Download Philippine Economic Growth

Erratic Philippine Economic Growth
This nation has the ingredients for growth, but progress is unsteady. With
exceptions such as the Asian Financial Crisis, domestic issues are causing
the stunted growth.
Gary W. Elliott
Dec 22, 2007
•
The Philippines has posted a mixed record of economic growth and development
since the end of World War II. While once one of the richest countries in Asia, the
Philippines has fallen behind many developing Asian nations. This country is fairly
rich in natural resources, has a large and literate population/workforce, and
operates a substantial light industrial base. Although susceptible to international
economic forces like any other nation, many of the downturns of the Philippine
economy have resulted from domestic problems. The following is a brief glimpse
of economic performance during three periods of two decades each.
1945-1965
• Three and a half years of
Japanese occupation and
battles for liberation in 1945
took a tremendous toll,
especially on Manila, the most
destroyed Allied capital except
Warsaw. In spite of wartime
devastation of the economic,
political, and cultural capital,
U.S.-assisted postwar
reconstruction yielded rapid
economic growth immediately
after the war. This
reconstruction growth slowed
over time.
1965-1986
• The two decades under President
Marcos saw serious decline in
economic growth and
development due to years of
economic mismanagement,
political instability, martial law,
corruption, and cronyism.
Advances in infrastructure
development and agrarian reform
were offset by the country
incurring enormous foreign debt.
Macroeconomic stability was
adversely affected, and a severe
recession in 1984-85 saw the
economy shrink by more than
10%.
1986-2006
• Since the overthrow of Marcos in 1986, economic reforms including
foreign exchange deregulation, foreign investment and banking
liberalization, and tariff reduction have significantly opened the
Philippine economy, allowing foreign entry into the retail trade sector
and even participation in the power industry. However, economic
growth and national development have been hampered by massive
national debt, government corruption, and political instability. A quick
review of the four post-Marcos administrations follows.
• While Corazon Aquino’s government needed to lead the nation out of
the negative economic growth of the last Marcos years, political
instability hindered economic recovery. Upheaval of the wellestablished “crony capitalism” system led to power struggles resulting
in at least 6 coup attempts in her first four years in office.[3] This
destabilization discouraged foreign and domestic investment.
• President Fidel Ramos introduced many economic reforms and
initiatives to stimulate business growth and foreign investment. These
measures, along with greater political stability, resulted in a period of
higher growth rates. However, economic growth slowed at the onset of
the East Asian Financial Crisis in 1997, and dropped to virtually zero in
1998.[4]
1986-2006
• Some of the Ramos reforms continued under President Joseph
Estrada, and his administration enacted laws to better regulate
the banking system and securities markets, liberalize foreign
participation in the retail trade sector, and promote and
regulate electronic commerce. Expected growth and
development did not materialize because Philippine Stock
Exchange scandals, widespread corruption, and the President's
impeachment for ties to illegal gambling and certain
disreputable businessmen discouraged investment.
1986-2006
• President Gloria Macapagal-Arroyo, formerly an economics
professor at University of the Philippines, and her team have
made considerable progress in restoring macroeconomic
stability and an environment for growth. Recent performance
has been strong, with the GNP growing annually at 5% or
better for the last 5 years.[5, 6] Long-term growth, however,
remains threatened by widespread poverty, severe underspending on infrastructure, education systems, and social
services, and remaining trade and investment barriers.
Conclusion
• The Philippines is currently
experiencing a period of
economic growth with an
optimistic outlook.
Although we might expect
national development to
accompany economic
growth, various economic,
political, and socio-cultural
conditions in the
Philippines still present
challenges to national
development, to be
explored in subsequent
essays.
Cory Aquino 1986-1992
• Focus on attracting more
foreign loans, aid, trade,
investment and tourists.
• Pursued same economic
policies that have wreaked
havoc on the lives of Filipino
masses.
• US$28 billion external debt
• Large debt service payments
• Moderate growth 6.5% per
year.
• Cory honor all debts instead of
repudiating them.
Cory Aquino 1986-1992
• Domestically, land reform was
a highly contentious issue.
• NEDA economists argued that
broad-based spending were
necessary to get the economy
going again.
• More purchasing power had
to be put to the hands of the
masses.
• To achieve this objective
required a redistribution of
wealth downward primarily
through land reform.
Cory Aquino 1986-1992
• Land Reform was weak,
loophole-ridden-piece of
legislation. A
manifestation of a
Congress heavily
represented by
landowning interests.
• Economic growth was
slow
1.9% in 1986
5.9% in 1987
6.7% in 1988
• Consumption led the growth
process.
Cory Aquino 1986-1992
• Trade deficit rose rapidly.
• Budget deficit ballooned,
hitting 5.2% of GNP in 1990.
GNP grew 6.7% in 1988
5.7% in 1989
3.0% in 1990
• Prolonged drought resulted in
the increased need to import
rice.
• Major earthquake in 1990
• Typhoon in Visayas
• Coup attempts
Cory Aquino 1986-1992
•
•
•
•
Brownout became a daily occurrence.
