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Sustaining the state of the Philippine economy

Publication Date : 24-07-2012

 

The State of the Nation Address, Philippine President Benigno Aquino’s third on July 23, is always occasion for assessing the performance of the chief executive and his administration, and always prominent in such assessment is the state of the economy.

 I’d like to distill this assessment down to what I have come to call ther P-T-K test, standing for presyo (prices), trabaho (jobs) and kita (incomes).  These, according to the popular surveys, are the economic yardsticks that ordinary Filipinos care about most, in that order of importance. 

Based on the latest available data, the news is good on all three.  I must say it has been a long while since this has been the case ever since I started taking stock of the economy’s performance in this manner (two out of three had been most common).  The data, which are there for all to examine, speak for themselves.

Price increases have been slowing down.  The inflation rate in June was down further to 2.8 per cent, almost half its speed a year ago, and the slowest in the year so far.  It’s also worth pointing out that inflation in food prices this year (2 per cent) is much slower than that of nonfood prices (3.5 per cent).  This suggests that the relative burden of price increases on the poor, whose budgets are dominated by food, has been relatively lighter than on the non-poor.  Last year, it was the other way around, when food prices were up 6 per cent against nonfood’s 4.5 per cent.

The aggregate job picture has likewise been improving. Unemployment rate as of April was 6.9 per cent, against last year’s 7.2 per cent. 

More than a million net new jobs were generated by the economy over the one-year period, exceeding the number of new jobseekers added to the labour force, which averages a million per year.  Over 300,000 of these new jobs came from agriculture, a sign that job creation has been beneficial to the rural areas where the jobs are most needed. 

While the National Statistics Office has not indicated how many new jobs came from industry and services, data on manufacturing growth suggest that jobs generation in manufacturing has also been speeding up. 

Growth in aggregate income, measured as gross domestic product (GDP), had surprised most of us in the first quarter, with the 6.4-per cent growth well exceeding most analysts’ expectations and besting last year’s 4.9 per cent.  Note, however, that much of this improved growth was due to the services sector, whereas agriculture and industry both saw slower growth compared to last year’s performance. 

In the end, though, what matters more is how such growth has translated into new jobs. Most analysts believe that this growth performance can be sustained through the rest of the year, with business optimism running high and major internal and external drivers of growth looking positive.

Still, one hopes that all this doesn’t lull the government into complacency.  While beyond the aggregate numbers are even more signs of an improving economy, there are persisting weaknesses as well.  I wrote recently of the stark inequalities in the economy, which seem much more magnified here than elsewhere. There are signs that poverty is declining, but the richest among us have become far richer. 

There is much catching-up to do on infrastructure, wherein the country lags behind miserably both relative to its neighbours. And while government’s revenue collections have been rising, targets are still being missed even with higher-than-expected economic growth.  Both the Bureau of Internal Revenue and Bureau of Customs have yet to show a dramatic departure from historical trends. To be fair, this also requires much better tax compliance especially on the part of the biggest individual and corporate taxpayers. 

Many wondered, for example, why some prominent names in the recent Forbes billionaires’ list are nowhere near the top of the list of the country’s top taxpayers.

The legislative agenda must reflect the needed measures to address these persistent weaknesses. Topping the list of laws the president must push are those that would further strengthen transparency and accountability, with the long languishing Freedom of Information bill being a particular imperative. This is also critical to his professed crusade against graft and corruption. 

Bank secrecy laws also need to be aligned better with international norms, so that these laws can never be used to conceal questionable wealth. Laws that would boost government’s revenue performance, especially the law boosting the so-called “sin taxes” and rationalising tax incentives, must also receive top priority. Key to widening the base of growth of the economy and correcting the highly skewed distribution of income is enactment of a strong competition policy that outlaws unfair trade practices and prevents monopolistic maneuvers by large firms.

Much work remains to be done. Sustaining the economic uptrend demands that the executive, legislative and judicial branches of the government all row the boat in unison and in the same direction.  The Philippines can’t risk going around in circles again at this time when it seems well poised to surge right ahead.

 

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