Crossroads (Toward Philippine economic and social progress)
Philippine Star, 4 July 2018

Build Build Build is the “signature” of the economic development face of the Duterte administration.

The nation struggles with the daily reminder of infrastructure deficiency as a major choking point in investment attraction. To relieve that obstacle is, according to one belief, the gateway to a lot of new and good private investments. We all get that message. Infrastructure gridlock is a reality that must be overcome.

There are, of course, many more factors that hinder investments in the country. But to get infrastructure building on a high priority is one of the nation’s main call of the moment.

Strong lever for growth. Government, including traditional opposition to sound economic reform, bought into that belief and passed within a short time the tax reform package (TRAIN phase 1) that justified the need to finance infrastructure construction. This, despite the additional net tax burden that the tax reform had imposed.

In getting the tax reform done, some compromises were brought to the fore: further broadening of social programs that reduced part of the revenue streams from investment spending. Even then, TRAIN-1 has laid the foundation for the infrastructure program to move forward without fear of going flat.

One could say that because of the significant rise of the country’s tax effort. In the five months of the year, based on reports, the tax effort rose to 16.2 percent of GDP compared to the 15.1 percent registered in the same period last year. Together with improved tax administration, TRAIN 1 has caused an increase in revenues that has given sufficient macroeconomic backing.

The tax reform has provided an important lever by which more public spending on public investment and other social programs can be anchored. The fiscal effort is providing solid support for the continuation of the infrastructure and the development programs of the government.

The more that additional revenue is channelled toward investment, the greater the possibility that the growth rate in the next few years would be higher than the country is accustomed to. The chorus of support for these moves could be read from the positive assessments of international institutions that usually monitor economic developments in the country.
The echo of such reforms could also be read from the continued, favorable assessments coming from the investment credit risk agencies (led by Moody’s, S&P, and Fitch).

Risks. These reassuring indications do not erase the usual risks that a nation faces in getting its development program going. Some of these are external. Of the external risks some are of geopolitical nature (the disruption caused by great power politics struggling for domination and influence).

I wish to focus more on domestic political risks that happen as part of the nation’s political dynamics.

Domestic political risk. At home, domestic political groups react to geopolitical pressure points in certain ways, sometimes mainly to make noise so that their views are heard and they maintain their following.

A recent example was the recent spike in international oil prices and the readiness with which people were also asking for the revocation of energy taxes. This would have obliterated the basis for raising revenues to improve public investment, which is critical to the nation’s welfare.

We cannot ignore the domestic political risks that are imbedded in our institutions and the political culture that propels the actions of our leaders. As is often said, elections have their consequences in a democracy. Elections are important in finding the true pulse of the nation.

But do election results mean that the achievements of previous leaders are often discarded or demonized as has happened in the past in the country? In doing so, those actions could bring great discontinuity, including disruptive change in the economic front.

Domestic political risk is probably more important in the control of our future. Elections are short- or medium-term for us, with the President being replaced by another after one term only. Six years was a compromise to the four-year term with one reelection in the past.

Some of the changes brought out by election outcomes have led to great discontinuity in our economic performance. In part, this is due to the hostility of the new incumbent with the previous one, leading to major disruptions in programs and even in the terminations of long term programs.

The disruptive changes that took place during the transition from Ferdinand Marcos to Corazon Aquino in the past have not fully healed yet in the country. We could see traces of such discontinuities in the transitions that followed the succeeding presidencies, such as when Gloria Macapagal gave way to the second Aquino presidency.

The six-year presidency of Benigno Aquino was marked with a risk averse approach to economic projects of long term consequence. By the time his term ended, there was little accomplished in terms of infrastructure projects.

Even while that period put into effect an improving macroeconomic performance, his term was marked by failure to undertake significant infrastructure development projects. The learning process for the presidency, especially from initially less-tested leaders, is much longer than the six-year horizon!

And now comes the bold programs of infrastructure construction that we have under the current government of Rodrigo Duterte.

East Asian political models. Long periods of internal stability that took place under relatively strong national leaderships propelled economic growth among our East Asian neighbors: South Korea (under Park Chung-hee’s dictatorship and a succession of strong leaders), Taiwan (Kuomintang), Singapore (Lee Kuan Yew), Malaysia (Mahathir), Hong Kong (British colonial rule along with free trade before 1997), China (Deng Hsiao-ping along with his communist successor reformers), Thailand (King of Thailand, supported by a strong military), and Indonesia (Suharto).

In turn, in each of these countries, their experience was driven by the unique political circumstances that they faced, both because of their institutional developments and by their historical situations,

Certainly, not all that happened in these countries was a bed of roses for all their citizens who had lived and struggled through challenging and difficult times. But at the end of the process for each of these countries and territories, what was achieved was an impressive jump from the social and economic conditions that they had begun with.

Their road to social and economic progress seems assured.