Lack of public transportation
Industrial growth fell from 6.9% in 1989 to 1.0% in 1990
Government construction which grew at 10% in 1989
declined by 1% in 1990
• 1990 Congress placed a 9% levy on all imports to provide
revenues.
Cory Aquino 1986-1992
Economy
• GNP grew at an annual
average of only 1.8%
• 50% of the population live
below the poverty line
• 1988 unemployment rate
8.3%
12.3% in urban areas
11.4% in early 1989
• 470,000 Filipinos left the
country to work abroad in
1988 as contract jobs or
merchant seamen.
Cory Aquino 1986-1992
• 6.7 % growth in 1988
3.0% growth in 1990
exacerbated by several
natural disasters
• Trade and budget posted a
deficit
• Agriculture sector in 1990
accounted for 23% of GNP
more than 45% of the work
force.
• 33% of output come from
industry with employed
about 15% of the work
force.
Cory Aquino 1986-1992
• 24% of GNP and 12% of
employment were derived
from manufacturing
• 44% of GNP came from
services sector.
• Land planted in rice and
corn accounted for about
50% of the 4.5 million
hectares of field crops in
1990.
• 25% of the cultivated area
was taken up by coconuts,
a major export crop
Cory Aquino 1986-1992
• Sugar cane, pineapples,
Cavendish bananas were
important earners of
foreign exchange
• Philippines has vast
mineral deposits in 1988,
10th largest producer of
copper, 6th in chromium,
9th in gold.
• 1991 nickel mining
produced large quantity
of metal.
Fidel Ramos 1993-1997
Economy
• President Fidel Ramos
embarked on an ambitious
development plan dubbed
"Philippines 2000." Under the
plan, several industries critical
to economic development
were privatized, such as
• electricity,
• telecommunications,
• banking,
• domestic shipping, and
• oil.
Fidel Ramos 1993-1997
• The taxation system was reformed, and external debt was
brought to more manageable levels by debt restructuring
and sensible fiscal management. By 1996, GNP was growing
at a rate of 7.2 percent and GDP at 5.2 percent. The annual
inflation rate had dropped to 5.9 percent from its high of 9.1
percent in 1995. By the late 1990s, the Philippines'
economic growth gained favorable comparisons with other
Asian countries such as Taiwan, Thailand, South Korea, and
Malaysia.
Fidel Ramos 1993-1997
The Philippine Economy
• The Philippine economy took a sharp downturn during the Asian
financial crisis of 1997. Its fiscal deficit in 1998 reached P49.981
billion from a surplus of P1.564 billion in 1997. The peso depreciated
(fell in value) to P40.89 per U.S. dollar from its previous rate of P29.47
to a dollar. The annual growth rate of the GNP fell to 0.1 percent in
1998 from 5.3 percent in 1997. Despite these setbacks, the Philippine
economy fared better than that of some of its Asian neighbors, and
other nations praised the Ramos administration for its "good
housekeeping."
Fidel Ramos 1993-1997
Economic Reforms
• During his administration, Ramos began implementing economic
reforms intended to open up the once-closed national economy,
encourage private enterprise, invite more foreign and domestic
investment, and reduce corruption.
• Ramos was also known as the most-traveled Philippine President
compared to his predecessors with numerous foreign trips abroad,
generating about US$ 20 billion worth of foreign investments to
the Philippines.
• To ensure a positive financial outlook on the Philippines, Ramos
led the 4th Asia Pacific Economic Cooperation (APEC) Leaders'
Summit in the Philippines on November 1996.
• He also instituted reforms in the tax system which includes a
forced increase on VAT (E-VAT law) from 4% to 10% mandated by
World Bank and the International Monetary Fund.
Fidel Ramos 1993-1997
• Under his administration,
the Philippines enjoyed
economic growth and
stability. The Philippine
Stock Exchange in the mid1990s was one of the best
in the world and his visions
of Philippines 2000' that
led the country into a
newly industrialized
country in the world and
the "Tiger Cub Economy in
Asia".
Fidel Ramos 1993-1997
• Other economic reforms
achieved during the Ramos
administration was the readjustment of the value
added tax from four
percent to an International
Monetary Fund and World
Bank-mandated ten
percent. The success of the
reforms paved the way for
the Philippines to be called
"Asia's New Tiger"
Fidel Ramos 1993-1997
• Economic reforms instituted during the Ramos era enabled
the Philippines to experience growth rates of up to nine
percent annually, and enjoy annual budget surpluses well into
his tenure. The economic reforms instituted in the Philippines
2000 platform would have an effect on how the Philippines
would be affected in the 1997 East Asian financial crisis.
