Monday, July 24, 2006

A 5% GDP growth is no promised land!

WILL the government please stop crowing about the country’s 5-5.5 percent GDP growth rate achieved in the last few quarters?

Listening to the official town crier, it’s as if that level of growth we have achieved so far already corresponds to some satisfactory definition of the Promised Land. Well, the most conservative economist in this country, Dr Bernardo Villegas of the University of Asia and the Pacific (UA&P)—and also the most optimistic—said we need to grow 7-9 percent in order to raise the country’s living standards.

Last week, economist Josef T. Yap, president of the Philippine Institute for Development Studies (PIDS), a semigovernment think tank, said the 5- percent growth rate shown by the economy in the last several quarters proves that the Philippine economy is out of crisis. Nevertheless, at that level of growth, the Philippine economy has only been muddling through. The Philippine economy, he said, needs to grow as fast as China or India—7-9 percent in the next 5-10 years—if we are to see any real improvement in the people’s living standards.

In short, the threshold is 7-9 percent GDP growth rate. Less than that level of growth means we are in the same old kangkong economy—no offense meant to the lowly but nutritious leaf!

In the 80s through the 90s, when the Philippine economy could barely muster 3-4 percent, a 5-6 percent growth rate was almost a dream for the country. That was when the toast of the world were the tiger economies of Singapore, Taiwan and South Korea, then growing at 6-7 percent on the back of export-oriented industrialization. During those times, the Philippines was bouncing up and down in a boom-and-bust cycle until the post-Edsa Revolution reforms like deregulation, liberalization, and privatization started to show positive results: i.e., modest gains in telecommunications, transportation, aviation, utilities, finance, agriculture, and to some extent, manufacturing.

In the last 10 quarters, the Philippine economy has shown itself capable of growing at 5 or even 6 percent, owing to the continuing robustness of the dollar remittances from overseas workers, business process outsourcing, agriculture, and the transportation and communication subsectors. This figure, however, came at a time when the rest of the region, particularly China, India and Vietnam, are growing at 7-9 percent because of a surge of foreign direct investments in these countries. Besides, the current growth rates have proved to be unable to soak up joblessness, a major reason why people, including skilled workers from the middle and lower middle classes, are still flocking to foreign embassies to get visas for jobs abroad. Lawyers, cops, soldiers, journalists, accountants, doctors, engineers—practically every body else in the middle class—is taking up nursing so they could escape the seeming hopelessness and negativity in the country.

We are not playing down these seemingly decent growth rates. In fact, we acknowledge that these growth rates were rather fantastic given the extraordinarily difficult circumstances Filipino entrepreneurs and ordinary citizens are in. High power rates, an inept and corrupt bureaucracy, political instability, recurrent coup threats, the killings of political activists—they all continue to cast a shadow on the political landscape and it’s just so difficult to expand business and create anything in such a poisoned atmosphere. Added to this burden is the continuing deterioration of the country’s infrastructure because of the government’s continuing failure to invest in infrastructure development. Government, of course, has the money but it would rather use such resources in silencing or buying off critics, including the bishops, rather than spending them in an honest-to-goodness infrastructure development program.

The point being stressed here is that current growth rates have largely been achieved despite the worst of times. The credit goes to the private sector that has been doggedly doing business despite the odds, entrepreneurs in the outsourcing business who have been persistent despite the difficulty of finding English-speaking staff, the farmers tilling the lands despite the perennial lack of rural infrastructure and support services, and the OFWs who continue to send the money home despite high transactions costs. But their efforts are largely not enough to raise the economy to greater heights. And it would serve no purpose for the government to brag about it because the government does not even have any contribution to such modest improvements in the economy.

For a long time, some people in the private sector, sick and tired of the political deadlock, have been saying that all the country needs to do is stop minding politics and focus its energies on business. To some extent, that is correct. However, the current situation shows that private sector efforts could only do so much. There is a limit to what they could do. The government should take its responsibilities to heart by putting more resources and energy to building up economic infrastructure and competitiveness. Economic infrastructure is necessary to free up more entrepreneurial energies from the private sector. Of course, the government will have to address the sense of drift that is plaguing the country. It has to inject a new vigor, a sense of direction, and dynamism that should inspire investors and entrepreneurs. This should have been done decades ago, but it’s never too late to embark on such a program—and soon!

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