The economy: ‘From regular to zero’?

Last of two parts

“THE revision of growth targets is a possibility,” Economic Planning Secretary Paderanga said after the release of GDP data. “The DBCC will study what we can do in terms of improving government spending and guarding against the global slowdown. We will also take into consideration the upside factors such as the strong performances of agriculture and services. Then we will decide whether to revise.”

International agencies and private institutions routinely project slower expansion than the government’s so-called fighting targets of 7 percent to 8 percent. Consensus forecasts compiled by Bloomberg News and cited by KCIC, the Kuwait state investment company, saw 5-percent GDP growth for 2011 and 5.4 percent in 2012. And that was even before last semester’s slowdown and the midyear worsening of financial troubles in Europe and the US.

Perhaps the first to downgrade its economic projection after the second-quarter slowdown, Zurich-based www.philstar.com/Article. Credit Suisse now forecasts 4.3-percent expansion for 2011, down slightly from 4.6 percent initially. What’s even more worrisome is the global bank’s 4.2-percent revised GDP rate for next year, significantly down from the original 5-percent forecast.

For its part, New York-headquartered think tank Global Source Partners kept its projections of 4.8 percent this year and 5.5 percent next. It argues that the primary cause of the current slowdown, government underspending, can be reversed. But Global Source may still cut its forecasts if the world economy goes sour due to a double-dip recession in the US.

Can the government reverse its underspending and still manage at least 5-percent growth this year? Budget Secretary Abad said in a statement: “We intend to further increase spending not only by accelerating existing projects, but also by spending on additional projects allowed by the available fiscal space brought about by significant savings we have attained.” His expenditure list included hiring more health workers, rural electrification, aquaculture and housing projects, and more roads and bridges.

However, Sec. Abad did not explain exactly what new measures the government will take to accelerate implementation. There may be lessons to learn from the past. In the Arroyo Administration, a top-level public-private committee chaired by the Presidential Management Staff (PMS) monitored and followed up priority infrastructure.

Amid the global recession in 2009, department secretaries were told to obligate their monthly Special Allotment Release Orders or see the SAROs revert back to DBM. And President Arroyo herself met the Cabinet every one to two weeks to check performance. Her constant prodding, along with the PMS and DBM measures, kept government spending on track, helping the economy maintain growth despite the worldwide slump.

More important for investment, jobs, competitiveness and poverty alleviation, massive infrastructure development addressed business concerns over poor facilities, enhanced transport efficiency across the archipelago, and opened up new areas for tourism, agriculture and industry. “Accelerating Infrastructure Development,” Chapter 5 of NEDA’s new Philippine Development Plan 2011-2016, acknowledged the infrastructure gains in the past administration. Among them:

• Nationwide roll-on-roll-off ports and highways network, which slashed transport costs of 37 percent to 43 percent for passengers and 24 percent to 34 percent for cargo

• Five-fold increase in Subic port capacity to the equivalent of 600,000 20-foot containers a year

• Three-quarters or 22,468 km of all national roads paved by December 2009

• 93 percent of all bridges, totaling 314,456 lineal meters, made permanent.

The PDP’s new infrastructure program proposes not just more projects, but also several structural reforms to enhance coordination, funding, transparency, and development impact of construction projects. The reforms include capacity building to upgrade NEDA’s project planning and evaluation expertise, prior approval of public-private proposals before full feasibility study, closer coordination of national and local infrastructure plans, and upgrading of local governments’ public works planning and implementation.

In agencies with regulatory and operational functions in certain facilities like ports and airports, the Plan urges separating these functions. And in infrastructure areas where several agencies exercise control and oversight, the Plan urges “the establishment of an independent body that consolidates all regulatory functions to support infrastructure services in subsectors with multiple regulators.” Furthermore, the PDP wants problematic provisions of the Build-Operate-Transfer Law, the joint-venture guidelines, and the Procurement Reform Act clarified and streamlined.

How fast and fully the government can implement those proposed reforms may offer a good indicator of its drive to accelerate public works. For if the Aquino Administration cannot expedite administrative measures requiring no major funding or logistics, it does not augur well for the actual infrastructure implementation. Nor will such bureaucratic inertia inspire confidence among investors expected to plunk down billions of pesos on public-private projects. Especially on top of the continuing delay in bidding out PPPs.

As for infrastructure implementation itself, decades of governance have shown that presidential attention and imprimatur move the government, nothing less. Hence, President Aquino needs to show that he gives a damn about the economy and the drag that state underspending puts on the wheels of industry. Sadly, in the days after the second quarter slump came to light, his most widely reported and read statement was a quip about comparing his love life to Coca-Cola: “from regular to zero.”

Let’s hope PNoy shows greater concern over the growth slowdown and the public construction slump. Otherwise, that punch line about his romances may yet become a sad but true commentary on the Philippine economy.

The first part was published last Friday. –RICARDO SALUDO, Manila Times

Ricardo Saludo heads the Center for Strategy, Enterprise & Intelligence ( ric.saludo@censeisolutions.com), which publishes The CenSEI Report. For copies of the full study, please email : report@censeisolutions.com” report@censeisolutions.com.