Fidel Ramos 1993-1997
Philippines 2000 Five-Point Program
• The Philippines 2000 platform largely hinged on five
major areas:
• Peace and Stability
• Economic Growth and Sustainable Development
• Energy and Power Generation
• Environmental Protection
• Streamlined Bureaucracy
•
He implemented economic reforms intended to
open up the once-closed national economy,
encourage private enterprise, invite more foreign and
domestic investment, and reduce corruption
Fidel Ramos 1993-1997
Effects and legacy
• The Philippines 2000 platform was widely
successful, making it one of the greatest
legacies of the Ramos administration to
the Philippines. Ramos was successfully
able to open the then-closed Philippine
economy and break Marcos-era formed
monopolies, especially with regard
to Philippine Airlines and the Philippine
Long Distance Telephone Company, which
were privatized and de-monopolized
during his tenure.
• The Philippines 2000 program formed the core of the Ramos
campaign platform in the 1992 elections which largely centered on
economic reforms and improved national security and unity.
Joseph E. Estrada (1998-2001)
Primary Problems
• Graft and Corruption
Graft and corruption was pretty eminent
not just during Estrada’s administration.
Obviously, we all know Estrada was
sanctioned to have been getting or
robbing money from the governments’
fund to use for his own personal interest.
That is why he was impeached due to his
plunder and perjury case.
• Asian Financial Crisis
The Central bank raised interest rates by
1.75%. The BSP was forced to intervene
heavily to defend the peso raising the
overnight rate from 15% to 24%. The
pesa fell from 26 per dollar to 28 pesos
to 40 pesos by the end of the crisis.
Joseph E. Estrada (1998-2001)
• El Nino
The El Nino led to too many problems in
the country. One of which is the serious
drought of lands in the rural areas that
cause the unemployment of the farmers
and the rise of the prices of rice.
• Poverty
Of the 14.37 million families, 5.75 million
belonged to the lowest 40% income
group while 8.62 million in the highest
60% income bracket. In terms of
percentage to total families, families in
the highest 60% income strata got the
biggest percentage in almost all
indicators. But in terms of the percentage
to the total families within each income
strata, families in the lowest 40% income
strata are not far off from families in the
highest 60%.
Joseph E. Estrada (1998-2001)
Promises During The Elections And Inauguration
•
•
•
Estrada’s first priority was to focus on the improvement of the economy. Creating
the environment of peace and order in which business does well so as to uplift the
economy of the country. Estrada wanted to focus on the masses and put up
programs for them first. He promised the masses that they will not suffer anymore
and let the rich people take a share on the sacrifices. As he states
“As far as resources permit, to the best of our ability and the limit of our energy, we
will put a roof over their heads, food on their tables, and clothes on their backs.
We will educate their children and foster their health. We will bring peace and
security, jobs and dignity to their lives. We will put more infrastructure at their
service, to multiply their productivity and raise their incomes.”
He stated several points regarding how the government can help out in improving
the country. Stamping out crimes, providing basic services without the extra cost of
pork barrel, roads for work, infrastructure, schools, clinics, national defense are
some of the factors Estrada promised to implement or establish. Erap swore to give
at once a government that works. Estrada also promised to bring peace and
harmony to the society. He wanted every Filipino, rich or poor to feel that they are
safe.
Joseph E. Estrada (1998-2001)
Laws And Programs
• Retail Trade Liberalization Act (Republic Act
No. 8762)
The bill dismantles 40 years of state
protectionism over the country’s retail trade
industry and opens the sector to big foreign
players. With the retail trade liberalization,
well-known foreign players like France’s
Carrefour and Casino Group as well as the U.S.’
Wal-Mart and JC Penney are already in the
process of negotiating with local partners.
•
New General Banking Act (Republic Act No.
8791)
The measure opens up the local banking
industry to foreign players after almost 50
years of having it exclusively reserved and
protected for Filipino nationals. With the
industry’s liberalization, at least 10 foreign
banks have already established their presence
in the Philippines.
Joseph E. Estrada (1998-2001)
•
Electronic Commerce Act of 2000 (Republic Act No. 8792)
Outlaws computer hacking and provides opportunities for new businesses emerging from
the Internet-driven New Economy.
•
New Securities Act (Republic Act No. 8799)
This law liberalizes the securities market by shifting policy from merit regulation to full
disclosure. With its strengthened provisions against fraud, the measure is expected to pave
the way for the full development of the Philippine equities and securities market.
•
Agrarian Reform
The Estrada administration widened the coverage of the Comprehensive Agrarian Reform
Program (CARP) to the landless peasants in the country side. The latter’s administration
distributed more than 266,000 hectares of land to 175,000 landless farmers, including land
owned by the traditional rural elite. On September 1999, he issued Executive Order (EO)
151, also known as Farmer’s Trust Fund, which allows the voluntary consolidation of small
farm operation into medium and large scale integrated enterprise that can access long-term
capital. President Estrada launched the Magkabalikat Para sa Kaunlarang Agraryo or
MAGKASAKA. The DAR forged into joint ventures with private investors into agrarian sector
to make FBs competitive. In 1999 a huge fund was allocated to agricultural programs. One
of which is the “Agrikulturang Maka Masa”, through which it achieved an output growth of 6
percent, a record high at the time, thereby lowering the inflation rate from 11 percent in
January 1999 to just a little over 3 percent by November of the same year.
