A creeping national emergency

President Marcos has made two significant achievements so far.

First, he formed a strong Cabinet, the majority of whom are competent professionals. Save for a few too old to be effectual, too connected to political patrons to be unbiased and too morally dubious to be credible, the rest generally inspire confidence.

Second, he strengthened our security arrangements with like-minded countries. He reinforced our defense alliance with the United States through the expansion of the Enhance Defense Cooperation Agreement (EDCA). He is on the cusp of expanding the visiting forces agreement with Japan. He is in talks with Australia to broaden security cooperation and he launched security collaboration initiatives with Singapore and Vietnam.

With this, President Marcos effectively repositioned the Philippines no longer as a subservient tool of China but a dignified, sovereign state.

Having addressed these two important issues, the time has come to address the next “national emergency” – the economy.

Let President Marcos not be swayed into thinking that all is A-OK with the economy just because it continues to grow at a healthy pace. Fact is, we face imminent threats that can imperil our economic future.

What is this threat? It is our worsening current account deficit coupled with rising debt levels – both symptoms of being severely import dependent.

For those unaware, a current account reflects the country’s transactions with the world. On the plus side, it takes into account export revenues, OFW remittances, foreign investments and other forex incomes. This is taken against outflows such as the cost of imports, repatriated profits, capital outflows and other outward transfers such as foreign debt and interest payments.

Why is this a threat? It is a threat because we’ve been operating on a current account deficit for years, which reached an alarming level of $17.8 billion last year, representing 4.3 percent of GDP. The culprit is our massive trade deficit (export minus imports), which reached a whopping $58.32 billion.

With a gaping trade deficit, government has no choice but to fill the gap by accumulating more debt or consume our foreign exchange reserves. No surprise, our national debt has already ballooned to P13.42 trillion, representing 60.9 percent of GDP (already above the 60 percent threshold). Our reserves have decreased to just $99.7 billion from its peak of $109 billion.

Our severe import dependence is unsustainable. I am sounding the alarm in the hopes that it reverberates to President Marcos himself. The reality is that the country’s finances will continue to deteriorate and we will always be short of financial resources unless we resolve the colossal trade imbalance. At present, we import everything from food to fuel, construction materials and most household goods. This must be mitigated.

A manufacturing resurgence

There is no other way. The economy must be recalibrated from one that is 74 percent consumer-driven to one where production comprises at least 40 percent. In short, a manufacturing resurgence is a must to achieve some degree of import substitution and augment export revenues.

Attracting foreign and local investments to boost the manufacturing sector must be made a national priority. Yes, I am aware that attracting investments   is already considered a priority in our Philippine Development Plan for 2023-2028. But current efforts are no longer enough.

Let us not be misled by the billions of dollars of investment commitments announced by the DTI whenever it returns from a foreign trip with the President. Look closer into the data and you will find that many of these “commitments” are re-rehashed and/or mere inquiries. From the billions boasted about, only a small percentage is realized.

Securing investments to fire up manufacturing is no longer about politics or public relations but a matter of national survival.

How far is the Philippines’ performance in attracting investments? Last year, the Philippines took in some $9.2 billion in FDIs compared to Indonesia’s $43 billion, Vietnam’s $28 billion, Malaysia’s $16.4 billion and Thailand’s $19.1 billion.

Consequently, Philippine merchandise exports is shamefully low at only $78.8 billion compared to Vietnam’s $372 billion, Indonesia’s $292 billion, Malaysia’s $357 billion and Thailand’s $287 billion.

Let’s be honest with ourselves – the dollar generating capacity of the country is only running on inertia. We still rely on IT-BPOs and electronics exports – both of which were developed decades ago. Government has not championed a new dollar-making industry since IT-BPOs.

We are dependent on OFW remittances, which is not something to be proud of but reflective of poor governance.

The reality is that conditions for manufacturing are so inhospitable that it is easier (and cheaper) to import goods rather than manufacture them. The state of Philippine manufacturing is a result of a poor regulatory, justice and governance regime. I will delve more on this in my next column. Suffice it to say government needs to undo this mess in order to make conditions conducive for manufacturing.

And this is where it gets sticky. Not only is eliminating inhospitable conditions extremely difficult, many of the reforms are bound to railroad the economic interest of the political and economic elite.

At this stage, only the President can undo the mess. He must push for reforms to improve investment conditions with the same vigor and commitment he displayed during his presidential campaign. Only then will the various departments, the legislature and the LGU’s mobilize to make it a reality. Because whether we admit it or not, functionaries of government only move with haste if the President demands it.

Make no mistake, until we recalibrate the economy to one that is more production-led, the country’s financial position will continue to deteriorate.

So again, I implore the President – we must stage a manufacturing resurgence to keep the economy on an even keel. The legislature and your Cabinet will not prioritize it without your order. So please Mr. President, give the command.

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Email: [email protected]. Follow him on Twitter @aj_masigan