Lost momentum

Sayang. Too bad. We’ve come a long way building up the momentum for our economy since the latter part of the Marcos martial law years, when the economy was flattened by political turmoil and capital flight. In the troubled 1980s decade, the Philippines’ annual GDP growth rate averaged a mere 1.8 percent. In the following decade that began with the closing years of the presidency of Cory Aquino, dominated by that of Fidel V. Ramos, and ended under Joseph Estrada, annual GDP growth averaged 2.9 percent. Average GDP growth in the Ramos years was a more impressive 4.4 percent, but was pulled down by the disaster-marked final years of Aquino, and the Asian financial crisis-hit early years of Estrada. The first decade of the new millennium saw a 4.8 percent average annual GDP growth rate, and in this last decade since 2011, we had already been averaging 6.2 percent. For the first time in our modern economic history, we’ve managed to sustain relatively rapid economic growth for that long. And then COVID-19 came.

Our economic managers point out how we got into this crisis from a position of strength, and I need not repeat here the numbers that prove that. Most important is that the government’s financial position is strong in both the fiscal and monetary sense. Recent tax reforms have bolstered government revenues, and skillful debt management by past and current financial managers has brought the country’s debt levels down to historic lows, allowing us to take on much needed debt now. Meanwhile, skillful monetary management is keeping inflation benign, aided by fortuitous developments in the international scene, particularly unusually low oil prices, and a weak dollar that strengthens our peso.

The big disruptions now happening concern the level of economic activity, hence incomes, and tied with it, jobs. What’s disturbing is that even pre-COVID-19, there were already clear signs of a weakening economy, some externally driven, but some internally as well. On the former, the US-China trade war had already been taking a toll on our manufacturing sector, because it had severely disrupted cross-border value chains for manufactured products that the Philippines, like many other small economies, has been actively part of.

We have also been seeing large and accelerating declines in our foreign direct investment (FDI) inflows for three years now, since peaking at $10.3 billion in 2017. That was a year when we outpaced Malaysia and Thailand owing to their political troubles then, but Indonesia had twice, Singapore had 9 times, and Vietnam had $4 billion more than we got. Since then, these comparable neighbors, except for still troubled Thailand, have seen their FDI inflows increase, cashing in on the reported exodus out of China induced by the trade war. But our FDI record shows a disheartening -4.1 percent decline in 2018, a much steeper drop (-23.1 percent) in 2019, and an even steeper drop of -36.2 percent as of first quarter of this year. Meanwhile, Thailand’s FDI jumped more than five-fold in the same quarter. If you’ve seen their promotional video explaining what they’ve done to reopen their economy, you’d understand why. Our FDI slide, then, is clearly an internally inflicted problem, not externally driven.

Our hope in quickly reviving our economy lies in the sectors/industries that account for the most number of jobs and the greatest contribution to our GDP, and in the areas of our country where those jobs and economic activity mostly are. But these sectors/industries (retail trade, manufacturing, transport) and geographical areas (Metro Manila and environs, Cebu and Davao) are also precisely the most difficult to ease up on because those are where distancing is very difficult and COVID-19 incidence has actually been highest.

We may have entered the crisis strong, but if we’re now more badly hit, it was something we and our chosen leaders have brought upon ourselves. For decades, we’ve known what’s wrong in our country and with the people who lead and live in it, and perennially hope for change that must actually start within all of us. We discuss our woes endlessly, but in the end, do nothing to change it.

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