Joseph E. Estrada (1998-2001)
• Anti-Crime Task Forces
In 1998, by virtue of Executive Order No.8,
President Estrada created the Presidential
Anti-Organized Crime Task Force (PAOCTF)
with the objective of minimizing, if not
totally eradicating, car theft and
worsening kidnapping cases in the
country. With the help of this task force,
the Philippine National Police for the first
time in history achieved a record-high
trust rating of +53 percent. Panfilo Lacson
was its first head. He also created the
Philippine Center on Transnational Crime
(PCTC) in 1999, with the objective of
formulating and implementing a concerted
of action of all law enforcement,
intelligence and other government
agencies for the prevention and control of
transnational crime.
Joseph E. Estrada (1998-2001)
• Charter Change
Under President Joseph Estrada,
there was a similar attempt to
change the 1987 constitution. The
process is termed as CONCORD or
Constitutional Correction for
Development. Unlike Charter
change under Ramos and Arroyo
the CONCORD proposal, according
to its proponents, would only
amend the ‘restrictive’ economic
provisions of the constitution that
is considered as impeding the
entry of more foreign investments
in the Philippines.
Joseph E. Estrada (1998-2001)
• RP-US Visiting Forces Agreement
On 1999 a Visiting Forces Agreement with
the United States, which was ratified in
the Senate. The first Visiting Forces
Agreement was actually signed under
President Ramos in 1998, and the second
was subsequently signed under President
Estrada. The two agreements came to
effect a year later. The primary effect of
the Agreement is to require the U.S.
government (1) to notify RP authorities
when it becomes aware of the
apprehension, arrest or detention of any
RP personnel visiting the U.S. and (2)
when so requested by the RP government,
to ask the appropriate authorities to waive
jurisdiction in favor of RP, except cases of
special interest to the U.S. departments of
State or Defense
Joseph E. Estrada (1998-2001)
BENEFICIARIES OF THE LAWS AND PROGRAMS
•
•
•
•
Estrada’s agrarian reform was for the benefit of those farmers living in the rural areas.
CARP was for the benefit of those farmers who do not own their own land. He
distributed hectares of land to those who are landless. Farmers’ Trust Fund was
intended for those farmers who have small and medium capital to extend their
business into a large scale accessing long term loans from the fund.
Presidential Anti-Organized Crime Task Force was launched in order to reduce crimes
such as car/kidnapping. He also created the Philippines Center on Transnational Crime.
Its objective is to implement law enforcement for the prevention of crimes. Estrada
also implemented the death penalty where its objective is also, to reduce serious
crimes.
The Charter change turned out to be a big issue in the government. This charter
change was intended to recreate the constitution. Apparently, it was not really for the
benefit of the economy or the country. It was for Estrada’s own benefit to gain more
power and use more government money.
Estrada also formulated the RP-US Visiting Forces agreement. This is requiring US
government to notify RP authorities when it becomes aware of the apprehension,
arrest or detention of any RP personnel visiting the U.S. and when so requested by the
RP government, to ask the appropriate authorities to waive jurisdiction in favor of RP,
except cases of special interest to the U.S. departments of State or Defense. This was
for the economy of the country.
Joseph E. Estrada (1998-2001)
ISSUES AND CONTROVERSIES
•
War between MILF
During the Ramos administration a cessation of
hostilities agreement was signed between the
Philippine Government and the Moro Islamic
Liberation Front (MILF) in July 1997. This was
continued by a series of peace talks and negotiations
in Estrada administration. However the Moro Islamic
Liberation Front (MILF), a Islamic group formed in
1977, seeks to be an independent Islamic State from
the Philippines, despite the agreements, a sequence of
terrorist attacks with the Philippine military and the
civilians still continued.[2] Such of those attack are 277
violations committed, kidnapping a foreign priest,
namely Father Luciano Benedetti, the occupying and
setting on fire of the municipal hall of Talayan,
Maguindanao; the takeover of the Kauswagan
Municipal Hall; the bombing of the Lady of Mediatrix
boat at Ozamiz City; and the takeover of the Narciso
Ramos Highway. By doing so, they inflicted severe
damage on the country’s image abroad, and scared
much-needed investments away.
Joseph E. Estrada (1998-2001)
• Plunder
The plunder case consisted of four
separate charges: acceptance of 545
million pesos from proceeds of Jueteng,
an illegal gambling game;
misappropriation of 130 million pesos in
excise taxes from tobacco; receiving a
189.7-million-peso commission from the
sale of the shares of Belle Corporation, a
real-estate firm; and owning some 3.2
billion pesos in a bank account under the
name Jose Velarde.
• Perjury
The minor charge of perjury is for
Estrada underreporting his assets in his
1999 statement of assets and liabilities
and for the illegal use of an alias, namely
for the Jose Velarde bank account.
