Reducing absolute poverty: Starting 2011 right

(First of Two Parts)

MANILA, Philippines – If the majority of Filipinos are hopeful for a better 2011, it is also clear they want out of the “kulelat” (tailender) position to which the Philippines had been relegated during the Arroyo years. In its 2009 Human Development Index, the UN ranked the Philippines 105 out of 185 countries rated (58 percentile).

In the interest of our national pride and better performance, therefore, we owe it to ourselves, our children, and successor generations to support the Aquino III administration with any helpful contribution – whether a little bit or substantial – we can muster towards steady, upward nation-building.

Because of their special relevance to the improvement of our competitiveness standing in 2011, allow me to reiterate the messages conveyed in my essay, “Philippine Outlook Under the Aquino III Administration,” Philippine Business Review www.philippinesforum.com (December 2010), and my Manila Bulletin Sunday columns of 26 September 2010 and 03 October 2010.

The World Bank terms Philippine corruption the worst in East Asia. P.Noy’s predecessor administration admitted its inability to attain the 2010 benchmarks of three Millenium Development Goals of the UN — of halving poverty, reducing maternal mortality, and providing quality basic education for all.

Even more painful, hunger has risen in our archipelago which our people have regarded as unfailingly bountiful. And, the income gap is becoming so pronounced that the rich and the poor appear divided into two separate national societies.

With few jobs available at home, a foreign debt of P4.5 trillion and population growing at East Asia’s highest rate, more than 10 million Filipinos have disperesed throughout the globe as migrants, contract workers, or even illegal entrants. It is the money they remit home that keeps our economy afloat at an estimated 12-15% of GDP – feeding consumer demand, providing education opportunities for younger ones, and damping down social interest.

Essential performance targets

The IMF’s “Regional Outlook for the Asia-Pacific” (October, 2010) projects a short-term positive outlook with growth expected to settle at more moderate levels than the first half of 2010 due to slowdown in exports.

The main risk, according to the IMF, is the external economic environment in which banking vulnerabilities and joblessness still linger in the advanced economies. To grow our economy steadily, the Philippines needs to raise its investment rate-to GDP ratio. According to the ADB, this was just 14% in April 2010; it should quickly reach more than 20% if the development is to raise poor people’s incomes and create more jobs or livelihood opportunities.

Public finances reflect the weaknesses of the state. Our puny tax effort – the lowest among comparative East Asian economies – constrains government from making essential infrastructure and social investments. Thailand, for instance, spends six times more than we do on every public-school child; Singapore invests 13 times more.

In 2009, government collected barely 12.4% as ratio of GDP, compared to a peak of over 17% achieved in 1997. As a result, state revenues are projected to be short by some P325 billion this year. We badly need to significantly increase tax/customs collections to reduce deficits.

Then, there is the need to properly manage population growth. Government can no longer be wishy-washy on population/reproductive health policy – about which Gloria Macapagal Arroyo was unusually subservient to the Catholic bishops. We Filipinos have more than doubled in number over these last 35 years. Protections indicate our population will reach 100 million by 2015.

The Aquino III government must now forge a national consensus, particularly with Catholic couples (not necessarily with the intrusive bishops), on population/RH policy – given the irreversable intertwining of people, the environment, and sustainable development, as irrefutably proven in the 1994 International Conference on Population Development in Cairo.

Building a stronger, more efficient state

Historically, unbridled competition for political power has led to a culture of self-aggrandizement among many Philippine elites. In the Arroyo era, the bureaucracy had become a “milking cow,” given the multitude of scandalous perks and entitlements in some government agencies that cry out for continuing investigation, punishment, and final closure.

By itself, our aggravated bureaucracy cannot stem corrupt practices. In controlling official malfeasance, the Chief Executive has no effective instrument save his own political will and leadership example. Institutions for detecting corruption must now be developed (such as “Cabinet Officer for Regional Development” – or CORD system over LGUs , and the “National Council on the Administration of Justice” or NCAJ created through a MOA between the Chief Justice and the President during the Ramos period).

