Crossroads (Toward Philippine economic and social progress)
Philippine Star, 26 June 2019
Speaking before the Wallace Business Forum recently, BSP Governor Benjamin Diokno said that the Philippine economy is in the Goldilocks phase.
Further clarifying, he said the economy is experiencing the “the right mix of high growth and low inflation,” making growth sustainable without inflationary pressures. In short, this is an economic condition that is favorable and optimistic.
He cautioned, however, that risks to the international economy remain and that the policy-makers are ready to respond with flexible responses to make the economy resilient.
I must add, however, that the risks to the Goldilocks scenario are not trivial in the current world stage. So, they pose real dangers to the country’s forward progress.
The biggest of these at the moment are geopolitical troubles in some parts of the world. The dangers of miscalculations are serious today in the US-Iran-Middle East tensions. These risks are also present in the South China Sea, in the Korean peninsula within our immediate region.
Further, the threats arising from economic tensions in the world economy are real, too. The US-China trade war is posing new problems and opportunities. And so do the rising protectionism that is causing a narrowing of world trade.
Sustainable growth. Sustainable growth or sound macro-fundamentals might be the more neutral description of the current state of developments.
The point, however, is that it is the proper application of policies that puts a nation into the sweet spot of growth. Luck could play a role sometimes. Bad or inconsistent policies create bad outcomes. The President still needs to take a good look at many inconsistent policies that delay our march forward.
In general, however, a country gets to find that sweet spot – the Goldilocks scenario only by making sure that its economic policies are working properly.
In short, the Goldilocks phase of growth does not happen on its own. It is earned by making all aspects of economic policies work well together.
A brief review of recent economic developments in the country tells us that we are essentially the master of our fate. In general, the right things happen because we try hard to make them happen.
First and foremost, President Duterte has supported the efforts of his economic team to push forward his government’s economic program. It is also important to note that he was not afraid to make major decisions and to take them early in his administration.
Not much knowledgeable about economics himself, to his credit, President Duterte put his full trust and confidence in his economic team to perform their task fully. They have coordinated well together.
The main economic team is composed of four agencies working together – finance, NEDA, budget and the Bangko Sentral. The team speaks as one voice and the President listens to it
Together, these agencies provide the means and resources to push the President’s economic development program. The first major test of this support made possible the passage of TRAIN I, of course, with the help of Congress.
This initial tax reform enabled a rise in overall revenues, making it easier to finance the government’s rising investment programs without causing inflation.
If TRAIN I had not been put in place, the infrastructure component of the Build Build Build program would be smaller. Yet, with it, a larger volume of public investments could be supported.
In addition, the government is also able to finance targeted income transfers to help and develop programs in education that help the poor.
The main point to emphasize here is that TRAIN I raised government’s capacity for additional economic development financing. In short, it provided leverage to raise the volume of public investments, hence also sustaining economic growth.
Yet, the tax reform program is only partially complete. It has five components and only one had been passed so far. Still needed is the passage of the corporate tax reform program that also addresses investment incentives. These are important components of the TRAIN program still to be passed by Congress.
Now that the mid-term elections are over, the prospects of their passage into law are stronger. If this happens, then the Goldilocks scenario could extend to more years. Both the House and the Senate – the organs of a bicameral Congress – are stacked with administration legislators so that it is possible for deeper economic reforms to take place.
Another aspect of the anti-inflation program is related to the reform of the policy on rice importation. The NFA (National Food Authority) was revamped and has lost its monopoly power over imports of rice.
Passage of this reform helped to bring down inflation expectations. Timely and sufficient supply of rice through decentralized imports by the private sector assures the availability of rice supply during lean months and throughout the year. A major element in food price inflation has been tamed.
The economic team of President Duterte. We must now acknowledge the successful efforts of the economic team to press for economic progress as the Duterte administration reaches the mid-term of a six-year presidency.
The principal is his secretary of finance, Carlos Dominguez. Next is his NEDA secretary, Ernesto Pernia.
As former budget secretary, Benjamin Diokno was part of this original team. Were it not for the untimely demise of the former BSP governor Nestor Espenilla, Diokno would probably still be in the budget office.
Secretary Dominguez sought to strengthen his office by recruiting a highly qualified deputy in Karl Kendrick Chua, who has helped to steer the components of the tax reform program.
It would now be wise for President Duterte to appoint a successor in budget who could continue to steer the budget as a major development resource to the administration.