Joseph E. Estrada (1998-2001)
•
BW Resources
BW Resources, a small gaming company listed on the Philippine Stock Exchange and
linked to people close to Estrada, experienced “a meteoric rise” in its stock price due
to suspected stock price manipulation. The head of the compliance and surveillance
group of PSE resigned which led to the confusion of the investigation. The events
created a negative impression. “The BW controversy undermined foreign investor
confidence in the stock market” and “also contributed to a major loss of confidence
in the Philippines among foreign and local investors on concerns that cronyism may
have played a part.”
•
Impeachment Trial
This was the first time Filipinos would witness, through radio and television, an
elected president stand in trial and face possible impeachment with full media
coverage. During the trial, the prosecution presented witnesses and alleged
evidences to the impeachment court regarding Estrada’s alleged involvement in
jueteng. The existence of secret bank accounts that he allegedly used for receiving
payoffs was also brought affront. Singson stood as witness against the president
during the trial and said that he and the President were alleged partners in-charge of
the countrywide jueteng operations. Singson’s testimony was one of the vital pieces
of evidence that led to Estrada’s subsequent conviction.
Joseph E. Estrada (1998-2001)
What the president did
• With Erap’s plunder and perjury case,
he did not do anything about it to
prove that he is not doing some
illegal acts. He just made a way to
erase the thought in people’s minds.
Because his market is the masa and
the masa does not care about how
their president act as long as he is
doing something to uplift their
sufferings, they do not keep in mind
what Erap is doing may it be against
the law or not. He just let the
government take away his position by
the impeachment trial. Erap’s perjury
case was different. The Jose Velardo
account was obviously one case
which Estrada together with his
supporters .
Joseph E. Estrada (1998-2001)
Summary of governance
• Joseph Estrada was elected as president gaining most of the votes from the people.
Erap won the hearts of the poor by promising them with a life where suffering does
not exist. He also made it to a point to prioritize the development of the economy.
Under the Asian financial crisis, Estrada did not do well in making the economy
survive. Unemployment rate went up, budget deficit grew and the currency fell.
Eventually, the economy recovered but at a much slower pace than other Asian
countries. Estrada waged an all out war against the MILF which affected a huge
number of people. Crime rate also went up because of the occurring kidnapping and
killings. Estrada was charged of receiving a big amount from illegal gambling payoffs.
He was impeached. The masses protested and demanded for Erap’s resignation
bringing about EDSA 2 revolution.
Gloria Macapagal-Arroyo 2001-2010
The disturbing divergence between the fortunes of a few and the welfare
of the many is the most troubling legacy that the Arroyo presidency leaves
behind — and among the greatest challenges that the incoming
administration has to confront to deliver any real change.
By Sonny Africa
Ibon Foundation
• The Arroyo administration will be
remembered for lost ground on
important measures of
development and progress in the
face of economic growth. Filipinos
are worse off today than when
President Gloria Macapagal-Arroyo
came to power nine-and-a-half
years ago.
Gloria Macapagal-Arroyo 2001-2010
• Unemployment is at record
sustained highs, household real
income declined, poverty
increased, inequality worsened,
and Filipinos were forced abroad
in unprecedented numbers.
Prospects have been
undermined by the steady
erosion of domestic
manufacturing and agriculture, a
rapidly deepening fiscal crisis,
and defeatist international trade
and investment policies. In
contrast, the profits of the
country’s biggest corporations
and the wealth of its richest
families have continued to
improve substantially.
Gloria Macapagal-Arroyo 2001-2010
• This disturbing divergence between the fortunes of a few and
the welfare of the many is the most troubling legacy that the
Arroyo presidency leaves behind– and among the greatest
challenges that the incoming Aquino administration has to
confront to deliver any real change.
• The Arroyo administration plays up the economic growth over
its term– touted as the best in over 30 years– as the gold
standard of its performance. Official reported growth in gross
domestic product (GDP) during the Arroyo administration
(2001-2009) averaged 4.5% annually compared to 3.9% under
Aquino (1986-1991), 3.8% under Ramos (1992-1997) and 2.4%
under Estrada (1998-2000). The economy expanded by 47.2%
in real terms since 2001. The results however speak for
themselves.
Gloria Macapagal-Arroyo 2001-2010
Rising joblessness and poverty
• The period 2001-2009 is the longest period of high unemployment in
the country’s history with the true unemployment rate averaging
some 11.2% (correcting for the government’s not counting millions of
jobless Filipinos as unemployed since 2005). The number of jobless
and underemployed Filipinos grew to 11.4 million in January 2010
which is 3.1 million more than in January 2001, when Pres. Arroyo
came to power. The 4.3 million jobless Filipinos as of last January is an
increase of 730,000 from nine years ago; the 7.1 million
underemployed is 2.4 million higher.
Gloria Macapagal-Arroyo 2001-2010
• Some 877,000 jobs were created
annually since January 2001 to
reach 36.0 million in January 2010.
