Breaking through the poverty ceiling

On the sacrifices of generations past are nations built. The Philippines is moving forward on the sacrifices of overseas Filipino workers. The diaspora in the last 45 years is the single biggest reason why the country is in the throes of becoming a tiger economy, soon able to show its people that in time they will not need to seek work in other lands.

With the OFW remittances, fundamental changes have taken place. In the last decade, the Philippines has become a net-lender to the global financial system after struggling as a net-borrower since the 1960s. The economic development that will spur the creation of many good jobs is a reality waiting to happen.

In the early 1950s the Philippines was a primary growth economy in Asia next only to Japan. China, South Korea, Singapore, Brunei, Malaysia, Thailand and Indonesia were hardly on the radar then. Now the Philippines lags behind everyone, with some distance to go even to just match per capita income. Thailand’s per capita income is more than twice the Philippines’.

But the conditions, they are a-changin’. The growth rate of the GDP in 2013 over 2012 was 7.2 percent, and the forecast for 2014 over 2013 may top that. There is, in the medium term, real opportunity for the economy to break through the poverty ceiling.

The buildup of foreign exchange reserves is no longer due to OFW remittances alone; it is now significantly augmented by income from business process outsourcing firms and, recently, by tourism. There is progress in foreign direct investments, too. “Hot money,” or investment funds from foreign sources used in the capital markets, come and go, but are no longer disruptive to foreign exchange rate fluctuations. As the analyst would say, the fundamentals of the Philippine economy are strong.

The time when the Philippines had a much bigger foreign debt than its foreign exchange reserves in the Bangko Sentral saw the entire economic system very unstable. Upward pressures on the peso-dollar exchange rate were ever-present, with big increases in the oil import bill, or when foreign debts matured, or when the prices in the world market for export commodities like copra and coconut oil, sugar, logs and minerals dropped. The situation led the industrial development policy toward aggressive export orientation.

Industrial development fell short of generating the needed foreign exchange until the OFW phenomenon went into full swing, at some point resulting in Filipinos leaving the homeland at the rate of over a million in a year. Albeit at a high social cost, OFWs have built up—and, with the other sources, continue to build up—the Philippines’ foreign exchange reserves. The government owes it to them to establish the agro-industrial base that will generate adequate income opportunities and banish widespread poverty.

Economic growth has thus far been led by sales of consumer goods, as well as the housing boom. It is no wonder that malls are being built everywhere. According to reports, money is going into every nook and cranny of the country, even to small, unheard-of towns. Purchasing power is slowly getting distributed. But the multiplier impact of the consumption is restricted because much of the consumer goods are imported from such countries as China. Many agricultural products are imported, too.

And this is the reality that provides the opportunity for industrial development. If consumer goods can be produced domestically, the entire economic process will sustain the initial impetus for industrialization and employment generation. If only government purchases such as uniforms of soldiers, policemen and teachers, office supplies, materials and equipment, among others, are manufactured locally, a major industrial base employing tens of thousands of Filipinos will be established. If the goods sold in the malls are primarily Philippine-made, industries employing Filipinos will be sustained.

This is not a call for tariff protection, which is essentially a thing of the past. The market system remains the best determinant of industrial and economic development. The competitiveness of industry is essential for business sustainability, and for the interest of all, particularly consumers. The dominance of some groups in major markets may in fact be the hurdle to overcome in order to give way to an environment conducive to sustainable industrial development. The government, private business, producers, wholesalers, retailers, banks and workers need to work together to tap on the opportunity.

Creative routes must be explored and opened to directly address the poverty issue. The microfinance sector now provides credit and economic opportunities for the poorest of the poor. The government’s Conditional Cash Transfer program continues to provide a “bridge” for even poorer families. Education and healthcare for them are getting more serious consideration.

The cooperative movement deserves reinvigoration as a venue for providing earning opportunities to the lower segments of the economic pyramid. The capital buildup of some cooperatives has increased significantly, again by remittances from OFWs who have directed their beneficiaries to engage in livelihood programs. Saving and investment options have been opened up for them.

Poverty is a scourge that must be confronted head-on. The first hurdle is fundamental: the need to recover from spiritual bankruptcy. This is a choice to be made before the struggle can even begin.

Danilo S. Venida (danilosvenida@gmail.com) holds undergraduate and postgraduate degrees from the University of the Philippines and the Center for Research and Communication/University of Asia and the Pacific. He is a former president of the Philippine Daily Inquirer and is now a business consultant.