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No Free Lunch

Hanging on ‘Build, build, build’

/ 05:16 AM February 13, 2018

My own outlook on the economy’s growth in the year ahead seems a bit better than the government’s and that of most other analysts, who project it at 6-7 percent (mine is at 6.5-7.5 percent), even as I recognize several downside risks that may temper that. I’ve erred on the side of optimism before, primarily because I ended up having more faith than was warranted in the government’s ability to execute its plans. Is this administration more likely to deliver? Only time will tell, but as I’ve written recently (and as stressed by Socioeconomic Planning Secretary Ernie Pernia), it has managed to do something different so far. That is, it managed to sustain the high rate of growth typical of election years into the immediate postelection year, whereas a dramatic slowdown occurred in the year following the past two presidential-election years 2004 and 2010.

Much has hinged and much will continue to hinge on government spending to propel the economy’s growth. This was very clear in the fourth-quarter data, which saw government consumption spending and public construction spending speeding up to 14.3 and 25.1 percent, respectively, after averaging 5.2 and 8.8 percent, respectively, in the first three quarters. It was this late rally by the government that helped avoid the traditional postelection dip; otherwise, we would have had yet another repeat of that slowdown.

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In the years ahead, the government’s “Build, build, build” program will be the key booster of the economy, for two reasons. First, hiked public construction activity will directly create hundreds of thousands of new jobs in construction and various related industries and services, thereby triggering the textbook multiplier effect across the entire economy. Second, once in place, the new infrastructure will be a magnet for even more investments, hence economic activity, across agriculture, industry and services, further boosting growth prospects in the longer term. Coupled with sustained structural reforms (more on this below), the Philippine economy could ascend to a new plane of even faster growth similar to what our erstwhile more dynamic Asean neighbors maintained for many years in the 1980s and ‘90s.

Complementing “Build, build, build” will be comprehensive tax reform via Packages 1-5 of the Tax Reform for Acceleration and Inclusion or TRAIN, being the source of budgetary resources for the former. Passage of the Bangsamoro Basic Law, to the extent that it brings about a lasting resolution to the decades-old conflict in Muslim Mindanao, would be another game-changer. It would unleash the great productive potential of vast areas and large numbers of people in that region, long eluded by investments even by moneyed residents themselves. Federalism, if established by Charter change, would be a wild card; it is hard to tell if this will drive or drag the economy, as there are equally plausible reasons why it could affect the economy in either direction.

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Meanwhile, the economy appears to have reached a new plane of growth in the 6-7 percent range over the last 7 years, after having averaged 4-5 percent growth over the last 3 decades. The game-changers already mentioned, coupled with similar game-changers that the previous administration put in place—the prominent ones being the Philippine Competition Act and the Customs Modernization and Tariff Act—promise to ramp us up to a new plane of 7-8- or even 8-9-percent growth. Past extensive poverty research by Secretary Pernia and his predecessor Arsenio Balisacan, both recognized experts in the field, showed that sustained high growth is ultimately still the strongest driver of poverty reduction, a result borne out internationally.

So much indeed hangs on “Build, build, build,” and it is absolutely critical that we do it well, and without the undue delays, inefficiencies and even fiascoes that have consistently tarnished the government’s infrastructure track record. This, together with the supporting tax reform package, will be the ultimate test of the Duterte administration’s ability to deliver lasting change on the economic front. Are our infrastructure departments geared for the challenge?

cielito.habito@gmail.com

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