However the quality of jobs
created is very poor: 3.8 million are
“unpaid family workers” (585,000
increase from January 2001), 12.1
million are “own account workers”
mainly in the informal sector (1.6
million increase), and around 12.6
million are “wage and salary
workers” but without written
contracts. The number in merely
part-time work increased by 3.8
million to reach 12.3 million last
January and now accounts for over
one out of three jobs.
Gloria Macapagal-Arroyo 2001-2010
• Poverty has continued to rise even by the government’s low
official poverty line. The number of poor families increased by
530,642 or 13% since 2000 to reach 4.7 million in 2006. The
number of poor Filipinos increased by 2.1 million over that same
period to reach 27.6 million. But the official poverty line is only
P42 per person per day in 2006 which buys just a kilo of rice and a
chicken egg; a higher threshold of P86 more than doubles the
number of Filipinos classified as poor.
• As it is, household real incomes fell by an average of 20% across
all surveyed homes between 2000 and 2006– the recorded 19%
increase in nominal income over the period was easily offset by
the 38% rise in prices. The latest available poverty data is for 2006
so these trends occurred long before the global turmoil and
natural calamities since 2008 which can only swell the numbers
even more.
Gloria Macapagal-Arroyo 2001-2010
Growing inequality
• The country’s inequalities remain severe. In 2006, the net worth of just the 20 richest
Filipinos– including close Arroyo allies Lucio Tan, Enrique Razon, Jr., Eduardo Cojuangco,
Enrique Aboitiz and others– was P801 billion (US$15.6 billion) which was equivalent to
the combined income for that year of the poorest 10.4 million Filipino families.
• The net income of the Top 1,000 corporations in the country rose from P116.4 billion in
2001 to average P416.7 billion annually in the period 2002-2008. On the other hand,
workers have seen the smallest increase in their real wages during the Arroyo
administration than over any government since the Marcos dictatorship. The minimum
wage in NCR increased just P5 in real terms over the almost decade-long Arroyo term
compared to P82 during the time of Aquino, P16 of Ramos, and P22 of Estrada
(inflation-adjusted figures based on 2000 prices).
Gloria Macapagal-Arroyo 2001-2010
• The hyped economic growth has also been largely
concentrated in Metro Manila which increased its share of the
country’s GDP from 30.9% in 2001 to reach 33.0% or a third of
the national economy in 2008. This was at the expense of 10
other regions which each saw their share of GDP fall –
Cordillera, Ilocos, Cagayan Valley, Central Luzon, Southern
Tagalog, Eastern Visayas, Zamboanga Peninsula, Davao, ARMM
and Caraga. Only two other regions, Northern Mindanao and
SOCCSKSARGEN, saw about a percentage point each increase in
their share of GDP.
• This has caused income disparities to widen even more. In
2001 income per head in Metro Manila, the richest region, was
eight (8) times that of the poorest region ARMM– by 2008,
income per head in Metro Manila was 12 times that in ARMM.
Gloria Macapagal-Arroyo 2001-2010
Eroding domestic production
• The fundamentals for modernizing
the economy have eroded.
Manufacturing’s share in GDP was
down to 21.8% in 2009 or as small as
in the 1950s. The sector created just
15,370 jobs annually since January
2001 to reach 3.0 million in January
2010. In contrast, seven times more
household help jobs were created
over the same period– 107,730 were
added annually to reach 2.1 million
last January. The number of
household help in the country is fast
approaching the number of its
manufacturing workers.
Gloria Macapagal-Arroyo 2001-2010
• The agriculture sector meanwhile has shrunk to 18.1% of GDP or its smallest
share in the country’s history. Only 172,600 agricultural jobs were created
annually over the last nine years to reach 11.8 million last January, most of
which were in low- or even non-paying work. Rural poverty persists due,
among others, to the slow pace of agrarian reform: the Department of
Agrarian Reform (DAR) of the Arroyo administration only distributed an
average of 119,301 hectares annually (2001-08) which is smaller than under
Estrada (121,274 ha.), Ramos (296,395 ha.) and Aquino (169,063 ha.).
• The deterioration of domestic manufacturing and agriculture go far in
explaining the weak job creation. This also underpins how the period 20012009 has seen the most Filipinos forced abroad to find work in the country’s
history. Deployments during the Arroyo administration averaged 1.04 million
annually compared to 469,709 (Aquino), 713,505 (Ramos) and 839,324
(Estrada); 1.42 million were deployed last year which was equivalent to
almost 3,900 Filipinos leaving every day. The economy’s over-reliance on
remittances reached record levels during the Arroyo watch and, in 2005,
breached the psychological threshold of being equivalent to 10% of GDP.
Gloria Macapagal-Arroyo 2001-2010
• The erosion of domestic production is also causing an over-reliance
on external sources of growth – especially overseas work but also
such as low value-added export manufacturing and business process
outsourcing (BPO). These activities are essentially disconnected from
the domestic economy though and do not contribute to any broadbased economic dynamism. BPOs for instance have been hyped in
growing rapidly from 5,600 employees and US$56 million in revenues
in 2001 to 442,164 employees and US$7.2 billion in revenues in 2009.
