sickness than the Delta variant, thank goodness.

The election period has a partly positive impact on the recovery. Monetary expansion arising from election spending creates a higher level of aggregate demand and induces domestic growth. But it won’t be sufficient to restore the economy to the old level.

Major reforms have been accomplished by the Duterte government in regard to private investment promotion, especially foreign direct investments (FDIs). Some came late, but that appears to be the nature of democratic debate.

Will the tide now change with respect to future FDIs? These reforms will help the next president who will now be able to wage a better effort to attract foreign investments. It is important that the next president understands the legacy that he/she inherits in this respect so that the new policies can produce the desired results.

These reform legacies from the Duterte government will likely produce a larger impact – possibly in the medium term – on employment and income.

These are the following, among others. First, the CREATE law, which has revised the private investment incentive system. The CREATE law rationalizes the investment incentives package for all investments, including FDIs. Aside from making them time-bound and more directly linked to performance, the law also initiates a reduction of the corporate income tax rate from 30 to 25 percent, which is closer though higher than the average rate among ASEAN neighbors.

There are also three other new laws passed during the closing days of 2021, namely, the liberalized provisions to increase FDIs in the country’s public utilities, in retail business industry, and in general, on participation in the foreign investments in the overall economy. Also, during the same period, the government lifted the ban on open-pit mining to generate more economic activity in this industry.

Finally, the Build Build Build infrastructure program has brought a better set of new and on-going projects for the next president that are substantially much greater in number and in quality than those inherited by the Duterte administration from his immediate predecessor.

Though infrastructure investments still need to accelerate, these are an improved set of legacies to help the next president move the nation forward economically.

These achievements help to fortify the confidence that economic recovery will happen more quickly. It will also be comforting if the next president fully understands the tasks at hand.

“Good” employment creation, not just jobs. It is not guaranteed that the investment reforms of the Duterte government on the economic reform front will automatically attract FDIs into the country. This will raise the potential employment opportunities of Filipinos at home.

The big “if” here is whether or not the next president of the country appreciates these achievements sufficiently enough to carry them out effectively and successfully in the next six years, while also being mindful that other acts and reforms are needed.

One supporting reform calls for the improvement of labor market regulations to make them more flexible and linked to worker productivity. This is essential for good job creation at home.

The next president could also push for the needed amendments to the restrictive economic provisions in the political constitution. The best signal that the country has welcomed foreign investments is to make all legislation pertaining to them subject only to ordinary legislation-making.

Of great importance is how the next president improves the country’s presence in the major trading blocs that have emerged in the global trading system.

For a start, we are a signatory to the enlarged regional trading bloc, the RCEP (Regional Comprehensive Economic Partnership), an agreement that principally includes China and other countries in the region, plus all of ASEAN countries. However, we have not yet ratified it even as it will start to take effect this month! We have also resisted joining the CPTPP (Comprehensive and Progressive Agreement for Trans-Pacific Partnership), the other regional trading bloc that is now headed by Japan and other East Asian countries.

If the Philippines is to continue its participation in the global trading system, it should not be left behind by default in failing to be a partner within these important trading blocs.

To be continued.

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