A lost decade?

The World Bank mercifully put the economy back into public focus last Monday, with an urgent report that the government needs to seize “a huge window of opportunity” if it is to undertake reforms that would accelerate growth and reduce poverty.

It released its Philippine Quarterly Update that seeks to reorder the priorities of government to matters that are more important to the lives of the people, especially the poor, than being embroiled in the struggle for power of the political elite, in an impeachment trial that has not produced a single particle of economic good.

The World Bank’s report comes as public interest in Chief Justice Renato Corona’s impeachment trial continues to wane after eight weeks, with many people expressing trial fatigue and starting to ask what is the relevance of the trial—which has so exercised the passion of the political class—to the daily lives of common citizens and the poor. From this point of view, the report that reintroduces the economic element in governance has reignited the interest of ordinary citizens in the importance of the economy to their lives.

Truly, the state of the economy and of the poverty of the majority of Filipinos is an issue looming strongly behind the trial, calling attention to the argument that giving priority to the economic condition is as important as punishing crooks of the previous regime and their alleged protectors in the judicial system, as a function and responsibility of governance.

The World Bank reports that the Philippine economy grew slower than expected at 3.7 percent in 2011, a year into the Aquino administration, “held back by weak spending and external spending.” In the fourth quarter (Q4), growth slightly improved at 3.7 percent, 0.1 percent higher than the previous quarter. An improvement in public finances and overall competitiveness, the report says, will allow the economy to achieve “rapid and sustained growth of above 5 percent for a long period of time.”

“This was the level of growth achieved by neighboring countries that led to greater poverty reduction and improvement of the lives of the poor,” it says.

However, the World Bank is keeping its 4.2 percent gross domestic product (GDP) growth forecast for this year, saying that the expansion will likely pick up to 5 percent in 2013.

“Besides having strong macroeconomic fundamentals, the country is benefiting from political stability and a popular government that is seen by many as strongly committed to improving government and reducing poverty,” World Bank Country Director Motoo Konishi said. There is no question as to strong commitment, but there is an issue over whether these commitments are undermined by inadequate government economic and fiscal initiatives to stimulate growth and by the dissipation of government resources and effort in the prosecution of past regime officials in the anticorruption campaign.

Government stimulus efforts were partially successful and contributed 1.3 percentage points to GDP growth in Q4, but these were not enough to push growth up to the targeted level of around 5 percent. “A faster pick-up in spending is expected in 2012 given base effects and continued efforts to accelerate implementation,” the report says.

In order for the country to get closer to its potential, as envisaged in the Philippine Development Plan for 2011-2016, the World Bank report suggests more focus on several key reform areas such as strengthening public financial management, increasing tax revenues and enhancing competitiveness through stronger regulatory capacity, enhancing competition including reducing the cost of business, and addressing infrastructure and service delivery.

These are details in project planning that were sorely neglected in government implementation that suffered from lack of homework. While the government has done a great deal in these policy areas, Konishi said, “putting greater urgency into these efforts … will go a long way in boosting growth that benefits the poor.”

“It’s an opportune time for the country to move up to the next level,” he said.

In 2011, the economy grew by 3.7 percent, owing to lower government spending and weaker demand for the country’s exports by the troubled economies of the rich world, particularly the euro zone countries, Japan, and the United States.  According to World Bank lead economist Rogier J. van den Brink, employment prospects this year will see some improvements given higher public spending and continued growth in some industries.

The World Bank report says that while Philippine growth has been generally higher in the last decade, poverty, inequality, and labor market outcomes have not improved much. It points out that more than a quarter of the population lives below the official poverty threshold and that half the population is vulnerable to poverty.  The middle class remains small at about 15 percent of the population, of which about a third resides or works abroad. Inequality has worsened in the last decade and the quality of employment remains much weaker relative to the country’s potential and when compared to countries with similar development.

“We are assisting the government and other stakeholders to accelerate  growth that creates jobs and improves the lives of all Filipinos,” says the World Bank report. “We have no doubt inclusive growth will enable the country  to join the ranks of developed economies in the next decades.”

Can P-Noy  face up to the task of this “huge window of opportunity?” Or will this decade be a lost decade?