Economic analysis by the Makati Business Club

According to its ostentatiously unrevealing Web site, the Makati Business Club was founded by the late Don Enrique Zobel in 1981 as a “forum for constructive ideas”. Today it boasts the membership of hundreds of “captains of Philippine business”, who intersperse their professional networking and social schmoozing with periodic manifestos on the state of the country and—from time to time—the occasional foray into political destabilization and lese majeste.

The club and/or its principals have to date figured prominently in two successful Presidential deposals—of Ferdinand Marcos and Joseph Estrada—and a long-running guerrilla campaign against a third one, Gloria Arroyo. They have gone about this business with the nonchalance of people who assume that their positions and privilege automatically entitle them to push the Constitutional envelope, overturn electoral mandates, and pursue protracted political vendettas with impunity.

This unchallenged meddlesomeness occasionally goes to their heads. I remember watching a TV talk show a while back, when the proceedings somehow called into question the credentials of whoever was then the club’s executive director. The club’s chairman, Ramon del Rosario Jr, a former finance secretary under Aquino I, was so indignant that he practically pounced on the offending panelist until an apology was extracted. The very idea that such aspersions could even be raised against his colleague was clearly a capital offense to him.

Among the club’s latest statements have been its opposition to the burial of the late President Marcos in the Libingan ng mga Bayani and its endorsement of the impeachment of former Ombudsman Gutierrez. These statements went unchallenged, despite the fact that—on one hand—Marcos undeniably satisfies the handful of criteria for burial as set forth by the AFP, which alone has the right to make this decision, while—on the other—the ouster of Gutierrez was nothing but a shameful lynching, made possible only by a texted bribe-cum-threat to Congress by the Palace that converted a reluctant minority on the eve of her impeachment into a majority bought and paid for with pork barrel.

Aquino II has yet to deliver his second Sona as I write this piece, but it’s reasonable to expect that he will rely heavily for the economics portion of his address on a one year assessment of his administration by the club—obviously a favorable one—that was quoted in toto in a newspaper column of Mr. del Rosario’s the other Saturday.

Unfortunately, that assessment is not only ideological, it’s also dead wrong in too many places. It doesn’t speak well of the club whenever what should be its strong suit—economic analysis—still falls flat on its face for tripping over its patent biases. If we can’t even trust these business leaders with what they ought to know, why should we listen to them on matters outside their brief–like presuming to instruct the rest of us on civics, governance, and political morality?

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Let’s take a look at just some of the club’s assessments of Aquino’s performance:

MBC: Year One was appropriately a year for laying the foundations for good governance and setting our fiscal house in order to ensure that future gains would be sustainable and on solid footing.

• Our fiscal house was actually set in order years ago by the package of fiscal reforms implemented under Mrs. Arroyo in 2005, led by the increase in EVAT. The country’s total indebtedness was wrestled down from the equivalent of over a year’s GDP in 2001, to about half of GDP by 2010. These reforms built up fiscal and international reserves and helped to sustain unbroken economic growth even through the worst postwar global recession. This is a legacy that Aquino’s own six-year development plan is gracious enough to acknowledge. His ideologues in Makati did not.

• By comparison, Aquino’s idea of deficit management is simply to delay government spending, which shrank by 14 percent the first quarter of this year, year-on-year. Doing nothing has suddenly become a virtue under this administration.

• To my mind, the starting point for good governance is impartial and equal treatment under the law. Aquino set his distinctive tone on this issue very early in his term in the aftermath of the Luneta hostage crisis, when he disregarded his own justice secretary, absolved every single official in the chain of command from any blame, and chose instead to take the word of the mass murderer and blame an official of the Ombudsman. If you’re looking for the roots of “KKK” governance, look no farther.

• The other essential element of good governance is preservation of the institutions fundamental to national life. In Aquino’s first year, virtually none of these institutions have gone unthreatened by him: not the Supreme Court (even before he took office), nor the Armed Forces of the Philippines (pilloried for ancient corruption charges predating the Feliciano Commission’s reforms of 2006), nor the Church (hung out to dry over the reproductive health bill as well as false charges about Pajeros by the “devout Catholic” who now heads the Philippine Charity Sweepstakes Office), nor the media (recently accused of taking kickbacks), nor even the electoral process itself (canceled in the Autonomous Region in Muslim Mindanao because Aquino can’t trust our Muslim brothers to properly elect their own leaders).

MBC: Still in the area of governance, the Aquino government must also be lauded for the signing of the GOCC Governance Act of 2011 (RA 10149… We also welcome the decision to review contracts for infrastructure projects inherited from the Arroyo administration that have been found to be overpriced or deficient.

• The new GOCC law has already been challenged by House Minority Leader Edcel Lagman for being unconstitutional, on two grounds: (i) Violation of the Constitutional edict that civil servants can be removed only for cause and with due process; and (ii) Creation of a super-body that can abolish even corporations created by law, thereby delegating a power of legislative repeal that is reserved only to Congress.

