To raise employment, growth and reduce poverty

“Or why some UP people continue to bedevil this country, its economy, and people”

CROSS ROADS (Toward Philippine Economic and Social Progress)

In the previous weekly (Wednesday) articles, I established the main problems of the Philippine economy. Over time, and because of the country’s sustained high rate of population growth, these problems have led to a high unemployment rate. Nearly one fourth of Filipino laborers of working age are either unemployed or underemployed.

The result is that many of our countrymen live in conditions of poverty. Economic growth of the past decades has helped some groups to become prosperous. But the impact on the average Filipino is unimpressive. A worse aspect of this condition is that a large proportion of the young in the labor force and those with little education are trapped in this problem. They find it hard to find work.

The government has the responsibility to provide a window of hope so that each citizen of this country can deserve a chance at prosperity.

Thus the leadership owes the nation a vision of reform that is credible and achievable though challenging politically. In this spirit, the leadership has to lead Congress in enunciating a vision that makes clear what it wants to achieve.

President Aquino needs encouragement so that he can articulate a reform program that makes the country into a self-sustaining economic dynamo in the ASEAN and East Asian region. In my view, he could do this by breaking the legal and psychological barriers that hold back foreign direct investments from coming to our shores.

Given the unique conditions that we face presently, I have suggested a three-pronged strategy to move in the right direction. This paper is entitled below: Spotlighting on High Economic Growth, Employment of the Poor, and Poverty Reduction: A Three_Pronged Strategy.) (See the UP School of Economics website (http:www.econ.upd.ph)

The paper suggests a way to raise the rate of economic growth of the country above the current historic average performance. This would raise the country’s growth rate by at least two percentage points above the historic average. Such a performance could put the Philippines at par with many of the high growth neighboring East Asian and Southeast Asian neighbors during the high growth phases of their economies.

Three major interdependent reforms make it into a whole strategy. The first reform is designed to provide cash transfers to very poor families on condition that they fulfill certain actions pertaining to their family. But these public assistance programs must be used effectively as the carrot (incentive) for getting the other major reforms accepted.

The second reform is to amend the constitutional provisions on economic restrictions so to make them part of ordinary legislation. The proposal will continue to make the economic restrictions remain as policy until amended through normal political discourse.

The third is to introduce a set of special labor employment zones in the manner of the export processing zones. This program is to be set up in very poor regions of the country in which large scale investors – both domestic and foreign – are allowed to set up enterprises. The enterprises located in these zones will be exempted from the requirements of the country’s wage-setting and some of the highly restrictive and inflexible labor laws.

To get the highest impact on the economy, the trio of reforms represents a package. To consider the reforms separable would result in poor or substandard outcomes. The program of public spending involving subsidies for helping the poor is the easiest to do. But the other two require enormous effort and might involve risking the president’s political capital to achieve them:

Conditional cash transfers (CCTs) and the problem of fiscal soundness

The first part of the program – or the subsidies to the poor – known by collective term of conditional cash transfers (CCTs) – is the easiest to do. It involves spending a lot of money and has enormous vote getting potentials in the future. The idea is to use this subsidy as a lever to get the difficult reforms to be accepted more quickly.

The CCT program of expenditure has a light impact on the budget during the early years of implementation. This is because the program is dependent on external money. Funds would likely come from international development institutions like the World Bank, Asian Development Bank and other bilateral donors that would contribute to their support for long-term lending.

The assurance of loan money to support the program means that a large amount of CCTs can be undertaken. The CCTs need to induce greater productivity of the economy. At the project level, this could imply success if the conditional transfers achieve their program objectives. For instance, if the poor families receiving transfers are able to send their children to school who in turn would have been out of school otherwise.

Even so, there is also the danger that the CCTs could simply become a dole-out program. In this case, the program could end up with little productivity gain. This might also mean that in the future, the loans would have to be paid to the lenders. So, in this case, the program might end up as a further cause for worry about the fiscal position of the government.

The subsidy program of CCTS for the poor is the easiest part of the government program in the sense that it spends a lot of money. It might involve a lot of care and effort. In the end, it has enormous vote-getting potential so that it would be highly desired for that purpose.

But if any gains from it for the country’s future economic growth is to be made, such subsidies must be presented for the nation as the price for obtaining major economic reforms that will also benefit the poor and the economy in general. Thus, the subsidies must be seen as the leverage for getting the reforms done. Otherwise, they will simply add to the weakening of the country’s economic coffers.

President Aquino and Congress have already been at work to speed up the CCT program. The main components of CCT spending have already been agreed upon in the budget bill. The express train is therefore on the way!

The problem that I foresee is that up to this point, the government had not yet dealt even with issues pertaining to the two other sets of economic reforms that I foresee are critical for the future. Perhaps, they will be addressed. I hope it is not too late yet.

Visit this site for more information, feedback and commentary: http://econ.upd.edu.ph/faculty/gpsicat/ –Gerardo P. Sicat (The Philippine Star)