Why can’t we grow like China and India?

Unless the economy grows at 7 percent or higher  annually, it will be hard for P-Noy to bring down the country’s poverty rates to a more manageable level of say, less than 20 percent by the time he leaves Malacañang in 2016. It was very high at 33 percent when the country’s poverty incidence was last measured in 2006. Never mind thinking of making the Philippines part of the first world. In her time, former President Arroyo kept telling us that was where the country was heading under her supposed able stewardship of the economy.

To achieve that would require us to attain a minimum per capita GDP of US $12,000. We have only US$2,000 or thereabout at presentl. Even with a sustained growth rate of 7 percent annually, given our 2 percent annual growth rate in population, it will take us from 35 to 40 years to join the first world. Of course, we can dream but our dream will come true only if we finally find ourselves led by people in government and business who, while pursuing their own interests, also allow the rest of society to partake of whatever good things economic growth brings. Without the guarantee that they get a fair share of what the nation produces, many of our poor people cannot be expected to become more industrious and productive. How many of our workers, for example, are just paid the minimum wage even if they are already in the prime of their lives? At work, all that they do is exert just enough effort to produce the minimum required of their defined tasks. They have no motivation to innovate or desire to excel. Every working day, they just let time pass.

Surprisingly, the economy grew by 7.3 percent in the first quarter and by another 7.9 percent in the second. It is surprising because after seeing the GDP grow only by 3.7 percent in 2008 and 1.1 percent in 2009 from a high of 7.1 percent in 2007, the Arroyo government, before it went out, set lower the Philippine growth rate for this year at 2.6 to 3.6 percent. Now the question is whether the economy will remain at higher growth path in the rest of the year.

P-Noy and his economic team is not sure though. They point to the massive increase in government expenditures in preparation for the last election that could no longer be duplicated to boost the economy in the rest of the year. With much of the budget for the year already frontloaded in the first half, very little is left for the government to spend in the second half. In the proposed 2011 national government budget, the team places GDP growth at 5 percent to 6 percent this year. However, it targets a 7 percent to 8 percent GDP growth in 2011. So it is in 2011 when the new administration hopes to have the impact of its presence felt.

It can be seen from the first half economic report that growth was also helped by the increase in private investments. In real terms, it grew by 18.5 percent in the first quarter, although it slowed down to 5.6 percent in the second. It went down by 5.7 in 2009. Exports, which also collapsed last year, expanded in the first half. In real terms, it grew by 17.9 percent in the first quarter and by 27 percent in the second. It the growth trend in investment and export continues or accelerates, the economy may just grow by 7 percent or more in the second half.

We know what caused the government expenditures to expand in the first half – the May local and national elections. As for the increase in investments and exports, it can also be seen as the result of the reported or expected global economic recovery after the last recession. The global economy went down by 0.6 percent last year but every keen observer of the global economy believed it was poised to recover this year. The result was more investments in the country. And this partly explains the expansion of the Philippine economy in the first half. The only question is whether the expected global economic recovery is strong enough and sustainable in order to encourage more investments in the domestic front.

Looking at the latest figures from the IMF World Economic Outlook released this month, we find that it projects the global economy to grow by 4.8 percent this year, lower than the 5.3 percent global economic growth recorded in the pre-crisis year in 2007 but higher than the 3.2 percent average growth recorded from 1992 to 2001. This may be good news to investors here, especially those engged in exports. The only hitch is that the US and Japan, our main trading partners, are in a moribund state. The IMF places GDP growth of the US only at 2.6 percent this year and 2.3 percent next year. In the case of Japan, it is 2.8 percent this year but followed only by 1.5 percent next year.

As a whole the developing Asia, which includes the Philippines, is projected by the IMF to grow by 9.4 percent this year and 8.4 percent next year.

There is a hitch though. Much of the growth in the region comes mainly from China and India. The IMF is projecting that China will grow by 10.5 percent this year, followed by 9.6 percent next year. For India, the projection is 9.7 percent this year and 8.4 percent next year.

So why can’t we do the same? –Fernando Fajardo, Cebu Daily News