Business World, 3 February 2015


Why does the Philippine government, specifically the Department of Social Welfare and Development, resort to hiding poverty instead of solving it? Why have our ASEAN-5 neighbors reduced poverty by half many years ago while we continue to struggle in doing so?

The number one target of the Millennium Development Goal (MDG) is to halve poverty rate by 2015. Thanks to the progress made in East Asia, particularly China, the world is on track in achieving this goal, according to the United Nations’ latest MDG report.

“In East Asia — the world’s poorest region three decades ago — the poverty rate has fallen from nearly 80% in 1981 to 18% in 2005. In South Asia, it has fallen from 60% to 40% over the same period,” according to Dr. Noeleen Heyzer, a UN under-secretary-general and the executive secretary of the Economic and Social Commission for Asia and the Pacific (ESCAP).

“But the region as a whole still has the highest number of poor people in the world. It is no time to celebrate,” she said.

The Philippines is one on the few countries that will fail to meet the MDG target on poverty reduction. Our ASEAN-6 neighbors — Singapore, Malaysia, Indonesia, Thailand and Vietnam — have halved poverty rate years ago.

Conceding that this MDG goal will be missed, the Aquino III government has reset its poverty target to a range of 20% to 23% by this year, much lower than the 16.6% committed under the MDG.

But even this revised target is optimistic. The proportion of poor people has barely changed from 2006 to 2012. Because of rising population, the number of poor Filipinos has increased rather than decreased.

And given the most recent trajectory of poverty movement (from 2009 to 2012), it is reasonable to assume that the poverty rate would be in the neighborhood of 24.1% rather than 20-23% by this year. If true, then there would be 147,000 more poor people this year than in 2012.

While the poverty rate may have declined slightly, there would be more poor people (defined as living on $1.25 daily or less) this year than in 2012. What happened to the hundreds of billion pesos of cash transfers distributed by the government?

Strong, sustained growth may be a necessary condition to poverty reduction. But it is not a sufficient one. It matters where growth is coming from.

In recent Philippine history, the economy did well during election years — in 2004, 2007, 2010, and 2013. It grew by 7.2% in 2013, which might be the peak economic performance in Mr. Aquino’s six-year watch. Last year, 2014, GDP slowed to 6.1%, a full percentage point lower than in the previous year.

Predictably, the Aquino administration put in a brave face and boasted that the 6.1% growth exceeded market expectation, without mentioning that it fell short of the administration’s original GDP target of 6.5% to 7.5%.

Unmistakably, the administration missed its 2014 GDP goal. It doesn’t matter whether actual performance is higher or lower than market expectation. What matters is whether actual economic performance is equal or higher than the government’s own target.

This analysis is based on the assumption that government planners have better information on the variables that may affect performance: the global and local developments, the resources available, the ability of the administrative machinery to implement programs and activities, and the men who will implement them.

For the next two years, it is reasonable to assume that the economy might grow by 6% to 6.8%, or an average GDP growth (from 2011 to 2016) of 5.9% to 6.1%.

This is not a shabby performance. This is higher than the average GDP growth rate in the previous decade (2001-2010), which was 4.8%. That’s the good news. The bad news is that growth could have been faster had the government been more focused and effective in implementing what has been planned and budgeted.

The government expects the economy to grow by 7% to 8%. This is not likely.

This year and next, the economy will be fraught with headwinds. Geopolitical conflicts endanger a significant segment of our overseas Filipino workers. Unemployment in Europe remains high. This means lower demand for overseas employment.

With elections just around the corner, potential investors might adopt a wait-and-see attitude. New long-term investments may take a pause.

The sharp fall in oil prices is double-edged. On the one hand, it might free up resources for other goods and services. This might then increase consumer spending. On the other hand, it will significantly reduce government resources, which could then limit government spending for public infrastructure. The Bureau of Customs estimate a revenue loss of P40 billion this year.

Here the behavior of fiscal managers would matter. Less damage to economic growth will be done if fiscal managers stick to the expenditure program and embrace higher deficits in the face of dwindling taxes. Greater damage will ensue if fiscal managers further reduce infrastructure spending for fear of falling revenues and rising deficit.

As mentioned earlier, the Aquino III administration is likely to register an average GDP growth rate of 5.9% to 6.1% from 2011 to 2016. Forget about the second half of 2010. How the economy performed in the third and fourth quarter of 2010 had nothing to do with the Aquino administration. Since public policy works with a lag, it would be intellectually dishonest for the Aquino administration to count the second half of 2010 as its achievement.

While growth is slightly higher than the previous decade, it continues to be non-inclusive. The poverty level is basically unchanged. One in four Filipinos is impoverished. More poor people are left behind in the development process.

Sadly, Philippine poverty statistics support the view that recent economic growth has not been inclusive. One reason is that agriculture, where more than half of the population depends for their livelihood and where one-third of the work force are gainfully employed, has grown the least. In 2014, agriculture grew by only 1.9%.

The harsh reality is that the economy has grown despite the government’s lack of focus and its inefficiency and ineffectiveness. The positive implication for policy should not be lost: a more effective government could make growth faster and inclusive.

An effective government should give priority to agriculture. Imagine if the government is more focused on its job and is willing to allocate more resources to the agricultural sector.

An effective government should invest more heavily in public infrastructure, in rebuilding homes, farms and infrastructure damaged by major calamities, and in setting up facilities that will minimize potential damage to victims of natural calamities.

This massive investment would require an enormous amount of money. But this should not be a problem since the cost of borrowing is rock bottom. And think of the enormous benefits of this huge investment: it will create many jobs that will help solve unemployment, ease poverty, and reduce hunger. In the long run, it will also propel the economy on a higher growth orbit.