The legacy of ‘Aquinomics’

I HAD written intermittently about “Aquinomics” over the last six years as if there were something more deliberate about it beyond playing on then President Benigno Aquino III’s name. Even then, I had indicated that it can’t be likened to “Reaganomics” of the 1980s, which was defined by a distinct economic philosophy known at the time as “supply side economics.” It was a direct challenge then to the orthodoxy of traditional demand-side economics associated with John Maynard Keynes (hence “Keynesian” economics). Much later, we heard of “Thaksinomics” espoused by the former leader of Thailand, which appeared to be defined by his business-friendly yet propoor approach to running the Thai economy.

What defined Aquinomics then? Early on, the hallmark of the economy under Aquino was a dramatic turnaround in private-sector investment, reflecting a substantial improvement in business confidence. After contracting by 3.5 percent in 2009, total fixed investment (gross fixed capital formation) swung around to grow by 19.1 percent in 2010 as Aquino came into office. This was to be sustained throughout his six-year term, when total fixed investments grew annually at double-digit growth rates. This investment surge came after many years of relative stagnation, with cross-country data showing how we severely lagged behind our neighbors in overall investment growth.

An apt description of Aquinomics could then well be “economics of business confidence,” as that had largely been the driver of the economy under Aquino’s leadership. In fact, there was a marked increase over the Aquino presidency in the contribution of investment to the growth in overall GDP (gross domestic product), a departure from the historical dominance of consumption as propeller of our growth.

Such business confidence was clearly spurred by wide expectations of much improved governance, especially with Aquino’s “kung walang corrupt, walang mahirap” mantra, promising clean and honest governance. Much was indeed achieved in ridding government of large-scale corruption involving hundreds of millions of pesos, in scandals like the fertilizer scam, the swine dispersal scam, the Priority Development Assistance Fund aka congressional pork barrel, and others. The Department of Public Works and Highways is the best turnaround story in the Aquino administration, having metamorphosed from being among the most notoriously corrupt to among the most highly admired among the Cabinet departments—thanks to the professional leadership of then Secretary Rogelio Singson.

Still, our government remains far from being “clean.” But plugging the large public expenditure holes that bedeviled our past did much to provide wide “fiscal space” to the government. In recent years, it was no longer lack of budget that hampered government effectiveness, but more lack of “absorptive capacity.” It would seem that our government agencies are not accustomed to having much more funds at their disposal for legitimate projects and expenditures, after so much budget was freed up by plugging massive corruption leakages. It didn’t help that when government tried to be creative in moving those funds more quickly through the innovative Disbursement Acceleration Program (the now undeservedly infamous DAP), it got chastised for testing the bounds of its budgetary prerogatives. But the Philippine government has not seen this kind of fiscal space in a long time, such that prudent fiscal management could well be another defining feature of Aquinomics. And while the much-criticized underspending normally could have dragged the entire economy down, the tremendous boost in private domestic investments—the other hallmark of Aquinomics—helped offset its otherwise contractionary effect.

The scorecard for Aquinomics is quite clear, based on my usual PiTiK test of the economy using presyo (prices), trabaho (jobs) and kita (income) as yardsticks of performance. Prices are now much more stable, joblessness has significantly declined, and the economy is growing the fastest in all of Asia. From an average annual price inflation rate of 5.8 percent in the previous six years (2004-2009), the six years under Aquino posted an average of 3.3 percent, and he left office with an even more stable 1.3-percent average for the first half of the year. From the 8.0-percent unemployment rate he inherited at midyear 2010 (and an average 7 percent in the 2004-2009 period), the jobless ratio posted a record by finally breaking under 6 percent (to 5.7 percent) in 2015, averaging 6.3 percent under his leadership. And from an average GDP growth rate of 4.9 percent in 2004-2009, Aquino left office with the economy growing at 6.9 percent, and poised to further speed up. When financial analyst and author Ruchir Sharma identified the Philippines as a leading example of the “breakout nations” he documented in his 2012 best-selling book of the same name, he had very good reason to do so.

To be sure, the economy left behind by Aquino still leaves much to be desired, even as he deserves due credit for leading us to the “breakout” that President Duterte can now build further on. The outgoing president is first to admit that the benefits of the invigorated and more stable economy he leaves behind could have trickled down more to the “laylayan ng lipunan” (the bottom fringes of society), as Vice President Leni Robredo likes to call them. Indeed, trickle-down economics is never good enough, as a trickle, by definition, is too little for too many. Our economy simply must grow on a much broader base.

The challenge for “Digonomics” is quite clear, and I’m pleased to see they are taking this to heart.

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