BENJAMIN DIOKNO: JUDGING ECONOMIC PERFORMANCE
MANILA, JUNE 12, 2012 (MALAYA) Written by BENJAMIN DIOKNO - ‘His much vaunted public-private partnership (PPP) projects, unveiled during his first state-of-the-nation address in 2010, have been a major disappointment.’
Is the 6.4% GDP growth in the first quarter of 2012 for real? Is it part of a trend line which suggests a strong 6% to 7% long-term GDP growth for the economy?
I think it’s more of an outlier for two reasons: first, the foundations for a strong, sustainable growth do not exist yet, and second, the Philippines will be faced with a global economy that has just turned uglier and riskier.
Its poor state of public infrastructure is one such foundation. There are more, such as its low tax-to-GDP ratio, but for the moment let me focus of public infrastructure. The power interruptions in some areas in Metro Manila over the weekend, on top of the power crisis in Mindanao, is a grim reminder of the lack of an adequate, modern and reliable infrastructure that the country needs to support strong economic growth. And this problem will not go away soon.
During the last 25 years, previous administrations have invested roughly 2 percent of GDP in public infrastructure, only a fraction of what other fast-growing countries in Asia have done. During Arroyo’s last five years, her administration spent only 1.9% of GDP. But Aquino’s record during his first full in office was even more pathetic, having invested only 1.49% of GDP.
His much vaunted public-private partnership (PPP) projects, unveiled during his first state-of-the-nation address in 2010, have been a major disappointment. Today, only one, and a small project at that, is running. Less than 10 PPP projects will be put on the bidding block this year, and might eventually take off next year, halfway through Aquino’s presidential watch.
The damage to the economy for the failure to address the infrastructure backlogs is heavy. Power supply is dwindling and has become unreliable; roads and bridges, in urban centers and rural communities, are crumbling; and its airports and seaports continue to deteriorate. The country’s premier airport, named after the President’s father, has received the unflattering reputation as one of the worst in planet Earth.
The other reason the Philippines economy is unlikely to be on its way to sustained and strong growth is the rapidly deteriorating global economy. The odds of another global recession are rising. Europe is heading towards a long period of harsh adjustments, if not disintegration. Many economists believe that the US economy is now in recession, de facto. The economies of China and India are slowing. And while Japan continues to grow, its economy might eventually shrink as the global recession deepens.
Many experts see the next global recession as more severe and long lasting. Monetary authorities have run out of bullets to fight the recession, with interest rates approaching or equal to zero. And for one reason or another, political leaders in the developed world are unwilling or unable to do the right thing.
On our part, it would be foolhardy to think that the Philippine economy will be unaffected by the global slowdown. Potential economic output could shrink by about one to three percentage points of GDP, depending on the severity of the global recession.
The negative impact of a global economic slowdown will be reflected in the Philippine economy through slimmer exports, lower foreign direct investments, slower OFW remittances, and weaker consumption and investment due to fading confidence and rising uncertainty.
Based on Philippine experience during the last 25 years, GDP growth rates of 6% and higher are rare. In the last ten years, they happened only during election years (2004, 2007 and 2010).
For purposes of judging the performance of a president, a legitimate question is when he should be held responsible for his management of the economy. Allowing for policy lags, a reasonable response is that presidential responsibility begins six months after assuming office and some six months after the end of the term of office.
Here’s some historical facts and figures. From 1986 to 2010, the economy grew 3.98%, using the new official national income series. From 1986 to 1992, during Corazon Aquino’s term the economy grew, on average, 3.3%; from 1993 to1998, during Fidel Ramos’ watch, the economy grew 3.6%; from 1999 to 2000, during Joseph Estrada’s truncated term, the economy grew 3.8%; and from 2001 to 2010, during Gloria Macapagal-Arroyo’s term, the economy expanded 4.8%.
The seeming improvement in the performance of the economy from one president to the next is not surprising. After all, the sitting president is supposed to benefit from what his predecessors have done, and is expected to improve on it.
An interesting observation, however, is that as the economy grew modestly in the past quarter century, per capita GDP did not grow as fast. Specifically, the slightly rising growth of the entire economy has been accompanied by a slightly decelerating growth in per capita terms. Growth, per capita, was 2.4% during Aquino’s term, 2.3% in Ramos’, 2.4% in Estrada’s, and 2.0% in Arroyo’s. And to think that growth is not evenly distributed.
Here’s another interesting point: when the economy grows at, say, 4%, it does not mean that the economic well-being of every Juan, Maria, and Pablo grew at 4%. The reality is that for some, it may mean a growth of 100%. for many it could mean a growth of 2%, and for others, zero or even a decline in income.
To date, Aquino’s economic performance is an average growth of 4.3% from the first quarter of 2011 to the first quarter of 2012, when the economy grew at a surprisingly 6.4%. Forget about the economic growth in the last two quarters of 2010; that’s rightfully, legitimately, attributable to Arroyo.
Benjamin Diokno is professor of Economics at the UP School of Economics. He was formerly secretary of budget and management in the Estrada Cabinet and undersecretary for budget operations in the Cory Aquino 1 administration.
Chief News Editor: Sol Jose Vanzi
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