ECONOMY
2006: The Economics of
Hype
Administration
propaganda one-sidedly presents growth, peso appreciation, lower public
deficits and foreign investments as if these were development ends in
themselves. But the deteriorating social conditions of joblessness, hunger
and poverty are the sharpest rebuttal of any government economic hype.
BY SONNY AFRICA
IBON Foundation
Posted by Bulatlat
The government has
been bombarding the public for months with news of a supposedly
strengthening economy: continued growth, strong peso, low budget deficits,
improving credit ratings and continuing foreign investments. Big business
has dutifully joined the chorus with segments even visibly taking the
political side of the beleaguered Arroyo administration. Yet the reality
of historic joblessness, deepening poverty and hunger of tens of millions
of Filipinos is undeniable.
The seeming
contradiction merely shows different sides of the same coin – a national
economy that, especially under the Arroyo watch, does not serve the needs
of the people. The economic “good news” has been good only for foreign
creditors, investors and the administration which works so hard to deliver
what they want. However even the “good news” as such will likely be
short-lived with the underlying fiscal crunch and continuing borrowing
portending problems in the near future. The domestic economy remains weak
and, moreover, excessively vulnerable to global economic disturbances.
The year just passed
has seen four significant economic trends: 1) the continuing historic jobs
crisis; 2) the implementation of burdensome economic policies to address
the government’s fiscal crisis; 3) the increasing dependence of the
domestic economy on external sourcing of financing, especially overseas
remittances; and 4) continued efforts to open up the economy to foreign
trade and investment. Since all these happen in the context of a backward
and pre-industrial economy, their adverse implications are far-reaching:
the people have suffered in the year gone by, are likely to suffer even
more in the medium-term, and – absent real changes in economic policies –
will continue to suffer even beyond this.
Historic
joblessness
The biggest failure
of the Arroyo regime is the unprecedented lack of jobs where the country
is facing its worst jobs crisis. That this is happening amid continued
economic growth (5.4 percent growth in gross domestic product in the first
three quarters of 2006) and higher net income of corporations (32.5
percent increase in earnings of companies listed in the Philippine Stock
Exchange in the first nine months of 2006) underscores the problem of an
inequitable economy that favors a few while increasingly unable to provide
jobs for millions of Filipinos.
There were 4.0
million unemployed Filipinos and 7.3 million underemployed in 2006 – i.e.
11.3 million Filipinos or nearly a third of the labor force were either
jobless or, even if employed, nonetheless still seeking more work. (This
dismal reality is barely concealed by a convenient change in the
definition of unemployment last April 2005 that reduces the officially
reported rate by around three percent and the number by around 1.5
million.)
The problem is
clearly not just momentary. The average annual unemployment rate of 11.3
percent and underemployment rate of 18.5 percent over the last six years
is the worst six-year period in the country’s history, which indicates a
deep-seated problem. While the unemployment rate has remained stable
around a high 11 percent, the underemployment rate on the other hand has
severely deteriorated and increased by some five percentage points in the
last six years to nearly 22 percent. This draws attention to the worsening
quality of employment and how already having a job is increasingly not
even enough.
A particular
development in 2006 is the sudden drastic drop in the labor force
participation rate (LFPR) which fell from 67.0 percent in 2005 to 65.4
percent in 2006. The LFPR measures how many Filipinos over 15 years old
are looking for work and thus considered part of the labor force. The drop
in the LFPR implies that some 890,000 Filipinos (equivalent to the
difference had the LFPR remained the same since the year before) ceased to
be considered part of the labor force. Considering the previous five years
of record joblessness, it is possible that many or all of these 890,000
Filipinos are discouraged job-seekers. If so, their “departure” from the
labor force has the effect of greatly reducing reported unemployment.
