Yearender 
The Economy in 2002: From Bad to Worse (Really)

After some two years with an economist-president we face record unemployment and more poor Filipinos than ever before – which pretty much says it all about our president and her economics. But things will probably even get worse.

BY SANDRA NICOLAS
Bulatlat.com

In yet another display of insensitivity, President Gloria Macapagal-Arroyo recently complained that her problem is just of “black propaganda” against her and mere “perception” that she isn’t doing her job. Her whining and proclaiming her good works will not go down well with the record millions of Filipinos having only subsistence fare this Christmas and, moreover, who won’t even be able to console themselves that things will get better in the New Year. 

President Arroyo’s plummeting approval ratings are a sure sign that most Filipinos are intimately aware of their economic difficulties and how little the Arroyo administration is doing about it. At 11.4 percent for the whole year, unemployment in 2002 is far above the Medium-Term Philippine Development Plan’s (MTPDP) target range of 10- to 10.5 percent. It is also the highest recorded since the 1950s and worse than the rates during the severe economic crises in the mid-1970s, mid-1980s and early 1990s. 

The levels in absolute terms are at all-time highs. There were a total 3.9 million jobless Filipinos in 2002 or 220,000 more unemployed from 2001. This is on top of the 5.1 million underemployed who still don’t earn enough from what meager jobs they have for decent living. Indeed, the number of low-earning own-account and unpaid family workers continues to outnumber wage and salary workers and even rose further to 51.3 percent of the labor force from 50.5 percent last year.

Because of these there are undoubtedly more poor and hungry Filipinos than ever before. In 2000 there were already at least 52.6 million Filipinos, or 67 percent of the population, living off just P77 (US$1.74) per day each. Some 16.5 million Filipinos were below the subsistence threshold and going hungry every day. The next poverty survey will be in 2003 but the 342,000 more jobless Filipinos since 2000 and their dependents will unquestionably bloat these already dismal numbers. 

Government’s hype 

But to listen to the administration and its apologists you would think they were talking about another planet. The white propaganda line for press conferences, speeches, talk shows and the like is apparently to highlight high growth and export rates, low inflation rates and a supposedly stabilizing peso – then brag that the Philippines is among the region’s best performers. 

The economy, says the National Economic and Development Authority (NEDA), “sustained its economic progress in the first nine months of 2002.” Gross national product (GNP) grew 4.2 percent and exports by 5.2 percent. The peso in turn is hovering around P53 to the US$1 and the year-to-date average inflation rate of 3.2 percent in November is the lowest since 1987. 

For all the good these have done the people. The economic and export growth have been jobless by virtue of the country’s distorted industrial structure and backward feudal agriculture. Consider the much-hyped electronics and semiconductor industry which accounts for some 70 percent of total exports. It contributes barely 1 percent to total employment, or a measly 307,000 jobs out of more than 30 million employed, and imports around 80- to 90- percent of its inputs. Moreover, its more than 700 companies are predominantly foreign-owned. 

Thus despite the growth in electronics exports, 36,000 jobs were still lost in manufacturing between 2001 and 2002. The manufacturing sector was only able to absorb 9.5 percent of the labor force in 2002 – which is less than the 10 percent in 2001 and far lower than the 12 percent in 1960. 

In fact some 40 percent of the labor force still directly depends on agriculture for their livelihood. Yet the sector’s growth has been slowing since the start of the year and actually contracted in the third quarter, by 0.4 percent, which is the first time in almost four years. While agriculture is certainly subject to the vagaries of the weather, everyone has known that for centuries and agricultural policy is precisely supposed to take that into account. 

While it may be conceded that the peso is “stabilizing,” this is at half its value in 1997. The repercussions are already cascading across the economy especially in those sectors such as water, energy and transport that relied on the artificially cheap foreign credit of the hallucinatory mid-1990s. Yet the economy remains as dependent on foreign borrowing as ever: total foreign debt in June 2002 was US$54.9 billion or US$4 billion more than the year before. Its current level of around 75 percent of gross domestic product (GDP) is fast approaching the 90 percent or so rates during the debt crisis of the early 1980s.

The low inflation rate in turn is itself a symptom of deep social and economic crisis as cash-strapped households are unable to make their consumption needs felt in the marketplace.

The gloating against other Asian countries on the basis of a few quarters of comparative growth rates is a short-sighted half-truth. The Philippines, one of the region’s most eager “globalizers,” has fared poorly overall. Our average annual economic growth rate in the last decade was below that of our most similar regional neighbors Indonesia, Thailand and Malaysia. Over that same period we also had the smallest industrial sector, the slowest manufacturing growth, the lowest savings and investment rates, and the highest ratio of debt to national output. Similarly with important social indicators: we also had the highest unemployment, greatest poverty incidence and worst inequality.

