Tuesday, June 28, 2016

BWorld 67, Economic projections under the Duterte administration

* This is my article in BusinessWorld last June 23, 2016.

“Change is coming” is true for all administrations, public or private, because people change, communities change, and so on. For the coming Presidency of Rodrigo Duterte starting this June 30, the main question is “Change for the better, or for the worse?”

This question will covered in the forthcoming BusinessWorld Economic Forum on July 12, 2016, to be held at the Shangri-La at the Fort, Taguig City. It will be a big event featuring the CEOs and Presidents of some of the biggest corporations in the country as speakers.

The afternoon session will feature the topic “The Philippine Economy Under the New Presidency” and the main speaker will be Mr. Carlos G. Dominguez III, Secretary, Department of Finance. The two other speakers in the same panel will be Mr. Ramon R. Del Rosario, President, Phinma Corporation, and Ms. Riza G. Mantaring, President, SunLife Financial.

Let us briefly review the Philippine’s GDP growth performance over the last six administrations, from the last six years (out of 20 years in power) of past President Ferdinand Marcos up to the term of the outgoing President Benigno S. C. Aquino III. Growth figures of the Philippines’ major economies in Asia are also shown to provide a comparative insight about the overall economic environment during those periods (see Table 1).

The numbers show the following:

1. President Benigno S. C. Aquino III’s administration has experienced or facilitated the fastest growth of the Philippine economy over the past 3 decades.

2. From 1980-1997, the Philippines has the slowest growth rate in the Asia Pacific except Brunei and Japan. Which contributed to the country’s ugly label of “sick man of Asia” for nearly two decades.
3. China has maintained its average double-digit growth for four decades until 2010. Growth slowdown started in 2011 until today but the growth rate, 6%-9%, is still high compared those experienced by many other countries. India and Vietnam are following its fast growth trajectory, though at a lower pace of 6%-8%.

Among the ASEAN countries, the fastest growing economies actually exclude the Philippines. These countries, with their average GDP growth rates from 2010-2015, are: Laos with 7.7%, Myanmar, 7.1%; and Cambodia, 7.0%. These countries though have low economic base and hence, growth potential is much higher than countries with bigger economic bases.

But after being an economic laggard for three decades, the Philippines stood out, posting robust growth. Will the Duterte administration be able to sustain this momentum, reverse it, or surpass it?

Here are three GDP growth projections for the same 12 economies above, coming from three different institutions. The Economist forecast is composite for month of their reports are also indicated (see Table 2).

The Bank of Philippine Islands’ (BPI) Global Markets Commentary, June 2016 issue also showed its GDP growth forecast for the Philippines from 2016, 2017, and 2018 at 6.2%, 6.3%, and 6.6% respectively, or an average of 6.4%, much higher than IMF’s projections.

So it appears that the Duterte government will be able to sustain President Aquino’s economic achievement, especially based on the ADB and IMF forecasts. The Economist’s pool of forecasts however, sees a slightly lower growth trajectory. Nonetheless, let us keep the optimistic perspective.

The economic team of Duterte administration has released the updated “10 Point Agenda.”

1. Continue and maintain current macroeconomic policies, including fiscal, monetary, and trade policies.

2. Institute progressive tax reform and more effective tax collection, indexing taxes to inflation.

3. Increase competitiveness and ease of doing business, relax Constitutional restrictions on foreign ownership except land ownership.

4. Accelerate annual infrastructure spending to account for 5% of GDP, with Public-Private Partnerships.

5. Promote rural development, agricultural, and rural enterprise productivity, rural tourism.

6. Ensure security of land tenure, address bottlenecks in land management and titling agencies.

7. Invest in human capital development, health and education systems.

8. Promote science, technology and innovation.

9. Improve social protection programs including the Conditional Cash Transfer program.

10. Strengthen implementation of Reproductive Health (RH) Law.

These are good programs, especially since they cover economic liberalization policies and rule of law. Welfarism policies complete the picture although President Duterte was not known for promising welfarist policies during the campaign period, he focused on fighting criminality and corruption.

So, can we expect a “change for the better” or “change for the worse?” Economically, it appears to be the former. Respecting human rights is a different matter though and we hope it will not be a change for the worse because some worrying indicators are showing, more dead bodies of “suspected drug pushers/drug lords/thieves” are piling faster as June 30 is approaching.

Bienvenido S. Oplas, Jr. is the head of Minimal Government Thinkers, a SEANET Fellow and member of Economic Freedom Network (EFN) Asia.

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