Temporary

Our GDP grew by 5.5% in the second quarter of this year. While respectable, the growth number fell significantly below market expectations.

Even at 5.5%, the growth of the Philippine economy still paces the region. We still retain the capacity to be a growth engine in a global economy poised for recessionary times.

Those charged with managing our macroeconomic performance say the setback is only temporary. They are still hopeful our economy could still deliver a 6% annual growth rate by the end of the year. That will be at the lower end of the 6% to 7% growth target earlier set.

The second quarter growth rate is the lowest our economy posted in 17 quarters. It follows the 5.7% posted in the first quarter.

In order to make 6.0% annual growth this year, the economy needs to post 6.4% growth rates in the next two quarters. That should be achievable, considering the factors that pushed down our growth the last two quarters.

The major factor explaining the lower-than-expected second quarter growth number continues to be the residual effects of the delay in the passage of the 2019 national budget. For the first four months of the year, government was spending P1 billion per day below what the original spending program intended. That brought so many unhealthy consequences for the domestic economy.

Our economy was also stymied by the effects of the drought we experienced in the first half of this year. The drought severely affected agricultural output, forcing it to contract in the first half.

Household consumption posted slower growth in the second quarter. Economic planning secretary Ernesto Pernia attributed this to the lower consumer confidence during this period caused by the water crisis. 

Then there are the larger factors. The global economy slowed due to several uncertainties, including the US-China trade war and the possible economic chaos that could be caused by Britain’s withdrawal from the European Union. In April, oil prices spiked ­– although prices have tended to soften over the past few weeks.

Our economy’s greatest weakness continues to be the agricultural sector. Total GDP could only grow so much if our agriculture is contracting. It is a major sector, providing livelihood to a substantial portion of the population. 

Fortunately, some solutions might be on their way in this sector. The folksy Manny Piñol has been evicted as Agriculture Secretary. In his place, the President has appointed an acknowledged expert in agricultural modernization, William Dar. 

Unfortunately, the damage has been done. Our agriculture will remain stagnant for years until modernizing policies take root.

RCEF

Sen. Cynthia Villar wants to know where the P5 billion advanced the Department of Agriculture (DA) late last year went. Former secretary Manny Piñol needs to answer her questions satisfactorily.

Finance Secretary Carlos Dominguez and then Budget Secretary Benjamin Diokno agreed to the allocation to help our agriculture officials support our farmers as the country shifted from a protectionist to a free trade regime in rice moderated by tariffs. This was some sort of advanced funding from the P10 billion Rice Competitiveness Enhancement Fund (RCEF) envisioned in the rice tarrification law and which takes effect only this year. 

The advanced funding is supposed to enable the DA to ease the transition to a new rice regime. The new free trade regime in rice will help bring down prices of the prime commodity and ensure adequate supply. But it will require that our farmers improve farm processes through mechanization and bring down production costs to competitive levels. 

Under the provisions of RA 11203 or the Rice Tarrification Act, the P10 billion RCEF will be distributed in the following manner: P5 billion goes to the Philippine Postharvest Development and Mechanization (PhilMech) program for farmers’ machinery and equipment for 1,000 rice-growing areas; P3 billion goes to the Philippine Rice Research Institute (PhilRice) for free seeds that will boost yields; P1 billion goes to the LBP and DBP for a credit facility with minimal interest rates and collateral requirements; and P1 billion goes to the Agricultural Training Institute (ATI) of the TESDA for skills programs on farm mechanization and modern farming techniques.

Note here that the law directs the funding support to programs that will promote the modernization of our rice production, long trapped in ancient subsistence models. The money is not intended for palay price supports, which is an indolent and ultimately useless subsidy that does not contribute to modernization.

After hewing and hawing a bit, Piñol eventually acknowledged that his department received the P5 billion advanced funding December last year. Of that amount, he says, P1 billion was duly forwarded to the LBP and DBP for the credit facility for rice farmers to help them mechanize their production. 

That leaves P4 billion unexplained. In the best possibility, the fund is stored somewhere. There is little evidence that DA undertook the modernization programs envisioned by RA 11203 while Piñol was there, constantly whining about increased rice imports. In the worst possibility, the money was misspent. 

At the very least, Piñol should clear the accounts before he takes up his new assignment as Mindanao Development Authority chief. That should give the rest of the policymaking establishment some sense about the state of preparedness of our rice sector. 

 Dar, in his first press conference, committed to frontload the release of RCEF money in his first 100 days at the post. That is indeed urgent. We need dramatic modernization to keep our farms competitive.

Hopefully the money is still there.