Dark Legacies: The Economy Under Arroyo

The deterioration of domestic manufacturing and agriculture go far in explaining the weak job creation. This also highlights how the period 2001-2009 has seen the most Filipinos forced abroad to find work in the country’s history. Deployments during the Arroyo administration averaged 1.04 million annually compared to 469,709 (Aquino), 713,505 (Ramos) and 839,324 (Estrada); 1.42 million were deployed last year which was equivalent to almost 3,900 Filipinos leaving every day. The economy’s over-reliance on remittances reached record levels during the Arroyo watch and, in 2005, breached the psychological threshold of being equivalent to 10% of GDP.

The erosion of domestic production is also causing an over-reliance on external sources of growth – especially overseas work but also such as low value-added export manufacturing and business process outsourcing (BPO). These activities are essentially disconnected from the domestic economy though and do not contribute to any broad-based economic dynamism. BPOs for instance have been hyped in growing rapidly from 5,600 employees and US$56 million in revenues in 2001 to 442,164 employees and US$7.2 billion in revenues in 2009. Yet the sector can only ever account for a tiny share of the economy and in 2009 was just 1.3% of total employment and only some 2% of GDP.

Fiscal troubles

It is also clear that nothing has been done to address the root causes of the country’s fiscal troubles. The Arroyo administration is exiting upon the steepest increase in the national government (NG) deficit in the country’s history– a P286 billion or 2,300% increase over just two years from P12.4 billion in 2007 to P298.5 billion in 2009. This is on top of the government having it worst deficits already with a cumulative NG deficit of P1.34 trillion over the period 2001-2009 or more than triple the deficits of the Aquino, Ramos and Estrada administrations combined (P422 billion).

It also passes on a heavy debt burden that already reached P4.36 trillion in February 2010, or more than double the P2.17 trillion debt inherited from the Estrada government. The Arroyo administration has effectively been borrowing an additional P243 billion annually since coming to power. This is even after paying P5.1 trillion in debt service from 2001 to 2009 which is nearly triple the P1.8 billion in debt payments made over 15 years by the Aquino, Ramos and Estrada administrations combined.

The government’s tax effort has barely kept pace with nominal growth in gross national product and only stop-gap measures such as record privatization– including selling off as much in 2007 as had been sold off in the previous 15 years spanning three administrations– made it momentarily appear that fiscal reforms were in place.

The Arroyo administration has made the country’s tax system even more regressive, burdening the poor (such as with RVAT) and unburdening those most able to pay (such as by lowering corporate income taxes). Meanwhile the most important sources of deficit pressures are unaddressed: graft and corruption, trade liberalization, foreign investment incentives, unproductive debt service, and bloated military spending.

Policy errors

Recent years have seen some external global events beyond the administration’s control but the country’s problems were there even earlier– poor job growth, manufacturing decline, low rural incomes, and a bloating informal service economy. These troubles were not primarily due to the consecutive food, fuel and financial crises but to flawed economic policies.

The Arroyo administration pushed an economic strategy built on ‘free market’ policies of globalization– removing trade barriers, taking away investment controls, privatizing public utilities and social services, deregulation, and continued debt payments. These far-reaching measures are the biggest factor behind the country’s severe economic troubles and need to be reversed for there to be any prospects of steering the economy towards real social progress. Even corruption, which has certainly become severe, has not caused as sweeping damage.

Foreign investors were aggressively courted and enticed with generous incentives, as well as the freedom to operate with hardly any obligations to contribute to domestic economic development. Transport, power and water infrastructure were built mainly geared towards serving the needs of big foreign and domestic business interests.

Trade deals such as the Japan-Philippines Economic Partnership Agreement (JPEPA) and with the Association of Southeast Asian Nations (ASEAN), World Trade Organization (WTO) and others were entered into. The government even pushed to seal a free trade deal with the United States (US). All these have made the Philippines more vulnerable and more exposed than ever before to the global economy. They also hamper meaningful progress by preventing nationalist economic policy-making.

Overturning the legacy

The economic legacy of the Arroyo administration will be the biggest obstacle on any effort to improve the welfare of the people. Yet while heavy, these are not unachievable. Charting a path to real, sustainable and durable economic progress for the country begins though with acknowledging those realities and recognizing the basic fragility of the national economy. It also has to be accepted that relying on the market, remittances, private corporations, and foreign investors to spontaneously bring about development has been a huge error.

There needs to be an admission that the economic policies of the past have failed and that a thorough overhaul is needed. There will have to be greater emphasis on building solid domestic economic foundations rather than relying on temporary palliative measures, unsustainable financing or external sources of growth. Meaningful income, asset and wealth distribution are long overdue. Corruption has to be tackled, but so too the globalization policies that have resulted in an ever more undemocratic economy whose resources and benefits are cornered by a few. Much more progressive governance is needed to able to overturn the dark legacies of the outgoing Arroyo administration.

Summary of Arroyo Presidency’s Economic Performance

In Arroyo’s State of the Nation Address in July 23, 2001, one of her targets is to alleviate poverty. But during her administration actual performance in years 2001 to 2009 shows that there are 530,642 increase in the number of poor families between 2000 and 2006 – 4.7 million poor families in 2006. 2.1 million increase in the number of poor Filipinos between 2000 and 2006 – to 27.6 million in 2006. Meanwhile the net income of the Top 1000 corporations in the Philippines rose from P116.4 billion in 2001 to average P416.7 billion annually in the period 2002-2008.

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  1. · Edit

    it still rings in my ears: 'food on the table of every Filipino family'. this is Pres. Arroyo's election slogan…is it 'of every' or 'of a few' Filipino family? take a look at the net worth of only 20 richest Filipino of P801 billion in 2006-which is equivalent to the combined income for the poorest 10.4 million Filipino families. it is so pitiful of these poor families wrestled of their right to earn for a normal living condition.

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