PH must do more than gloat over growth

The World Economic Forum on East Asia held in Manila on May 21-23 closed on a sour note that punctured the Philippine government’s claim that the country was on the road to becoming the next tiger economy in Asia. On the WEF’s last day, IMF deputy managing director Naoyuki Shinohara said the Philippines and the region should address the income gap between the rich and the poor that could make economic growth less sustainable.

“Income inequality is rising in most countries in Asia, especially those with large populations,” Shinohara warned. “If you have high income inequality, you may enjoy high growth but only for a short time. But it’s not sustainable.” His message effectively shot down the Aquino administration’s euphoric projections on the economy.

Media reports on Shinohara’s speech highlighted portions that pointed out the shortfalls behind the glossy government claims of high growth.

Shinohara not only didn’t join the chorus on the administration’s theme “It’s more fun in the Philippines.” He also told the international audience at the WEF that the Philippines must do much more than gloat over its 7.2-percent growth rate in 2013. He said the Philippines must address the widening income gap if it hopes to ensure that its economic growth becomes inclusive.

The message was what many Filipino WEF delegates loathed to hear from the IMF. “There’s an empirical study that income inequality is high and associated with the short duration of high economic growth. You might be able to enjoy high growth for a short amount of time, but it’s not sustainable,” Shinohara said.

According to reports on the conference speeches, including those by Rappler, Shinohara said one way to deal with the issue of high income inequality taking place in a condition of high growth, was to redistribute wealth, such as in a conditional cash transfer (CCT) program. This is being done in the Philippines, where the rich-poor gap is widening. (The media cited a report by the government’s statistics office last year showing that the high-income class enjoyed double-digit income growth compared to the single digits seen by the middle- and low-income groups, supporting the perception that “economic gains were not trickling down to the poor.”)

Under the Philippines’ CCT program, called the Pantawid Pamilyang Pilipino Program, up to four million families receive cash from the government in exchange for keeping their children in school and taking them, as well as expectant mothers, to regular medical checkups. However, Shinohara advised the Philippine and other governments to ensure that such mechanisms do not harm the efficiency of the economy. “Find a good balance between efficiency and the social value we have to protect,” he said, adding that governments must make sure that tax revenues are more than enough to fund social programs.

In developed countries, Shinohara said, “taxation and income transfer to social programs” had  been proven to  reduce income inequality by a third, although he was not sure if the impact was the same in developing countries. Asian countries have had to deal with low tax revenues and huge amounts of tax exemptions. The Philippines has been trying to raise revenues by plugging loopholes in the tax system; it is going after tax cheats and smugglers and has also revamped its tax collection agencies.

In one of the sessions at the WEF, Finance Secretary Cesar Purisima claimed that “the people have come to know the impact of good governance on their lives” as the country makes huge strides—referring to the 7.2-percent growth in 2013. But Shinohara sought to throw a wet blanket on the claims of administration officials by focusing on the shortfalls of the government’s approach to high growth. He pointed out that how income is distributed is one indicator not really measured by the gross domestic product, along with other social factors such as health and education. He urged the government to go beyond GDP when aiming for sustainable growth.

On May 29, barely a week after the WEF, the National Economic and Development Authority reported that the first-quarter economic growth was 5.7 percent, signaling that the 7.2-percent record growth in 2013 was not  sustainable. The first-quarter figure of 2014 is lower compared  to the 7.7-percent growth in the first quarter of 2013.

According to the Inquirer, the Philippines has lost its rank as Southeast Asia’s best performer to Malaysia, which grew by 6.2 percent in the first quarter. It’s no consolation to be told by Socioeconomic Planning Secretary Arsenio Balisacan that “despite this [slump], the Philippines is the third fastest-growing in the region, behind China (7.4 percent) and Malaysia.”

What went wrong for the Philippines? A decline is a decline. Balisacan was not slow to look for someone (or something) to blame. This “relatively slow growth is expected given the magnitude of destruction” caused in agriculture by Supertyphoon “Yolanda,” he said. The agriculture sector grew 0.9 percent—a sharp contrast to its 3.2-percent growth in the first quarter of 2013. The industry sector grew 5.5 percent, while the services sector had the highest growth at 6.8 percent.

Analysts and economists polled by the Inquirer said they expected growth to slow down in the first quarter due to high base effects and the lingering fallout from Yolanda. But this explanation boils down to blaming the decline to natural causes, excluding manmade causes (such as administrative incompetence, or constraints on infrastructure spending).

This blame game is an easy way for the government to wash its hands of responsibility for the slowdown.