Books on The Philippines
Philippine peso (PHP)
Update No: 030 - (05/07/06)
A turn to the right
On June 16, President Gloria Macapagal Arroyo announced a new war to
eliminate the country of the New People's Army, an insurgency bred on poverty
that has festered in this country for more than 30 years and which has the
dubious distinction of being the longest running insurgency in Asia. Many,
indeed most, doubt that a military solution - as implied in ordering "all
out war" would solve the problem. It did not do so in the past and is
unlikely to do so now.
It does however provide a chilling insight into the mindset of the present
regime. On the one hand we have a world-class economic management team that is
making real headway in overcoming the fiscal problems of the country and
returning the economy to some semblance of health - at least sufficient to
encourage the ratings agencies to go that extra step and upgrade the rating of
the Philippines from its present below investment grade status. The other side
of the coin is a regime that, faced with a crisis of its legitimacy, is so
concerned with its political survival that it is increasingly turning its back
on the democratic process and where rightists in both the Cabinet and the
military appear to have wholly engaged the mind of the president.
This is a country where, since President Arroyo came to power in January 2001,
more than 600 extra judicial killings of journalists, political activists as
well as farmers and fisherfolk suspected of having "leftist"
sympathies have taken place, and where the government has shown little interest
in solving the killings. No government of any other nation in the world that
makes a claim to be a democracy, and perhaps even believes it themselves, could
long survive such a outrage as this. The media, the church, civic institutions
would be leading a permanent campaign to demand justice and that the murderers
be brought to trial and appropriate punishment. The civil contract between
government and citizen, demands this. Indeed the best elements of the army and
the police themselves, would refuse to any longer countenance the suspicion that
falls on them, as a result of their chiefs' at best indifference, or worse,
This is a country where no less than the Secretary for Justice in recent weeks
dismissed these killings as no more than "collateral damage" necessary
in the fight against terrorism. This is a country where a major general of the
armed forces dubbed by the left as the butcher of Samar (since wherever he was
assigned, summary executions appeared to follow) could boast in the national
press that he could sleep easy at night because he had not killed anyone -
merely inspired the killers.
So where is it all headed and what does it all mean? With half of the year
already behind us, perhaps it is time to take stock.
An economic upswing is underway
On the economic front the government has made considerable progress in
reducing the fiscal problems of the country. There has been a significant
reduction in the overall deficit. Tax collections appear to be slowly on the
rise and the external debt position of the country is improving. Margin spreads
on bonds is shrinking, a further sign that investor confidence is being
Stocks continue to boom (albeit the market remains extremely small in global
terms) aided by a small number of world-class companies, especially those in the
retailing, telecommunications and food-processing industries. Inbound tourism is
on an upswing thanks in part to the devastation that hit much of Asia in
December 2004 and from which other destinations have yet fully to recover.
Manufacturing, dominated by the electronics and semiconductor industries has
proven to be more robust that expected due to continued high levels of global
demand (so far) and the business process outsourcing sector continues to expand
including such high value-added components as back office functions and
Remittances continue to come in from workers overseas and in the first four
months of 2006 were up by 10.8 percent over the same period of last year. In
2005 remittances coursed through the formal banking sector were up by almost 15
percent and a further 10 percent growth is forecast for 2006. This number
appears to be achievable on present numbers.
Investment is slowly returning to the Philippines albeit at a rate that amounts
to a trickle rather than a flood but the government remains ever hopeful.
With the Rapu Rapu mining site in Albay province ready to resume trial
operations as a prelude to full scale processing and with other large-scale
international mining projects underway throughout the country, the stage is set
for a considerable injection of investment, and employment, into some of the
most poverty afflicted areas of the Philippines.
A number of major infrastructure projects are underway including the development
of the Manila-Clark-Subic corridor through extensions to the North Luzon
Expressway and the development of the new Northrail project. Korea is investing
US$1 billion into a new shipbuilding facility at Subic Bay and there are several
new port developments under construction.
Even the weather seems to be on Ms. Arroyo's side. Benign weather conditions in
the first quarter of the year boosted agricultural output by almost 4 per cent.
