Monday, April 16, 2007

President Arroyo may not be serious about her growth target

IS the government really serious about its objective of attaining a higher (read 6-percent to 7-percent) growth rate or not?

In the last several months, no less than the President herself said that her government is gunning for 7 percent to 9 percent in the next three years, encouraged by the statement from the private sector that they are willing to support such an initiative. The only way the government could achieve that fairly quickly is by raising public expenditure on infrastructure.

Several months after, the government still has nothing to show for it. In fact, Monday’s report by this paper’s reporter, Jun Vallecera, showed that even in the first two months this year, a few months prior to the mid-term election, government expenditure on infrastructure development has remained stagnant. What’s happening?

In the last several years, the Philippine economy has shown itself capable of growing more than 5 percent to 6 percent, buoyed largely by high personal consumption expenditure financed largely by OFW remittances and the fast-growing services sector. This growth performance, however decent, couldn’t soak up joblessness owing to two major factors.

First, the activities generated by the services sector are generally urban-based, implying that the rural sector, or even those who are in the urban fringes, are not benefited.

Second, the kinds of jobs generated in the services sector these days are primarily technology-driven, requiring workers who are highly skilled and educated, thus leaving unskilled ones to rot in the slums and the hopelessness of the underground economy.

And third, the government has been remiss in its role in terms of providing adequate infrastructure investments, especially those that provide links between and among the major economic centers, thus restricting the country’s overall growth potentials.

Hence, if the government wants to kick off higher growth, then quick, higher government investments in infrastructure development is the key, assuming it has undergone honest-to-goodness and transparent project planning. Higher infrastructure spending immediately translates to higher purchases of construction materials like cement, steel products, sand and gravel, and wood products. In turn, greater activities in these sectors translate to more jobs and higher purchasing power for food, beverage, and other wage goods.

The multiplier effects of these industries are very high as the private sector—seeing that the government is pouring money into roads, bridges and other vital economic infrastructure—is going to have the confidence to pursue with their own investment plans.

In the last three years, private investments in the country have been lackluster owing to the business managers’ wait-and-see attitude. This is clearly manifested in the low importation of capital equipment, as well as flat growth in the economy’s capital formation.

This means that the private sector is waiting for a signal from the government; a trigger. And what better way for the government to unleash this optimism for job-creating decisions than by opening up the spigots for higher public sector investments on infrastructure?

In the last five years, robust foreign markets, because of the emergence of China and India, and the continuing strength of the American economy, have been underpinning the growth of the Philippine economy. That explains the continuing expansion of the country’s exports of electronics and garments.

But the country’s export sector can’t do it alone for the entire Philippine economy, not only because of the rising peso, but because of poor infrastructure. With poor roads and bridges, as well as an inefficient transport system, exporters are likely to import raw materials rather than buy them from local farmers and rural producers. That’s the reason why we can’t just produce enough economic activities in the countryside. That also means factories are likely to be located close to urban centers and bypass the countryside where labor is supposedly abundant and wages low.

Or they will bypass the entire country in favor of the cheaper location like Vietnam or China. Compared to its Asian neighbors, the Philippines now has among the highest wage rates and that problem is related to the country’s poor infrastructure.

When the cost of producing and transporting food stuff is high, workers are likely to agitate for higher wages to cover for the rising cost of living standards. That is one of the major reasons why despite higher joblessness, wages in this country are rising. So if we want to improve our global competitiveness, we better move faster on infrastructure investments.

Of course, higher investments in infrastructure are crucial in improving the livability of our cities and the quality of our lives. Right now, the country’s urban-driven growth trajectory is accelerating urban primacy and aggravating the polarization between the countryside and the cities. With stagnant productivity in the country, rural-urban migration is accelerating, the main reason why we can’t seem to address the shortages of shelters, traffic congestion, and urban pollution.

The question right now is this: why can’t government move faster on this? Is it plain incompetence? Is it plain inertia after years of spending nothing in pursuit of “fiscal consolidation?” Has the party in power exhausted all its energies?

Or maybe the reason is more basic—that despite all the talk about fiscal consolidation, there is really no money to spend in the first place because it has been earmarked for some election-related purposes. The government had better come up with credible explanations, for what’s at stake is public confidence and the country’s future. And soon!
(Originally prepared as Editorial for BusinessMirror, 17 April 2007)

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