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3.3% GDP growth no cause for celebration

Government economic policy-makers gushed last week about the 3.3% growth in gross domestic product (GDP) registered during the election-frenzied second quarter. But looking at the big economic picture, one gets the feeling that the country’s officials are just clutching at straws or, worse, being deceitful. They were simply not telling the whole truth.

By SANDRA NICOLAS
Bulatlat.com

Some years back, in the cartoon strip Wizard of Id, a prisoner long languishing in the King’s dungeons remarked, “No matter how bad you have it, there’s always someone worse off.” A jailer walking in the corridor outside, whip in hand, stopped and commended the prisoner for his philosophical attitude to his plight. But then the prisoner continued, “… At least as long as I’m around.”

When the country’s 3.3% second quarter gross domestic product (GDP) growth rate came in, Trade and Industry Secretary Manuel Roxas III was almost gloating that the country fared better than Hong Kong (1.5%), Thailand (1.0%), Malaysia (0.5%), Singapore (-0.9%) and Taiwan (-2.4%).

The Philippines, unfortunately, is in pretty much the same dire situation that The Spook, as the prisoner was called, is in. Being locked up and in chains in the dungeon is so bad that, as long as he remains that way, no “improvement” will be good enough to really mean anything.

Which is exactly where the country is today. Any seeming improvements are most meaningfully gauged in terms of the bleak situation we’re really in and what, in truth, has been achieved. By this measure, the 3.3% GDP growth and 3.5% gross national product (GNP) growth don’t really mean anything.

Jobless growth

The government capitalizes on how good it sounds to declare that the economy has grown. But what has the growth actually wrought? Certainly not employment.

First semester GDP growth in 2001 was 3.25%. Compared to the 3.80% registered during the same period last year, this actually means a decline. Still, unemployment in April 2001 was at 13.3% which meant 4.5 million jobless Filipinos – an 864,000 increase from January and, even adjusting for seasonality, 83,000 more than in the same period last year.

Recall too how despite 4% GDP growth in 2000, unemployment was at an 18-year high of 11.25%. The number of poor Filipinos also increased to 40%, or 31.2 million Filipinos, from 36.8% in 1997. (It’s always worth repeating how absurdly low the official poverty threshold is – P 13,916 per person per year in 2000.)

These figures occur amidst increasing pessimism about whether to look for jobs at all. The labor force participation rate is falling with, for instance, only 152,000 new entrants to the labor force in 2000 compared to the 750,000 to 850,000 of previous years. This pessimism also explains why underemployment – a condition where those employed are looking for an additional job to augment their earnings – fell to 17.5% in April 2001 from 24.7% a year ago.

So it’s been a ruthless kind of growth of the sort that the millions of jobless and under-earning Filipinos will, unlike government officials, not likely be gushing about.

The government should also be careful to not gloat about our neighbors’ performance. The Philippines’ 9.6% average unemployment rate over 1990-2000 was far worse than Indonesia’s 4.1%, Malaysia’s 3.0% and Thailand’s 3.0%.

Election spending for growth

It’s also revealing to look at what the sources of growth have been. In particular, whether or not the growth has been of the sort that indicates a resilient domestic economy. The numbers indicate that second quarter growth was primarily driven by government-spending following the enactment of the 2001 budget in March and the release of funds just in time for the election frenzy.

Only the industry sector registered faster 2001 second quarter growth, albeit only marginally so. It increased ever so slightly to 3.6% from 3.5% last year. However, agriculture slowed to 2.5% from 4.5% and services to 3.4% from 4.9%.

And then industry growth was driven mainly by public spending. Second quarter investment in public construction increased by 15.1% from -4.6% in the first quarter and -18.7% in the same period last year. This resulted in the 6.6% growth in the construction sub-sector, some 17% of total industry, reversing five consecutive quarters of negative growth.

At the same time, the national government deficit increased 38.4% to P 82.6 billion (US$1.62 billion) in the first semester of 2001 from P59.7 billion ($1.17 billion) last year. Small comfort that the government says this is within target as domestic borrowing increased sevenfold to P84.3 billion ($1.65 billion) in January to July 2001 from just P 10.6 billion ($0.21 billion) last year.

Yet all-important manufacturing which constitutes some 70% of total industry continued its decline. Growth continues to slow with the second quarter rate of 2.6% in 2001 below the 5.2% average growth of the preceding five quarters and far below the 6.2% registered in the same period last year.

Likewise with utilities where growth slowed to 3.5% from the average 4.1% in the previous five quarters. There was 13.2% growth in mining and quarrying but this is negligible inasmuch as the sub-sector is only some 2% of total industry.

All this happens while the number of establishments resorting to closures or retrenchments due to economic reasons remains high at over 2,000 a year, triple the pre-1998 figures. There were already 1,333 in the first half of this year, up 6.5% from the first half of 2000.

Where to?

The problem, really, is that the Philippines lacks the fundamentals for sound and self-sustaining growth. Its industry and agriculture are extremely backward and, in many respects, extremely import-dependent. The service sector is a vast low-paying catchment area producing little economic surplus rather than a complement to solid domestic industry and agriculture.

Government economic policy-making has to be geared towards achieving genuine agrarian reform and national industrialization. Until then, all the government will be able to do is hope that its mendicant dependence on foreign capital pays off and that its occasional tweaking of the economy diffuses the ever-festering social and political unrest.

Following the favorable second quarter results, government officials have expressed optimism that the adjusted target 3.3-3.8% full year GDP growth rate will be met. Implicitly, of course, they’re also saying that the people will not be so bad off. With domestic consumer and producer confidence falling and the global economy tipping into recession, The Spook would marvel at their optimism. Bulatlat.com

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