Analysis
False Dawn: The Economy After the Elections
The posters are coming down and politicians, thankfully, are reducing their attention-getting theatrics. With the dust of the elections settling, the country’s attention is returning to its pressing economic problems. The early signs are not encouraging.
By Sandra
Nicolas
The elections are nearly done. Already, the administration of President Gloria Macapagal-Arroyo talks of “healing” for political stability to lay the ground for economic reforms. It is finalizing a 2001-2004 Medium-Term Philippine Development Plan (MTPDP). Analysts speculate about how Arroyo will muster legislative support for key economic bills considering the still significant opposition presence in Congress.
And with the distraction provided by the elections over, the people too will begin to ask whether their lives will improve with the new administration. Yet as the months-old government gets down to business, the early signs are not encouraging.
There was a dramatic increase in the unemployment rate to 11.4 percent in January 2001 from the 9.5 percent recorded a year ago. There were 698,000 more people without jobs compared to the same period last year, for a total of 3.6 million jobless Filipinos. The agricultural sector alone lost 370,000 jobs.
Making things worse is the inflation rate hitting a 23-month high of 6.7 percent in April 2001. Yet while the economy is suffering from decades of a failed “globalization” policy, there are no new policy initiatives from government.
To hear the administration, economists, analysts and big business speak, the most pressing concerns are the country’s attractiveness to foreign capital and its exports. Such concerns stem from the fact that the Philippines remains dependent on foreign loans and investment. Investments are important to lay the basis for production; steep drops in investment foreshadow drops in economic activity in the months to come.
But according to the Banko Sentral ng Pilipinas (BSP), total approved foreign direct investment (FDI) in 2000 fell 25 percent compared to the year before, from P106.7 billion to P80.4 billion. Bureau of Investments (BOI)-registered FDI in 2000 was at a 12-year low. Indeed, total approved foreign and local investment slumped 27 percent from P283.3 billion to P207.9 billion.
And certainly manufacturing output has been falling since the start of the year, dropping by 1.9 percent in January, 3.7 percent in February, and 2.0 percent in March.
The performance of the stock market and portfolio flows reflects the low level of business confidence.
But the stock market slumped and lost 54 percent of its value in 2000 from the year before. The index, which has been falling from 3,064.7 in 1996, started 2001 at 1,494.6 and averaged just 1,378.8 in April. There was also a net outflow of portfolio investments of US$20.9 million in the first four months of the year.
Exports too are important, amounting to 47 percent of gross domestic product (GDP) in 2000. But the rate of export growth fell to only 8.7 percent last year after eight years of an average growth rate of 18 percent. In the first quarter of 2001, exports actually shrank by 0.5 percent compared to the year before. The major contraction of imports by 7.7 percent in the same period augurs the worst for our grossly import-dependent economy.
Taking off from these dismal figures, the Arroyo administration is taking steps to renew the country’s attractiveness to foreign capital and to jump-start exports.
The MTPDP being finalized, a revised version of the previous administration’s 1999-2004 MTPDP, affirms reliance on markets and promises to enable the poor to partake of the benefits of “globalization.” Insisting on the outward-looking development path is barking up the wrong tree, however.
The Marcos, Aquino, Ramos and Estrada administrations as well as big business have for decades been single-minded in their main economic strategy—attract foreign investment and export at all costs. Hence the policies of “globalization” especially since the 1980s: trade and investment liberalization, privatization and deregulation.
Indeed there was an apparent deluge of foreign investments, direct and speculative, in the early- to mid-1990s. The stock market boomed. Export growth was rapid and accelerating. Flashy office buildings rose, highways and overpasses were built, and the elite voraciously consumed luxury goods. There was great prosperity for a few.
But things changed little for the majority. Unemployment and underemployment remained high and averaged 9.6 percent and 21.6 percent, respectively, since 1990—even during the supposed boom years during the Ramos watch. Landlessness remains a problem with 5.5 percent of landlords owning over 60 percent of agricultural land, and 8.5 million of the total agricultural labor force of 11.5 million not owning any land.
Even by conventional standards there has been little progress. Industry remains extremely dependent on imported inputs and technology. An industrial base whose benefits accrue mainly to the domestic economy has not been built.
This is starkly illustrated by the supposed cutting edge of electronics manufacturing for export. From 85 to 90 percent of its inputs are imported and local value-added is mainly cheap labor for assembly and packaging. And while one would expect domestic industry to generate jobs, the electronics sub-sector only employs around 200,000 people.
Indeed, total manufacturing sector employment even fell to just 10.0 percent of the total labor force in 2000 from 12.1 percent in 1960.
