‘Daang matuwid’ strategy scrutinized

(First of two parts)

CANBERRA—The Aquino administration’s primary thrust in eradicating corruption through its matuwid na daan (straight path) strategy came under rigorous academic scrutiny at an international forum of Philippine specialists at Australian National University (ANU) in Canberra.

A paper presented by Desiree Desierto, an assistant professor of the University of the Philippines’ School of Economics, demonstrated that the straight path is not always the shortest route to economic growth and sustained economic development.

Desierto presented the lead paper, titled “Reforming Institutions and Building Trust to Achieve Sustained Economic Development,” at the 2012 Philippines Update conference at ANU School of International, Political and Strategic Studies, headed by Prof. Paul Hutchcroft, author of several books on the Philippines.

The forum reviewed the first 26 months of the Aquino presidency in the frame of the theme: “Moving Forward but for How Long?”

The paper, presented on Friday, made a critique of the contradictions between the strategy of what is sometimes spelled out by another slogan, “Kung walang corrupt, walang mahirap (If there’s no corruption, there’s no poor),” and producing sustained economic growth.

Critical juncture

Summing up the theme of her paper, Desierto wrote: “The Philippines may … finally be on the cusp of what other scholars call ‘critical juncture’ that can push its trajectory toward the development of more ‘inclusive’ institutions, enabling  continued increases in productivity and sustaining economic growth.”

However, she argued that “focusing solely on anticorruption for its own sake may also undermine lasting institutional reform, if property rights, credibility and stability are weakened in the course of enforcing against anomalous transactions. What may be an optimal strategy is to treat anticorruption as part of a larger framework of building trust in society.”

The forum also centered on “Peace Prospects in Mindanao” and “Political Reforms.”

Less than spectacular

The Desierto paper started with an overview of the Philippine economy in the last two decades, painting a less than spectacular performance highlighted by, among other things, the fact that the Philippines recently posed an “impressive” 6.4-percent growth in the first quarter of 2012, up from 4.9 percent in the same period last year.

The economy has experienced a surge in merchandise exports and “now appears on its way toward the first investment boom since the 1997 Asian financial crisis.”

Such a boom is “likely to come from large infrastructure projects and further development of the services, especially business process outsourcing,” the paper added.

Unlike other countries

The country has also weathered the recent economic crisis “with rising overseas remittances continuously fueling strong consumer demand.”

The paper added: “At the same time, however, most of the growth has come from  the service sector, while growth in agriculture and industry have decreased. Investments  in the form of public-private partnership (PPPs) and investments in special trade zones … have slowed down. Net foreign investments have gone up, but the capital and financial accounts are down despite the opportunities from the global downturn and massive capital flight from abroad and the country’s improvement in credit (S&P) ratings.”

Unlike the experience of many Asian countries, the paper said, “economic growth has not been export-driven, largely fueled by domestic consumption,” which is a technocratic variation of Napoleon Bonaparte’s battlefield maxim that an army “runs on its stomach.”

In fact, between 1990 and 2010, net exports have mostly been negative, the paper said. “Hence, capital formation has not been a priority—while the share of gross domestic product (GDP) growth even grew from 73.8 percent in 1990 to 79 percent in 2010, the share of net capital formation dropped from 24 percent (in) 1990 to 18 percent in 2010.”

OFW remittances

“Strong consumption demand has been maintained even after the 1997 Asian financial crisis and even the more recent global crisis, mainly because of sizeable and sustained remittances from overseas Filipino workers, which have propped up gross national product (GNP) over gross domestic product (GDP),” the paper said.

“Such remittances have helped increase national savings to more than 30 percent of GDP since 1999, (with) remittances themselves contributing to over 10 percent of GDP.

“It thus appears that the Philippines has not taken full advantage of this low-lying fruit from its labor export. While in  2010 it received the fourth largest foreign remittances at $21.3 billion (following India, China and Mexico), investments  have not grown and exports have been left behind.

“Not surprisingly, then, the manufacturing industry and industrial production (have) remained low, compared with services, which have been expanding in the last decade due to the business process outsourcing (BPO)  sector that has been growing over 20 percent each year. There is no evidence that OFW (overseas Filipino workers) remittances are used by recipients to invest in micro-enterprises, unlike in other countries.”

Global uncertainty

Desierto cited a recent study by EA Tan (2012) casting doubt on the resiliency of remittances to global downturns and arguing that, while the global recession had so far had a minor impact on remittances, “the ongoing uncertainty in the United States and Europe might yet eventually decrease demand for OFWs.”

This factor is likely to affect political and social stability in the Philippines.

The Desierto paper quickly shifted focus to the section that takes aim at the pursuit of the Aquino administration of its “inclusive growth” strategy and the nexus between it and the anticorruption reform efforts. (To be continued: The next part examines the downsides of this piggyback strategy of good governance.)