To “moderate” the greed of special interests, our democratic institutions – the electoral system, political parties, and the Civil Service – must be strengthened.

At last count, the Comelec had listed 162 separate “parties.” None of these pseudo-parties is large and cohesive enough to govern on its own.

Even electoral term limits the 1987 Charter imposed — supposedly to prevent the rise of “political dynasties” – have had the opposite effect. Oligarchs who “own” personalist factions simply get members of their extended families to “warm” their seats every time they themselves must leave office.

To prevent special interests from dominating democratic politics, we should also consider public financing for mainstream parties, deter promiscuous party-switching, and encourage issued-based political competition.

Opening up the economy

Corrupt and incompetent governance has dimmed the economy’s attraction for direct investment. The World Bank ranks our country much lower than Singapore, Malaysia, Thailand, and Indonesia in the ease of doing business.

Our weak infrastructure connectiveness and the heavy hands of corrupt politicians and influence peddlers have damaged our economy which has fallen way short of its potentials.

We need to learn from the exemplary model of South Korea, a country devastated by war three generations ago that has lifted its battered economy of the mid-1950s to the level of a G20 nation today by dint of people’s self-sacrifice, opening up to industrialization, and a “shame” culture that compels erring officials/CEOs to jump from high buildings/cliffs because of remorse or feelings of guilt.

Through deregulation, liberalization, privatization, and a Freedom of Information law, we can reduce corruption and the high costs of doing business. These measures will also stimulate domestic competition and our global competitiveness. We must also dismantle monopolies/cartels that have sprouted around our public service industries due to the pervasive cronyist culture of the Estrada and Arroyo periods.

To expand tourism — a labor-intensive industry in which our verdant archipelago and friendly people offer comparative advantages — we should take up an “open skies” policy. Regulatory policies that hobble the aviation and maritime industries, for sure, discourage tourism expansion as well as raise operating costs.

Forging our niche

Over the longer term, we must develop integrated agribusiness industries with raw-material bases in our hinterlands for high-value food exports to rich markets emerging in China, Japan, South Korea, and India.

Mindanao’s unique advantage in the growing of cash crops – coconuts, corn, rubber, cacao, bananas, tropical fruits, coffee, etc. — we must nurture to the fullest extent. Not only is Mindanao outside East Asia’s typhoon belt; its extremely fertile central plateau, together with productive areas of the Visayas, can become one of industrializing East Asia’s food baskets.

We must also expand the scope/reach of our service industries. The revolution in ICT has made even services tradable globally. To widen our comparative advantage in services, government should encourage the expansion of high-value industries such as medical and retirement tourism.

Because of our people’s relative proficiency in English and ICT, the Philippines has become a regional center for business processing operations and other back-office services for multinational corporations. (Please revisit our Manila Bulletin column of 03 October 2010).

The income gap

Income inequality among our people is so severe mainly because economic growth is narrowly based. Metro Manila, Central Luzon and Calabarzon alone produce some 65% of domestic output/income.

The economy’s fastest-growing components — overseas contract work and BPO operations — are seen as “temporary opportunities” because they have few organic linkages with the home economy.

To close the income gap, public policy of the recent past has depended on “trickle-down” programs. But, ironically, growth trickles down only where there already is a measure of inclusiveness and self-help — (where, as Nobel Laureate Joseph Stieglitz asserts, “every individual/family, has the basic education and good health enough to take advantage of opportunities”).

The income gap we must narrow thru the “bibingka” ricecake — or simultaneous bottom-up/top-down – approach. Raising the “absolutely poor” from poverty thru basic education and primary healthcare coupled with essential connectiveness serves to incorporate them into the modern economy. (See our Manila Bulletin column of 26 September 2010).

Thru such a “bibingka” process, China, South Korea, and Taiwan have become successful poverty reduction models for their Asia-Pacific neighbors.

Kaya natin ito!!!

Abangan, next Sunday, Part II with more on 2011 tasks.

Please send any comments to fvr@rpdev.org. Copies of articles are available at www.rpdev.org

–FIDEL V. RAMOS, Former Philippine President, Manila Bulletin