Crossroads (Toward Philippine economic and social progress)
Philippine Star, 21 January 2015

 

The homilies that Pope Francis delivered for his Filipino flock on spiritual matters concerned faith, the family, the poor, and in particular, poor children, the weak and disadvantaged.

When he pointed out the phrase “the poor and corruption” as a conjunction, he was making an ethical reminder that corruption not only hurts a nation, but also increases the number of the poor.

Poverty alleviation and growth are matters of the temporal affairs of man. Let me make an interim assessment of the government’s efforts to improve the economic conditions affecting the poor.

Corruption is a practice that results from messed up development efforts. For the moment, I will focus on the poverty reduction program.

Is the government doing well in poverty reduction? Long run impact is measured over decades and generations, across leadership changes within the nation. Our republic has not done very well in the long term.

We faltered along the way. We lagged behind some countries in the region. Though we were in a more enviable and relatively better initial position, in the course of time, their growth per capita surged ahead of ours, and we fell behind them.

Perhaps we should focus the discussion on the intermediate run: the period we can associate with President Benigno S. Aquino III. He assumed the presidency in 2010 and we can lay accountability more directly in his direction.

This period is longer than the “short run” which we can associate with events that happen within the year, a fraction of time of a full presidency. We can call it the intermediate run period.

In statistical nutshell, this Aquino presidency has done well in the effort to improve the nation’s economic conditions.

The growth of output (GDP) has been around six percent per year. Adjusting for population growth of two percent per year, the country’s per capita real output has been rising by four percent. More bold economic measures could produce even bigger growth rates.

This is not as high as those of China’s, South Korea, Taiwan, or Thailand during their recent decades of magical growth, but this is a respectable record, if sustained.

Reaping favorable economic headwinds. In the context of the intermediate period underlying the Aquino presidency’s position , the country has done relatively well. From an international viewpoint, these are not the best of times.

Yet, the Philippine government’s economic performance has been helped along by favorable economic headwinds that are uniquely working to prop up Philippine economic performance.

These developments include the following: the continuing OFW remittances to the country and the growth of the country’s BPO export services industry, both of which have strengthened the balance of payments; global and regional structural economic changes that are helping redirect foreign direct investments toward our shores, and (more recently), the continuing drop in world oil prices.

One could argue that if such favorable headwinds had been squandered, then they would not produce the rewards that the country is reaping at the present time: a return toward respectable international attention for its improved economic conditions – an “investment grade rating.”

President Aquino’s term appears almost outstanding as it moves toward the finish line. At other junctions of time and international conditions, the situation could be very different.

Given the magnitude of the problems of poverty alleviation that we face and the institutions and policies that we continue to pursue, there are many areas for improvement in which a forceful and more imaginative presidency could have done more exceptional work.

Specific reforms. The recessionary conditions in the world economy during this period decimated the performance of other countries. Good management of the macroeconomic fundamentals took advantage of developments that favored the country.

The government undertook the reform of excise taxes (on tobacco and alcohol) and made these contribute toward raising the tax effort. This measure increased the revenues from these taxes and aligned them to international norms.

More important for the long term, the government threw its weight behind the legislative coalition that made possible the Reproductive Health (RH) Law. This law settled the principle that the government could help those families  planning their family. (I might add that the Catholic hierarchy opposed the enactment of this important measure.)

In addition, the adoption of a far-seeing educational reform which adds another year of schooling at the elementary grades, though it raises the cost of schooling, is important in the preparation and retention of the youth in school one year longer.

To improve the relative income position of the very poor, the government devised a program of conditional cash transfers (CCT) designed to raise the welfare of very poor families. The program involves income transfer to poor families to ensure that children of school age continue their schooling.

As an income transfer to those who are very poor, it is a budgetary subsidy that could become a permanent fiscal burden. Only if the government’s overall economic program is able to bring about a high rate of employment creation will this become an insignificant burden.

Together with the lengthening of elementary schooling, these programs involve a substantial reallocation of funds to the operational budgets of the Health and the Education departments.

The subsidy components toward supporting families could only be seen as a temporary, not permanent, phenomenon. The provision of employment is the mechanism by which poverty can only be truly eradicated. The active encouragement of jobs can result from an economy that grows in real terms in a healthy direction.

It is in this context that aggressive efforts to expand opportunities for employment through high levels of spending for infrastructure investments, the encouragement of private investments in all sectors, can help accelerate employment generation – the creation of highly productive jobs that takes the place of subsidies for income support to the poor.

Measures to raise more investments in the country depends on an understanding and rapid adoption of reforms that makes it possible for domestic and foreign investors to play a significant role in employing the country’s large supply of labor.