Yet the sector can only ever account for a tiny share of the economy
and in 2009 was just 1.3% of total employment and only some 2% of
GDP.
Gloria Macapagal-Arroyo 2001-2010
Fiscal troubles
• It is also clear that nothing has been done to address the root causes of
the country’s fiscal troubles. The Arroyo administration is exiting upon
the steepest increase in the national government (NG) deficit in the
country’s history– a P286 billion or 2,300% increase over just two years
from P12.4 billion in 2007 to P298.5 billion in 2009. This is on top of the
government having it worst deficits already with a cumulative NG deficit
of P1.34 trillion over the period 2001-2009 or more than triple the
deficits of the Aquino, Ramos and Estrada administrations combined
(P422 billion).
• It also passes on a heavy debt burden that already reached P4.36 trillion
in February 2010 or more than double the P2.17 trillion debt inherited
from the Estrada government. The Arroyo administration has effectively
been borrowing an additional P243 billion annually since coming to
power. This is even after paying P5.1 trillion in debt service from 2001 to
2009 which is nearly triple the P1.8 billion in debt payments made over
15 years by the Aquino, Ramos and Estrada administrations combined.
Gloria Macapagal-Arroyo 2001-2010
• The government’s tax effort has barely kept
pace with nominal growth in gross national
product and only stop-gap measures such as
record privatization– including selling off as
much in 2007 as had been sold off in the
previous 15 years spanning three
administrations– made it momentarily
appear that fiscal reforms were in place.
• The Arroyo administration has made the
country’s tax system even more regressive,
burdening the poor (such as with RVAT) and
unburdening those most able to pay (such
as by lowering corporate income taxes).
Meanwhile the most important sources of
deficit pressures are unaddressed: graft and
corruption, trade liberalization, foreign
investment incentives, unproductive debt
service, and bloated military spending.
Gloria Macapagal-Arroyo 2001-2010
Policy errors
• Recent years have seen some external global events beyond the
administration’s control but the country’s problems were there
even earlier– poor job growth, manufacturing decline, low rural
incomes, and a bloating informal service economy. These
troubles were not primarily due to the consecutive food, fuel
and financial crises but to mistaken economic policies.
• The Arroyo administration pushed an economic strategy built on
‘free market’ policies of globalization– removing trade barriers,
taking away investment controls, privatizing public utilities and
social services, deregulation, and continued debt payments.
These far-reaching measures are the biggest factor behind the
country’s severe economic troubles and need to be reversed for
there to be any prospects of steering the economy towards real
social progress. Even corruption, which has certainly become
severe, has not caused as sweeping damage.
Gloria Macapagal-Arroyo 2001-2010
• Foreign investors were aggressively courted and
enticed with generous incentives, as well as the
freedom to operate with hardly any obligations
to contribute to domestic economic
development. Transport, power and water
infrastructure were built mainly geared towards
serving the needs of big foreign and domestic
business interests.
• Trade deals such as the Japan-Philippines
Economic Partnership Agreement (JPEPA) and
with the Association of Southeast Asian Nations
(ASEAN), World Trade Organization (WTO) and
others were entered into. The government even
pushed to seal a free trade deal with the United
States (US). All these have made the Philippines
more vulnerable and more exposed than ever
before to the global economy. They also hamper
meaningful progress by preventing nationalist
economic policy-making.
Gloria Macapagal-Arroyo 2001-2010
Overturning the legacy
• The economic legacy of the Arroyo
administration will be the biggest
obstacle on any effort to improve
the welfare of the people. Yet while
heavy, these are not unachievable.
Charting a path to real, sustainable
and durable economic progress for
the country begins though with
acknowledging those realities and
recognizing the basic fragility of the
national economy. It also has to be
accepted that relying on the market,
remittances, private corporations,
and foreign investors to
spontaneously bring about
development has been a huge error.
Gloria Macapagal-Arroyo 2001-2010
• There needs to be an admission that the
economic policies of the past have failed
and that a thorough overhaul is needed.
There will have to be greater emphasis
on building solid domestic economic
foundations rather than relying on
temporary palliative measures,
unsustainable financing or external
sources of growth. Meaningful income,
asset and wealth distribution are long
overdue. Corruption has to be tackled,
but so too the globalization policies that
have resulted in an ever more
undemocratic economy whose resources
and benefits are cornered by a few.
Much more progressive governance is
needed to able to overturn the dark
legacies of the outgoing Arroyo
administration
Benigno S. Aquino III (2010- present)
• Fading economic miracle
• Severe inequities, no solid base
in domestic production, incomes
and demands.
• Unemployment and poverty
persist
• Slowing growth
- economic growth is the
administrations banner indicator
of progress and development
- the decelerating economy in
2014 points to how the recent
episode of rapid growth is
artificial and unsustainable
Benigno S. Aquino III (2010- present)
• Real estate and construction main sources
of above-average growth
• New short term drivers of growth in 2015
- cheaper oil, some increased public
infrastructure spending, ripples from the
US economy.
