‘Economic future under President Aquino’

In his second year in office, President Noynoy Aquino has to make his economic programs work or his legacy will be in jeopardy. Although the economy moved forward in the first year, public investment – on which the need to raise infrastructure facilities depends – was low and unable to achieve any good stride to raise significantly overall economic capacity.

“Low public infrastructure investments…” The low real achievement during the first year emanated from overzealousness. First, the government got the budget under control so that the level of government spending fell behind what the economy needed. Second, the review of government contracts inherited from the outgoing administration went overboard. A kind of paralysis arising from fear of accountability took hold in the government ministries. The cancellation of high profile investment projects with foreign investment partners from the previous administration has injected extreme caution if not withdrawal of interested foreign investors.

In spite of these, the outcome for the year was seen essentially as a positive development as indicated by the good notices and improved sovereign credit rating that the country received. Moreover, competitiveness ratings also improved in international surveys even though this advanced was modest still. But can this be maintained if the government continues to be indecisive?

“High plan objectives.” The Development Plan is in place with the objective of pursuing “rapid and sustainable economic growth and development….” But to succeed, such growth has to be spurred by the rapid adoption of critical reforms.

I have stressed the fact that three major reform issues that he faces squarely at the present time are (1) the reproductive health bill; (2) the amendment of the restrictive economic provisions on foreign capital in the constitution; and (3) the introduction of greater flexibility of the labor market.

“Passive effort means low expectations.” It seems that the president is aiming low when his government shows disinterest and passiveness in the adoption of the required economic reforms. Could this be true?

The passiveness indicates a lack of interest to be engaged with the most important economic issues of the moment or to define them more fully. The economic plan alludes to them, but the timidity of presidential interest makes the document also timid, more encased in generality, and therefore less specific.

“Slow and prolonged debate characterizes the movement of the reproductive health (RH) bill in Congress.” Prior to the election, the President showed support for the reproductive health bill. It appears that his fear of upsetting the Church hierarchy and its adherents has made him take a passive role in the evolution of the bill during the legislative process. Lack of direct leadership on the issue has prolonged the debate in the two houses of Congress.

When it becomes law provided it is not watered down in its major provisions, it will help to raise the long term health of the mothers and children, and hence of the nation’s population. It will also become a weapon for achieving higher per capita output and for the conquest of poverty.

“Labor market flexibility means higher employment.” Likewise, silence labor market reform issues that are hinted in the five year plan is designed to gain favor with organized labor sector.

Private business has been badly hamstrung by rigid rules and labor standards that make it difficult for labor employment to rise significantly in the economy’s formal sectors. Labor market rules and standards in effect have made the country lose major labor intensive industries. There are ways to recoup these industries if the government undertook a serious look into the possibilities. (One method has been suggested in this column – the labor employment zones in poor regions.)

“Vested interests oppose actions to remove the restrictive economic provisions on foreign capital in the constitution.” The opponents of reform are principally the oligarchic interests that have lorded it over large segments of the country’s economic markets – especially those confined for domestic business – for their own benefit for years. They have controlled the country’s economic policies and markets in the country for a long time now.

All presidents in the country have been propped up by this ruling class in some ways. Therefore the presidents either belong to them or are beholden to them. It is interesting that the major domestic chambers and domestic business groups have not gone behind the move openly to relax these policies. If at all, you get outright opposition.

This is an indication that there are internal dissensions and that, some sectors, realizing that the country needs this move to become better economically, are in favor of the reform. But the crack in the establishment does not show in the open.

Arguments in support of reforms of the constitutional provisions have come from individual businessmen but not from the business groups as organizations. The power behind business groups are still strong and might in fact play a strong role in influencing a very passive presidential stand on this issue.

“The upbeat but naïve view of things.” I think that the President is surrounded by advisers and close supporters who think that all’s well in the economy and that in due time, when the world economy emerges from the crisis that it is in, the Philippine economy’s turn to move forward will happen. Such feeling generates complacency and fails to understand the dynamics of competitive markets.

Of course, the economy has been experiencing good niches of success. The back-to-office outsourcing industry and the continued growth of some manufacturing for exports are indications of rising competitiveness. At best, however, it is naïve to close our eyes to the underperforming nature of the country’s success relative to the progress of our immediate neighbors.

There are many areas of the economy that can be stimulated by greater economic activity that deep economic reforms will make possible. Moreover, the time to undertake reform measures is when times are difficult. When the international economy becomes more conducive to economic expansion, we will have already put in place the proper policies.

“The Enrile-Belmonte initiative should have a President Aquino prefix.” It is however fortunate for the nation that the two major leaders of Congress – Senate President Juan Ponce Enrile and Speaker Feliciano Belmonte – have taken the cudgels to push for the reform of these constitutional economic provisions and new legislative allies are coming out of the shell to support the moves.

In the end, of course, the persuasiveness of these two legislative leaders with their co-legislators might make a big initial push. But they must bring President Aquino more quickly to their side. The president has enormous political capital that can make the difference. The reform of the restrictive economic provisions provides the country with a major opportunity to reposition itself and be at par with our neighbors in the ASEAN and East Asian region. –Gerardo P. Sicat (The Philippine Star)

My email is: gpsicat@gmail.com. Visit this site for more information, feedback and commentary: http://econ.upd.edu.ph/gpsica