• Those contract delays or cancelations have already led to suits being filed—or threatened to be filed—against us abroad by foreign investors (over the Laguna de Bay dredging project, NAIA 3, and Ro-Ro contracts). Foreign investment inflows are already down 15 percent the first four months of this year, year-on-year. Having cost us so much in terms of foreign investment momentum and credibility, what can the administration show for all these contract reviews?

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MBC: On the economic side, we note the giant strides made by our economic managers in improving our fiscal situation. The government posted a fiscal surplus of P61 million in the first four months of 2011, a stark improvement from the P131.8 billion deficit in the same period in 2010.

• This claim is disingenuous at best, an outright lie at worst. The deficit incurred in 1Q 2010 was the cost we had to pay in order to pump-prime the economy through increased government spending. This is nothing but mainstream economic policy thinking. If our growth had not been maintained through the global recession, the surplus Aquino boasts about for this year would have been smaller, maybe even non-existent.

MBC: Other macroeconomic indicators are also encouraging. Gross international reserves rose to $68.8 billion (equivalent to 10.6 months’ worth of imports) as of end-May, from $48.7 billion (8.4 months of imports) in end-June 2010. The country’s balance of payments surplus expanded 174% to $3.5 billion in the first quarter of 2011 from $1.3 billion in the first quarter of 2010.

• More disingenuousness or outright lies from the club. Those improvements in the country’s external position were actually the result of: (a) the momentum of economic growth that Mrs. Arroyo maintained throughout the global recession until the beginning of global recovery last year; and (b) the inelasticity of remittances from overseas Filipino workers, which remained surprisingly strong despite a stronger peso and unsettled labor markets in Japan and the Middle East, among others.

MBC: Approved investments rose 76 percent to P162 billion in the first quarter of 2011 from P92 billion a year ago, and what is even more striking is that P140 billion of that amount was accounted for by Filipino investors, rising 211 percent from P45 billion in the first quarter of 2010. The improvement in net foreign portfolio investments was just as remarkable, climbing 208 percent to $2.2 billion in January to the first two weeks of June from just $699 million a year ago.

• When MBC talks about growing confidence among Filipino investors, that’s merely a heroic spin on the earlier-noted decline in foreign direct investments, caused by heightened fears abroad over contract stability (recall those cases being filed?), the unclear and untested nature of the administration’s promises about PPP (no projects bid out to date, not even publication of the implementing regulations), and peace & order issues (read any of Manong Ernie Maceda’s columns for the lurid details), among other concerns.

• As for foreign portfolio investments, MBC has unfortunately succumbed to the temptation to grab credit even for upticks in such “hot money”—something I never did when I was still speaking for Mrs. Arroyo. These inflows are simply automatic responses to cross-border differentials in yield and currency prospects. They do not constitute permanent commitments to our economy, are by nature extremely volatile, and can vanish literally overnight.

MBC: The agriculture sector reported a strong 4.2 percent growth performance in the first quarter of 2011, bouncing back from a 1.8% slump in the first quarter of 2010. The average unemployment rate dropped to 7.3% in the first two quarters of 2011 from 7.6 percent in the same period in 2010, although we note that the average underemployment rate increased to 19.4 percent from 18.6 percent.

• The administration did not have to deal with the super-typhoons in late 2009 that affected agricultural performance in early 2010 and compelled the huge rice imports later attacked with such gusto by Aquino’s minions. Likewise, its employment numbers this year did not have to contend with the global recession in 2008-2009 that affected our unemployment rate in early 2010. This repeated ahistoricity of MBC is distressing.

MBC: We see that the Aquino administration’s fiscal reforms and implementation of policies that promote macroeconomic stability have inspired the confidence of the international investment community. The highly successful issuances of long-term peso-denominated global bonds and the bond swap whereby nearly P200 billion of the country’s old debts were exchanged for new 10- and 25-year bonds were unprecedented and indicative of foreign investors’ optimism in the country’s long-term economic prospects.

• Of course it’s now easier to issue peso-dominated long-term bonds, now that the local currency appears to have achieved a permanently higher level of strength as a result of the years of progress posted by Mrs Arroyo in terms of: (a) permanently improving the country’s fiscal position through EVAT and other reforms, and (b) permanently improving demand for the peso through the phenomenal growth in our OFW communities abroad (facilitated by her administration’s comprehensive training, marketing, and support services) and the creation of a brand-new BPO sector (from only a few thousand employed in 2001 to over half a million by 2010).

• Bond swaps are nothing new and are a standard tool of debt management. In fact, it was under Mrs Arroyo’s former finance secretary Lito Camacho that the country’s debt maturity profile was first significantly lengthened, thereby creating more space for expansive fiscal and monetary policies in support of sustained growth.

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Having reviewed this ideological piece by the Makati Business Club that tries to pass itself off as economic analysis, what ought to be our take-away, bottom-line? I suggest something as simple as this: Let’s leave business to the businessmen, it’s what they’re supposed to be good at.

But when it comes to civics or governance or political morality, let’s look instead for guidance to the schools, or the Church, or the drafters and executors and interpreters of our laws—institutions that we can rely upon, at least for so long as Aquino leaves them standing.–Gary Olivar, Manila Standard Today

(E-mail gary.olivar@censeisolutions.com)