‘Aquinomics’: What difference has it made?

In a recent Inquirer Briefing attended by business leaders and other movers and shakers, I was asked to speak on the state of the Philippine economy one year into the Aquino administration. I titled it “A Year Under ‘Aquinomics’,” prompting someone to ask me if there was something to “Aquinomics” beyond playing on the President’s name. Not that I can claim to be a spokesman for the President’s economic team; I am not, and am not aspiring to be one, nor seeking to be part of his government. (It was “the other yellow candidate” whom I supported in the last two presidential elections, after all.)

Addressing the question, “Aquinomics” cannot be likened to, say, “Reaganomics” of the 1980s, which was defined by a distinct economic philosophy known at the time as “supply side economics.” This had challenged traditional demand-side or “Keynesian” economics, which until then was the mainstream thinking in macroeconomics. More recently, we heard of “Thaksinomics” espoused by the former leader of Thailand, which appeared to be defined by his business-friendly yet pro-poor approach to running the Thai economy.

What defines “Aquinomics,” then? One description that comes to mind is “economics of business confidence,” as that has been the driver of the economy under Aquino’s leadership so far. Over the past four quarters, growth in private domestic investment has been consistently surging, based on the quarterly National Income Accounts. This investment surge comes after many years of relative stagnation. Cross-country data from the Asian Development Bank reveal that in 2002-2007, our annual growth in total investment—that is, putting public and private, and foreign and domestic investments together—averaged zero percent. In contrast, our neighbors posted positive investment growth ranging from 3 to 19 percent per year. For most of the past decade, then, our neighbors were leaving us behind in building even greater productive capacity in their respective economies.

What is remarkable about the investment growth we are seeing lately is that it comes in the face of a significant drop in foreign direct investments (FDI). Latest Bangko Sentral ng Pilipinas data report that actual net FDI inflows so far this year are 17 percent lower than in the same period last year, a steep drop by any standard. Similarly, latest data on foreign investment approvals by the different investment bodies taken together (namely the Board of Investments, Philippine Economic Zone Authority, Subic Bay Metropolitan Authority and Clark Development Corporation) report a 53 percent drop from last year. And yet, overall investment has jumped 37 percent, implying that domestic investments must have jumped by much more, far overcoming the foreign investment decline.

What makes it even more remarkable is that the public component of domestic investment (government construction) also suffered a deep decline of 37.3 percent. Again, private domestic investments must have zoomed so much that not even this steep fall prevented total investment from surging the way it did.

At face value, the drop in government spending appears to be a downside to the Aquino government’s performance. Data from the Department of Budget and Management (DBM) indicate that disbursements in the first four months of the year were P60.5 billion or 11.6 percent lower than in the same period last year. Some observers now fault the new administration for “underspending,” for indeed, not only has it spent less than it did last year, it has also spent even farther less than what had been programmed to be spent by this time. But before casting this government as inept and lacking absorptive capacity, one must remember that this year’s budget was still drawn up by the previous administration. And if the current government has been more prudent about spending the money, it could well be because they have found that they don’t have to spend as much as the former government would have, to accomplish as much.

And it seems they have. The Department of Public Works and Highways is one of the biggest “culprits” in the underspending. It turns out that the agency has made dramatic changes in the way public works projects are costed out, leading to substantial savings. For one thing, Public Works Secretary Rogelio Singson has significantly reduced allowable “indirect costs,” including contractors’ profit margins (and quite likely the so-called “bukol”), in public works projects. Coupled with a strict policy on transparent public bidding, the agency boasts of more than P2 billion in savings from 2,797 projects over the past year.

Another reason for the underspending is that much of the large lump sums allocated by the previous government to various departments remain unspent. These are substantial amounts that the previous leadership gave department secretaries the discretion to allocate and spend—and it’s not hard to imagine how much of it must have gone to less than responsible uses. If the current department secretaries are slow in spending such sums, it could be because their predecessors had over-provided them in the first place. The new administration intends to cut these “lump sums” to a bare minimum in the 2012 budget, the first budget they truly own.

Aquinomics, then, might also stand for economics of fiscal responsibility—and the government now has a rare budget surplus to show for it. And while their underspending normally would have dragged the entire economy down, fortunately for them (and for us), the tremendous boost in private domestic investments that Aquinomics also brought about more than made up for the gap.

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