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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