Burdens in the
year gone by
The Arroyo
administration’s major economic effort in 2006 has been to rein in
mounting government fiscal deficits. The national government deficit of
P50.4 billion ($1,024,494,359 at an exchange rate of $1=P49.195) in the
first nine months of 2006 is projected to come to a full-year deficit of
around P100 billion ($2,032,726,903). However the achievements on this
front are less signs of a strengthening economy than indications of how
economic burdens are placed on those already least able to bear them – the
deficit was reduced by charging higher taxes while drastically reducing
critical spending especially on social services.
Conspicuously
implemented amid a climate of harsh political repression were higher taxes
and reduced public spending on education, health, housing and economic
services – bringing to mind images of a strong state forcing unpopular
measures on the people. On one hand, some P278 billion ($5,650,980,790)
are targeted to be raised in 2006 from higher taxes, fees, rates and
charges for public services. The new 12 percent Value-Added Tax (VAT)
since February alone has taken an additional P61.7 billion
($1,254,192,499) from consumers’ pockets in the first ten months of 2006.
On the other hand,
the government opted to cut back further on already emaciated social
service budgets. Real public spending on education continued to fall in
2006. The current P1, 296 ($26.34) per Filipino (in 2001 pesos) spending
for education is 13 percent down from its 2001 level. Health spending has
fallen by an even more drastic 27 percent over the same period amounting
to a meager P120 ($2.43) per Filipino.
These fiscally
repressive measures are aimed at assuring creditors that loans would be
paid and foreign investors that foreign exchange would be available for
their globally-integrated commercial, financial and pseudo-manufacturing
operations. Around P721.7 billion ($14,570,190,059) is programmed to be
repaid to creditors in 2006 which is equivalent to P6, 391 ($129.91) per
Filipino (in 2001 pesos), or nearly five times the combined spending on
education and health. As it is, the government borrowed P592.4 billion
($12,041,874,174) in the first 11 months or slightly less than in the same
period in 2005. Over four-fifths of this borrowing went straight back to
creditors for debt servicing.
The International
Monetary Fund (IMF) and World Bank (WB) have visibly supported the Arroyo
administration’s fiscal squeeze. Aside from the IMF-WB issuing favorable
country assessments of government finances, the WB in December approved
the immediate single tranche disbursement of a US$250 million policy loan
– its first in almost a decade – because the associated fiscal policy
conditionalities were already met.
Erosion of the
domestic economy
Seeming improvements
in various external indicators are also hyped as signs of an improving
economy. The “resurgent” peso which hit a near 6-year high of P49.19 to
the US dollar in late December is particularly hyped as a sign of
strength. Yet, on the contrary, most of the factors underlying the recent
appreciation of the peso in fact highlight the opposite (aside from the
actual weakening of the US dollar because of the U.S.’s internal economic
problems). The peso has not been appreciating because of increasing global
demand for genuinely Philippine-made goods. If it were the case, it would
have been a good thing insofar as that would imply increased domestic
production for the international market. The gains from the increased
production of local firms would supposedly accrue to the domestic economy
and its producers.
However the
appreciation of the peso has instead been driven by factors with little
relationship to building domestic productive capacity. The country’s
biggest source of foreign exchange is remittances from some nine million
overseas Filipino workers (OFWs) driven to seek work abroad. OFWs sent
back US$10.3 billion in the first ten months of 2006, or a 16.6 percent
increase from the same period the year before. OFW remittances benefit the
economy in two ways. The accumulation of foreign exchange brought about
by the remittances eases local demand for dollars causing its value to go
down. Second, it supports the consumption and survival of tens of millions
of OFW family members left behind. But in a deeper economic sense the
cheaply bought labor of OFWs actually contributes more to building the
economies of their host countries than of the Philippines. Moreover, the
increasing deployment of OFWs is actually an indication that the local
economy – eroded by decades of retrogressive “free market” policies – is
bereft of opportunities for productive employment, which is the reason
OFWs went abroad in the first place.