Stubborn globalizer

By now it is clear that all these are due to the long-standing absence of genuine efforts at national industrialization and agrarian reform made worse by runaway trade and investment liberalization, privatization and deregulation since the 1980s. These should certainly be enough to prompt a concerned leadership to overhaul its policies.

But the Arroyo administration is apparently anything but concerned. The overriding economic policy framework remains so-called “globalization” and an obsession with the supposed “free market.” Undercutting any argument that current economic problems are the result of past policies, the administration has picked up where previous ones left off and in doing so is just as liable as them.

The continuity with disastrous “globalization” measures is clear even if, at times, tempered by political expediency. Two decades worth of tariff cuts are not going to be reversed. Possible slowdowns are only to momentarily stem the hemorrhage of government revenues, to appease powerful industry lobby groups such as in cement and petrochemicals, and as a feeble attempt at improving the country’s “negotiating position” in the WTO and elsewhere.

Extraordinary concessions are still being given to foreign investors even if they contribute little to the domestic economy in terms of employment, technology and capital formation. The president announced in September that the Department of Finance’s Board of Investments is drawing up tax breaks and other “tailor-made incentives.” To be sure, the administration is already failing on its own terms: net foreign direct investments (FDI) in the first eight months of 2002 were already 43 percent down from 2001 to just US$828 million.

The administration is also working hard for profitable, though starkly undevelopmental, breakthroughs in financial speculation. The volatility of financial markets and the dangers of relying on them – especially in the third world and in the absence of a stable domestic economic environment – is well-established. Yet the government has latched onto these as yet another opportunity to forego fundamental asset and wealth reforms.

It is busy creating mechanisms for increased speculation. Exploiting a bad situation, new laws on securitization and so-called Special Purpose Asset Vehicles (SPAV) are being pushed to attract “hot money.” Nowhere is sacred, it seems, not even agriculture. The proposals to use farm land as loan collateral and to facilitate securities in the sector – via the Trojan Horse of legislation which junks the Agri-Agra law and its mandating banks to direct 25 percent of its credit to agriculture and agrarian reform – are ominous.

The sell-out of the national patrimony is also unhampered. The government is turning over its already very small 10 percent stake in the Malampaya Natural Gas Project to still undisclosed foreign investors. The project is currently 45 percent owned by Shell, 45 percent by Texaco and 10 percent by the Philippine National Oil Corporation. Officials are increasingly publicly lamenting how the mining industry should be attracting more foreign investments.

Privatization remains in full swing with energy and water firms being guaranteed their profits. The publicity gimmick of President Arroyo “ordering” a reduction in the controversial purchased power adjustment (PPA) concealed how the government, not the independent power producers, still shouldered billions of pesos in liabilities through the Power Sector Assets and Liabilities Management Corporation (PSALM). A 45 percent rate increase was granted to Manila Water effective in January 2003, bringing their total rate increase to over 500 percent since 1997. A similar increase is inevitable whoever takes up Maynilad after the Lopez’s termination of the contract.

Even the burgeoning fiscal deficit breaching target after target and perhaps hitting P230 billion for the whole year is likewise basically due to government’s flawed policy framework. Tariff cuts and fiscal incentives for foreign investors have done more to rapidly undermine government revenues than corruption, which is a long-standing problem anyway. The economic slowdown in large measure the result of frantic “globalization” also explains much of the poor revenue performance.

Arroyonomics

The administration is, stubbornly, still very much about the “globalization” and “free market” which have gone far in hollowing out the economy and degrading domestic agriculture and industry. Things can then only get worse. When seen against the fundamental reforms needed, minor changes such as in the economic team are of little import (political maneuvering and electioneering notwithstanding).

Even the 2003 national government budget reflects well the administration’s distorted priorities: pro-debt, pro-war, anti-social services and anti-people. The budgets for debt servicing and the military are increased even as real spending on education, health and housing fall to levels below in 1997. Agriculture and agrarian reform get less than they did in distant 1987. Yet domestic food production per capita is already the lowest since the end of the 1970s and grave social injustices persist in the countryside.

There is finally a looming attack on even the nominal provisions in the 1987 Constitution pertaining to our national economic sovereignty and patrimony. The nationalist provisions in Articles XII and XVI protecting against foreign control of land, utilities, mass media, natural resources as well as unfair competition and trade practices are being targeted to make the charter more compliant to “globalization.”

Filipinos are then doubly burdened: first, by the absence of real policy reforms that places the interests of the majority at their forefront; and second, by policies that excessively tie the economy to the exactions of the global capitalist system. The recessions in the United States (US), Japan and across Europe weigh heavily on the country, as will the repercussions of the impending US war of aggression against Iraq. 

Revealingly, President Arroyo has been proclaiming her accomplishments in plush hotel ballrooms and before audiences drawn from the big business community. Things certainly can’t be that bad for them if thousand-peso meals and drinks are still forthcoming. But the administration is probably better off testing its spiel before a more representative mass assembly – as a reality check and a lesson in where the true power of the people lies. Bulatlat.com

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