‘Feel-good’ economic outlook: Hurdles are high

By Satur C. Ocampo
At Ground Level | The Philippine Star

A week before Christmas, news reports on the country’s economic prospects — coming from the government, the Bangko Sentral, and two international credit-rating agencies — are uniformly upbeat: the economy will not only stay within growth targets, but the Philippines will “outperform” its Southeast Asian neighbors and remain “one of the world’s fastest growing economies in 2014.”

It looks as though the optimistic forecasts aim to offer the Filipino people a “feel-good” outlook and try to banish from their tortured consciousness the gloomy scenes of typhoon Yolanda’s devastation and the widening web of corruption brought to light by the pork-barrel scam disclosures.

More problematic, the forecasters seem to gloss over the hurdles — which are quite high — to attaining equitable or “inclusive growth.”

NEDA Director-General Arsenio M. Balisacan recently made a rather bold assumption. By spending P130 billion in 2014 to “implement rapidly the recovery and reconstruction” of Yolanda-devastated areas, he told reporters, the “probable slowdown of the economy in the first quarter” may be offset such that in the subsequent quarters “we should be able to regain the momentum.”

Balisacan assured that the 2013 gross domestic product growth would be near 7%, and that in 2014 it would be within the 6.5-7.5% target set in the Philippine Development Plan.

Bangko Sentral Gov. Amando Tetangco Jr. backstopped Balisacan. “Sound economic fundamentals,” he said, are the reasons why the Philippine economy will outperform those of neighboring countries: its current-account surplus (overall foreign transactions) owing to increasing OFW remittances ($18.54 billion in January-October 2013), plus incomes from business process outsourcing and tourism; its growing foreign-exchange reserves ($90 B); and a stable banking system.

Moody’s Analytics, research affiliate of the credit-rating agency Moody’s Investor Service, in turn picked up Tetangco’s claim. The Philippine economy, it said, “will remain one of the world’s fastest-growing economies in 2014,” driven forward by both public and private investments.

Meantime, Fitch Ratings, another “watchdog,” credited the country’s major banks as having “enough buffers to absorb financial shocks” (huge customer deposits, big earnings, and increased capitalization), thus enabling them to continue supporting economic growth. (Bank lending accounts for one-third of the gross domestic product.)

However, Fitch cited two long-standing unfavorable issues: 1) the “high concentration of loans to conglomerates that dominate most major industries in the country” and 2) the “presence of family members as controlling shareholders in banks.” It added that bank loans are expected to continue to be concentrated on the conglomerates as they participate in the P-Noy government’s much-delayed public-private partnership program.

What Fitch failed to point out is that the conglomerates that corner the bank loans are also major, if not the controlling, shareholders of the biggest banks.

Back to the above-7% GDP growth rates in three quarters of 2013: NEDA mainly attributes the growth to higher government spending and sustained consumption spending. But such growth has two negative characteristics: 1) it hasn’t created regular jobs to absorb the rising number of the unemployed; and 2) it has enriched the already rich, further widened the income gap, and failed to reduce poverty.

Poverty incidence, per the National Statistical Coordination Board, moved relatively flat over three survey periods: 21% in 2006; 20.5% in 2009; 19.7% in 2012. Under the United Nations Millennium Development Goals adopted in 1990, the Philippines (and 188 other countries) has committed to reduce the 1991 poverty rate (then 32%) by half in 2015 (to 16%).

The base rate has been reestimated downward to 29.7% and the target rate in 2015, to 14.85%. With the poverty rate at 19.7% in 2012, it is quite certain that the Philippines will not attain the goal in two years.

That the Philippines has miserably lagged behind in poverty alleviation is affirmed by a recently issued US Gallup survey, done in 131 countries in 2006-2012, with at least 2,000 respondents interviewed in each country.

The Philippines placed second to the lowest among the 10 ASEAN member-states in terms of median household and per-capita incomes. The lowest is Cambodia; the highest, Singapore.

The Philippine median household annual income is calculated to be $2,401 (P100,842), and median annual per-capita income, only $451 (P18,942). The figures for Singapore are: $32,360 and $7,345, respectively; and for Cambodia, $2,308 and $452 (almost the same as ours).

Worldwide, the median yearly household income is estimated at $9,733, and the median per-capita income, at $2,920. Thus, our median household income is even less than the global median per-capita income.

The Philippines also scored negatively among the ASEAN member-states as a foreign investment destination. In a survey by the ASEAN Business Council, our country ranked 7th among the 10 member-states, with only 23% of 502 company-respondents saying they intend to invest here in the next three years.

The country scores/rankings are: Singapore (45%), Malaysia (42%), Indonesia and Thailand (both 41%), Myanmar (38%), Vietnam (36%), Laos (24%), Philippines (23%), Cambodia (21%), and Brunei (17%).

The reasons cited for investing were opportunities: to access a new or growing market (79%); to supply main or leading customers (52%); and to access low-cost production facilities (31%).

A lot of catching up is needed if the Philippines wants to outperform its ASEAN neighbors, much more the rest of the world.

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E-mail: satur.ocampo@gmail.com
December 21, 2013

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