Agriculture likewise remains stunted. While agriculture and related activities take up 75 percent of the economy and 70 percent of Filipinos depend on agriculture for subsistence, production is so backward that the country imports such staples as rice and corn as well as pork and beef.
At the same time, social services like health and education have been emaciated. More and more, they are only available to those who can pay for them. Yet between 70 to 90 percent of Filipinos live on less than P79.50 (or US$1.65) per day.
And the value of the peso is in inexorable decline: its value against the dollar was P24 in 1990, P44 in 2000, and nearly P50 in the first four months of 2001. This is simply because the country needs more dollars for its imports of producer and consumer goods than it earns.
Earnings are low because of low-value added exports from backward industry and agriculture. Foreign loans and investments provide dollars in the short term but mean net payments abroad over the long-run. As a result, the country has had to rely on the US$ 11 billion remitted annually by the labors of overseas Filipinos.
In short, so-called globalization has done little to improve the lot of the majority of Filipinos. Yet the Arroyo administration doesn’t seem to get the point and insists on advocating the same.
The government is overly fixated on foreign capital as the cure for all the economy’s ills. Through sophistry and sleight of hand, what is good for them is declared best for the country.
The Arroyo administration’s policy statements clearly show it is held hostage by this fixation. By all accounts, it considers foreign “investor confidence” as mattering more than the people’s interest. Take the case of two items on the immediate economic agenda: the power reform bill and the budget deficit.
On one side are the usual suspects: the International Monetary Fund (IMF), the World Bank (WB), the Asian Development Bank (ADB), the big transnational corporations (TNCs) and banks (TNBs), and their allies among domestic big business.
All have exerted pressure or otherwise lobbied for the passage of the power bill since 1995. Vocal most recently have been the international credit risk rating agency Moody’s Investor Services and the 1,000-TNC-strong Foreign Chambers of the Philippines. Foreign capital and local business elites are keenly eyeing the profitable opportunities from a more fully privatized power sector.
They have been similarly outspoken about their unease with the massive budget deficit that the government targets at P145 billion this year. Big business frowns upon budget deficits because financing these drives up the cost of doing business. Government borrowing in the money market drives up interest rates, raising taxes cuts into business profits, and printing more money is inflationary.
But on the other side are the people: the millions of workers, peasants, middle class professionals and other working people struggling to make ends meet.
A fully privatized power sector can only mean costlier power rates and, for those who cannot afford them, no power at all. The proposed power bill even means to pass on billions of pesos in debt to the ordinary consumer.
The people will likewise be at the losing end of attempts to immediately lower the budget deficit. Austerity programs have invariably involved some combination of reducing expenditures on health, education, and housing, lay-offs, and higher taxes on the ordinary citizens who are the most powerless to resist taxation.
Yet the administration is eager to deal with these two crucial issues in a way which will send a signal to foreign investors and creditors that it is, indeed, on their side and committed to the “globalization.”
But then little else could be expected from a government whose president and whose key economic managers are steeped in conservative neoliberal economics. Unfortunately the people are faced with a twofold problem.
On one hand, the government will be hard-pressed to meet its growth target that GDP will expand by 3.8 to 4.3 percent in 2001. The United States and Japan, the Philippines’ two biggest foreign investors and export markets, are both teetering on the brink of recession. It will be the first time since 1974 that the world’s two biggest economies, accounting for nearly half of global output, slump at the same time.
The Philippines’ overly outward-looking economic policies make it extremely vulnerable. When growth falls, incomes and employment will fall with it hitting the poor majority of Filipinos hardest.
On the other hand, the sort of foreign investment- and export-led growth so favored by the country’s economic managers does not in any case offer broad-based development for the many. A few enclaves of prosperity may rise but increasing numbers of people are denied a decent life.
It will be argued that the dependence on foreign capital is an unavoidable economic fact. This is untrue. The domestic economy can be viable without being inordinately tied to foreign capital.
Economic policies need to be geared towards the interests of the majority of the Filipino people. They do not need export-oriented industry but national industrialization. Not the dumping of imported agricultural goods and market-oriented pseudo-land reform but genuine agrarian reform. Hospitals and schools should not be sold off and health and education should be provided for the many. There should be affordable water, electricity, housing and telecommunications.
Especially after the Edsa 3 debacle, we can expect the Arroyo administration to be profuse in its declarations of “war against poverty.” We can expect the usual propaganda offensive showcasing dole-outs for the poor and pseudo-development projects.
We can also expect the ideologically indistinguishable administration and opposition parties to be more or less united in pushing the "globalization" agenda, notwithstanding how the opposition may feign belligerency to gain political leverage. But we can expect little in the way of decent living for the majority of Filipinos for so long the government does not truly take the interest of the people to heart. #