Let’s get moving
The second-quarter GDP growth of 5.9 percent was unexpectedly strong and boded well for the full-year growth outcome. For the first time in many years, what’s happening in the world is of more concern than what is happening in the Philippines. Among the world’s countries, the Philippines now stands out as a stable, growing economy in a sea of doubt for the Western world and turmoil for the Middle East. Plus a China that’s beginning to show cracks.
The growth rate even compares quite well to other Asian countries for the first time in a long while. It is better than Malaysia’s 5.4 percent, Vietnam’s 4.4 percent, Thailand’s 4.2 percent and Singapore’s 2 percent. Only Indonesia (6.4 percent) outpaced the Philippines among comparable economies in Southeast Asia.
It was a bit slower than the 6.3-percent growth in the first quarter, which could indicate a worrying trend. But the average growth of 6.1 percent in the first half of 2012 was still a significant improvement from 4.2 percent in the same period last year. The projected growth of 5-6 percent now seems more certain of attainment. But this means it will decelerate in the second half as the sluggish world economy will have its inevitable impact on exports, and the effect of the low base particularly in infrastructure spending in 2011 will begin to dissipate (the second half of 2011 was stronger than the first half). Something more toward the middle of the range can be expected, with a continuance into 2013 when growth will in part be driven by money finally being spent on public-private partnership projects.
But the government is still not spending anywhere near enough on infrastructure, and this remains not only a drag on the economy but also a severe deterrent to investment. I spent nine hours on the road last Saturday going to a village in the near north—a trip that should have taken three hours max. Six hours wasted. You can’t do business like that.
And this is beginning to stand out to me: Infrastructure with all its high leverage impact must be built at a much, much faster rate. It is hoped that the importance of that will be recognized by the new secretary of the Department of Transportation and Communications, where so many of the PPP projects reside. But the real recognition of urgency must be at the very top—the President.
P-Noy must put all the weight of his enormous powers behind building. Roads, airports, seaports, railroads, power plants and water systems must be built, not just planned or promised, with extreme urgency. The government must spend a minimum of 5 percent, preferably 8 percent (yes, 8) not the historic 2-2.5 percent of GDP, and PPP must add another percentage point. And that must be in 2013, not in some lazy time in the future.
Too much of the economy is still on the consumption side. It is not driven as a healthy economy needs to be—by supply. The 7-percent+ sustained growth needed to include the poor has to be driven by strong production of goods and services. Services alone can’t do it. The less educated need factory jobs. Manufacturing must be vastly expanded to create those jobs. That has yet to occur, and won’t occur without change.
Something that will help that to occur is opening up the economy. The ill-considered restrictions in the Constitution need to be lifted. And they may be if the President can be convinced of the need and, importantly, be convinced that a scurrilous Congress won’t hijack the debate and lengthen term limits, too. It’s a legitimate fear given the reputation of politicians, but we think in this case an unwarranted one. There’d be enough public opposition to temper their ambitions.
Opening up the economy will go well beyond those sectors that will directly benefit; it will change perception (and perception drives decision). It will say: Everyone is equally welcome here, come in and be fairly treated. We believe the President will be convinced; Congress leaders already are. So a fully open economy by the second half of 2013 (a plebiscite may be held together with the May midterm elections) is now in the cards. Let’s hope the President agrees to it.
On the other hand, the President’s single-minded focus on addressing corruption may be starting to have a life of its own. But it’s a life that needs a decade to mature, and that means a leader equally determined beyond 2016. That means that the cleanup should be institutionalized so that it will be hard to reverse. That will be difficult to do, and I give the President less than a 50-percent chance of doing so.
What will help is to fully computerize in an integrated fashion all government services (as I’ve said before, it’s hard to pass a brown envelope under the table to a computer). The creation of a Department of Information and Communication Technologies will be an important step in achieving that. A bill has been approved on third and final reading by both the House and the Senate. The measure is currently up for bicameral committee approval. But then the President may veto it if he can’t be urgently convinced of its need (it’s not among his priorities).
It highlights a problem with the presidential system, which is that it panders to the hierarchical nature of the Philippines. There’s a reverence for the boss (I like that) at a level not common elsewhere. A Philippine president is almost royalty. A parliamentary system somewhat levels the field. A prime minister is a first among equals, and may be taken out by a simple vote of confidence if he doesn’t perform. That alone is a good reason to fully review the Constitution, but perhaps too risky now. Let the country settle down to a more stable course first.
But let’s get moving.