- overseas remittances and BPO inflows
will continue but will be slower than
before with a lessened impact on economy
• Growth drivers for the last 4-5 years
- real estate and construction
- BPO
- trade
- tourism
-overseas Filipino related spending
Benigno S. Aquino III (2010- present)
• These interact with each other where
BPOs increased demand for commercial
real estate, remittances increased
demand for residential property
• Tourism drove construction of
restaurants and accommodation
• The slowdown is happening in the
absence of any major economic or
political shock
• The slowdown will have the effect of
making the pattern of economic growth
under the Aquino administration
broadly similar to those of recent
administrations – growth picking up at
the start of the term, peaking
somewhere midterm and then slowing
as the end of the term approaches.
Benigno S. Aquino III (2010- present)
• Real estate and construction boom, the
biggest growths driver of recent years is
showing signs of winding down.
• Real estate and construction boom
appears to have started to unwind as
the market for residential and office
space tapers off overseas remittances
slowed, BSP takes measures to prevent
a real estate bubble, interest rates start
to rise
• Manufacturing subsector are
particularly real estate and construction
related; chemical and chemical
products basic metal industries, non
metallic mineral products and furniture
and fixtures.
Benigno S. Aquino III (2010- present)
•
•
•
•
•
The chemicals subsector produces
chemicals based products such as paint,
wood and cement additives, insulation
and other items used in construction.
Market for housing development has
largely been the middle class and upper
income classes with disposable income
25% of families (around 4.7 million) with
monthly incomes of about P27,000 or
more
The remaining 14 million poorer low
income families do have considerable
housing needs.
The slowdown in overseas remittances
eventually translates into weaker property
demand.
– Overseas Filipinos sent US $22 billion
in cash remittances in the 1st 11
months of 2014
Benigno S. Aquino III (2010- present)
• Remittances remain large and will
continue to account for a substantial
and disproportionate portion of
household consumption
expenditure.
• Production slowed in all major
sectors and most subsectors
• Domestic final consumption, capital
formation and exports all slowed.
• Lackluster government spending is
not the main reason for the
slowdown.
- agriculture may still continue to
slide especially if scant government
resources continue to be directed
to the sector.
Benigno S. Aquino III (2010- present)
• The increased dependence of the Philippine economy on external
sources of demand has to be rectified and domestic sources of
demand prioritized and developed.
• The amount of effective demand and purchasing power is in turn
determined by the level of production and how the gains from this
are distributed.
• Gains are distributed in various ways:
- between workers and capitalists
- between nearby and distant local economies.
- between domestic and foreign providers of inputs.
Benigno S. Aquino III (2010- present)
• Understanding economic growth this way explains why domestic
production from farms and Filipino industry is particularly
important as the ultimate driver of demand and why services or
externally driven sources are insufficient.
• The most recent sources of growth need to be understood in this
way.
Real estate and construction
BPOs, trade, tourism and finance
Spurred growth in varying degrees and created wealth for a few
Poor quality sources of growth and still undesirable as main
drivers of the economy in being circumstantial, self limiting and
not working for the poor
Benigno S. Aquino III (2010- present)
• They have weak multiple effects
• A growth source will be inclusive if it involves many workers
and other sectors as providers or as recipients of goods and
services
• Real estate and construction is geographically concentrated in
Metro Manila and its surrounding provinces.
• BPOs are import-dependent activities with the main domestic
value-added being cheap young Filipino labor and office
space
• Tourism generates local incomes but essentially a low
productivity and low input service activity
• The most fundamental weakness of recent growth sources
however is that they did not contribute to building domestic
agriculture or industry.
Benigno S. Aquino III (2010- present)
• Domestic production is necessary to create jobs and raise
incomes, develop Filipino technological capacity to strengthen
internal sources of demand as main drivers of growth
These are what extend the growth impulse and make it more sustainable
• Such a process certainly takes time and requires a strategic
view, but there are also immediate growth inducing measures:
Free land distribution
Farmer support and large wage
increase
Can be implemented in a
fairly short period of time
These will directly and indirectly expand the purchasing power of
the countrys over 28.3 million farmers, wage and salary workers low
paid employees and informal sector workers
Benigno S. Aquino III (2010- present)
• Low wages stifle domestic demand
Benigno S. Aquino III (2010- present)
• The slowdown will be
softened by the fortunate
circumstances of low oil
prices
• The effect of pre-election
spending on growth is
uncertain and if anything,
previous pre-election years
show that a slowdown
despite such spending is
more likely.
• The country remains among
the poorest performers in
southeast asia
Benigno S. Aquino III (2010- present)
Worsening Backwardness
• The decline in 2014 is consistent with the economy’s
long standing problems
Benigno S. Aquino III (2010- present)
• The country’s service-led economy increased the wealth of a
few but is a development trap.
• The economy’s character as a source of cheap labor, cheap raw
materials and captive market for foreign goods and services
has worsened.
• Growing foreign investment is not contributing to national
development