Duterte’s economics

By Gerardo P. Sicat (The Philippine Star), May 3, 2017

Almost two weeks ago, the administration held a public presentation of Dutertenomics at the Conrad Hotel in Manila.

I was invited to be an outside and final speaker to help summarize and comment on the economic policies. Unfortunately an unexpected tragic family event required me to travel across the world.

Still focused on the same task belatedly, I rely on my knowledge of what the government is trying to do concerning economic growth and development policies.

Duterte’s economics. The government’s economic agenda is encompassed by the 10-point program announced by President Duterte shortly after taking office.

A slightly different rendering is the following: Duterte’s economics aim to achieve: (a) a sustained rate of economic growth that is close to seven percent per year; (b) an “inclusive” program that reaches the widest groups of the members of society; (c) a high rate of investment in public infrastructure to unleash a “golden age of investment in infrastructure development”; (d) financing of the government’s hard investments from a variety of means, relying on PPP (public private participation) and on official development assistance complemented by a deep effort to reform the tax system; and (e) fuller implementation of the family planning program that has already been passed into law.

The major programs and policies also cover those efforts to energize the private sector such as promoting enterprise especially among small and medium scale industries, and programs to promote enterprise.

Further, Duterte’s economic program includes the improvement of private investments to cover the lifting of constitutional barriers that limit the participation of foreign direct investments in the economy.

If this is done and corrupt and excessive red-tape in government, local and national are removed or minimized, the country’s “Doing business” performance in relation to many other countries would improve immensely.

So far, the country’s performance along this metric has stalled despite the President’s order to simplify and shorten business procedures.

The government wants to simplify business rules. The bureaucratic culture, local government corruption, and the presence of highly legalistic requirements are factors that prevent the simplification of rules. Somehow, such rules continue to stay because of the unintended consequences of efforts to simplify: legal rules cannot be ignored.

The Philippines is the only major country in the Southeast Asian region where foreign direct investment has played a relatively modest role in its development. It could serve as a major and additional engine of economic growth, but legal and other obstacles prevent it from playing a larger role.

Duterte’s policy initiatives includes amending the provisions of the constitution that would achieve this end. A change in legal status would help to drive FDI participation in the economy if the constitutional barriers, including the 40-60 foreign-domestic equity impediment, are removed.

President Duterte hardly talks about economic policies and programs. He lets his team of economic managers do the talking. The problem sometimes is that his inimitable rhetoric goes out of hand, only to be repaired later.

The ultimate accomplishments of any presidency would depend on the appropriate economic policies being put in place and on specific projects of massive impact being implemented and accomplished in record time.

All these should be accompanied by changes in social policies that should also complement and support the economic policies. Some of the successes could arise out of the “inclusiveness” of the policies that are pursued.

Inclusiveness would be promoted by the attainment of “peace and order,” success in the drug war, and the comprehensive solution to the Bangsa Moro problem.

The golden age of infrastructure investment. An P8.4-trillion massive infrastructure expenditure is promised for the Duterte years.

Thus, the transport and public works speakers keynoted their ambitious programs. The most ambitious of these is the subway project extending from Northern Manila to the south to be financed in part by Japanese ODA.

This compares very differently from the puny and elitist short subway line prioritized by the Aquino administration between Taguig and Makati, passing under the Forbes Park area.

Other major transport projects would help declog Manila’s traffic and provide natural, long term extension of the network of transport projects based on new and expanded roads or railway transport.

Sustainability of the program. Duterte’s economic program should be seen as a whole rather than as pieces of a program. This is where macroeconomic sustainability becomes all important.

For years now, the country has strengthened its earnings of foreign exchange through the exports of the country, the expansion of services from BPO industries and the continuing remittances of OFWs. All these have strengthened the country’s external economic balance.

As to fiscal sustainability, the country’s tax effort has to rise in support of heavier spending on public investments. The government’s tax reform program, which is now in Congress, is crucial to the sustainability of the Duterte economic program. If and when it is passed into law, frugal management of the fiscal resources must continue.

The government’s fiscal spending program is premised on keeping the level of government expenditure so that it could sustain a deficit of three percent of GDP.

Some warning signs concerning subsidies and other government programs for social maintenance need to be monitored.

For one, there is a continuing demand for expenditure for the military and the police to support the war on drugs and the efforts to forge peace and order in the countryside. The peace process with the communists and the solution to the Muslim rebellion could each raise public expenditure programs.

For instance, two major government corporations – the National Irrigation Administration (NIA) and the National Food Authority (NFA) – have accounted for the largest subsidies from the treasury to make up for their financial deficiencies.

The Duterte government decided to give farmers free irrigation water. That will completely bankrupt the already poorly income-performing NIA.

Whereas before, the NIA could at least collect water fees, now it has to depend fully on the government to finance its investment programs and to pay its administration costs. The government decision to make access to irrigation water free is populist folly.

In the case of the NFA, the agency has raised its domestic operations to buy grain output for farmers for later market interventions at retail. From past experience, such practices often lead to a large accumulation of losses in operations by the agency.

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