The country’s other
sources of foreign exchange are not only much less but also basically
hollow in their own specific ways. Exports in the first ten months of 2006
grew 16.4 percent from a year ago to US$39.3 billion. But over four-fifths
of these exports are heavily import-intensive electronics (some 75
percent), clothing and a few other manufactures, mainly by foreign TNCs.
Because the country’s export products are heavy on imported components,
not to mention the imported machines and oil needed to produce these, net
foreign exchange earned from exports is much less and even smaller than
that coming from OFW remittances. There were also net portfolio
investments in the first eleven months of the year of US$2.1 billion,
marginally higher than in the same period last year. Portfolio investments
are highly mobile and do not actually contribute to the economy except as
temporary sources of foreign exchange.
Surrendering
economic sovereignty
The country’s
economic problems are essentially the result of decades of anti-people and
elite-oriented economic policies. The so-called neoliberal “globalization”
policies that surrender economies to the profit-oriented dynamic of
foreign monopoly capital and domestic big business are trade and
investment liberalization, privatization and deregulation.
Pres. Gloria
Macapagal-Arroyo has been a dogmatic advocate of “free market” policies
since her technocratic days in the 1980s, her senatorial stint in the
1990s and up to her presidency in the 2000s. In 2006 she took these
policies as far as possible within the current Constitution and, deeming
this the last remaining legal fetter, also pushed to change the charter
itself.
There was the renewed
drive to open up the country’s rich mineral resources to foreign plunder.
Building on various mining-related plans and programs and a favorable
Supreme Court decision in 2004 and 2005, the government held international
mining conferences and went on an international road show in 2006. Within
the Association of Southeast Asian Nations (ASEAN) the Philippines pushed
for so-called “regional integration” – deceitful spin for economic
policies geared at attracting American, European and Japanese investors
away from China and India by offering cheaper labor, greater freedom to
exploit natural resources, lower environmental standards, lower taxes, and
as unrestricted operations as possible.
Especially
significant in 2006 is how the Arroyo administration entered into the
country’s first full-fledged free trade agreement (FTA) with Japan: the
Japan-Philippines Economic Partnership Agreement (JPEPA). The JPEPA is a
patently unequal deal that one-sidedly demands much greater trade and
investment liberalization from the backward pre-industrial Philippines
than advanced capitalist Japan makes. The unprecedented deal also gravely
undermines the country’s negotiating position in all subsequent trade and
investment agreements. The end result of the JPEPA and other such
agreements will be to decisively prevent any real domestic industrial
growth and economic progress.
The closing weeks of
2006 finally also saw the Arroyo administration’s attempts to overhaul the
1987 Constitution including, aside from changes in the political set-up,
removing various economic sovereignty provisions for developing the
domestic economy. Among others these provisions include controls on
foreign equity investments, exploitation of natural resources and land
ownership and provisions promoting Filipino economic activity.
Challenges in 2007
The deteriorating
social conditions of joblessness, hunger and poverty – IBON’s last October
2006 survey had over 70 percent of respondents rating themselves as poor –
are the sharpest rebuttal of any government economic hype. Administration
propaganda one-sidedly presents growth, peso appreciation, lower public
deficits and foreign investments as if these were development ends in
themselves. Similarly, the usual government argument that the fiscal
sacrifices are short-term pain for long-term gain is specious considering
that the fiscal squeeze is precisely aimed at furthering the
administration’s bankrupt neoliberal agenda. As it is, the New Year will
already open with further privatization-driven water and power rate hikes.
In her speech at the
28th Catholic Mass Media Awards (CMMA) ceremonies in November,
Pres. Arroyo dreamily said, “So much is going well in the Philippines… I
hope to leave office in 2010 with the nation well on its way to First
World status.” Yet, clearly, little is going well for the majority of
Filipinos. It is entirely understandable that many will probably think
that the three years until 2010 is too long and, equally understandably,
do their utmost to ensure that she leaves office as early as possible
before then. IBONFoundation/posted by Bulatlat
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