Growth, as recorded by GDP, in the first quarter of 2006 came in at around 5.5
per cent, a figure which the government believes is achievable for the year as a
whole. This would represent a better result, if achieved, than that of last year
when the economy expanded by 5 per cent overall.
New loans negotiated with the World Bank on the strength of the improved fiscal
performance will allow new funds for social infrastructure including a US$200
million loan for education and a further $210 million for health services.
Down on the farm they are still poor
Despite an economically creditable performance, President Arroyo remains a
singularly unpopular president and has failed to gain a constituency outside of
the armed forces, Congress and the local government units, which she controls
largely though the power of the purse strings.
At the macro level, the Philippines appears to be in pretty good health but
these macro numbers do not show that down in the countryside the poor are still
getting poorer and that poverty - poverty of the kind that produces hunger pangs
- is still far too high. The rich continue to grow richer, at least if Gini
Coefficients are to be believed, and the poor are getting poorer. More and more
the middle class is shrinking with more of them joining the lower classes.
Education statistics, a useful bellwether of the state of the masa show that
more private school pupils are dropping back to the less expensive state
schools, while those unlucky enough to belong to the poorest social group are
dropping out altogether. Academic surveys suggest that more poor families are
engaging in food substitution - replacing food with higher nutrients with less
According to the most recent survey on the nutritional status of children
(2003), 27 percent of children under five years of age are underweight, 30
percent show signs of stunted growth and 5.5 percent - half a million children -
show signs of acute malnutrition. The country remains far behind its Millennium
Development Goals in this area.
The benefits of economic growth have not yet filtered down to much of the
countryside. That is perhaps not surprising. Change does not happen overnight.
But with population growth rates continuing above the 2 percent level, the high
population growth rate coupled to the high drop out rate from schools suggests
that the problems of poverty in this country will take more than a generation to
solve, even if a start is made now.
It has been said for some time that for any real roll-back in the poverty
incidence, the country needs to achieve a growth rate of at least 7 percent
annually. More recently this has been finessed slightly with government
officials now claiming that to achieve a roll back in poverty to within MDG
targets, then rural output needs to increase by 7 percent annually. Either way
these numbers are not on the horizon at the present time. Or are they?
Improved governance is the key
Better governance holds the key but is their any real political will that
would bring it about?
With the improved fiscal environment and a government that believes it can
eliminate the budget deficit by 2008, the focus needs to change from improving
economic performance to improving the quality of governance. These past weeks,
both the IMF and the World Bank have stated as much in their comments following
recent loan announcements for education and health care. This is not necessarily
something the government wants to hear.
For while the administration deserves plaudits for the quality of its economic
team, the same cannot be said for the political advisors surrounding the
President some of whom appear prepared to trample on hallowed democratic
principles that have served this country well, in order to ensure the survival
of the presidency (and by inference, of themselves).
The crisis of political legitimacy has not gone away. Nor has it been properly
addressed. Rather it has been ignored and those "usually reliable sources
with access to the information" who could have shed light on the true turn
of events surrounding the 2004 election have been cowed, bullied or paid to
At the political level, regime survival has been the name of the game. With
chances of immediate constitutional change receding into the distance, the
opposition sees a congressional election next year as its last chance to unseat
President Arroyo though gaining control of the lower house of Congress. There is
little chance of such a move succeeding given the convincing majority enjoyed by
the pro-government coalition. Indeed many believe that the vote in next year's
election has been already counted. Why else would the administration want to
retain the services of a group of electoral commissioners that have been widely
discredited and why else would they not want to automate the election process?
Many believe the answers to be self evident.
Not that the opposition has a credible alternative to the current
administration. It does not. So President Arroyo and her team are almost certain
to remain in office until 2010 and perhaps beyond. Meanwhile the charade is
played out much like on a chessboard. All out war on terrorism has little to do
with credible threat to the present government. It has much to do with
destabilizing political opponents and keeping the political lid on dissent ahead
of election campaigns that will get underway in earnest later this year.
So for the present the Philippines remains in the vice-like grip of
transactional politics where favours and largesse are dispensed in return for
political favours. What hope of real reform in such an environment?
At the margins there is some progress being made in the reining in some of the
worst excesses of corruption and mulcting that have been occurring in the system
but many doubt that there is real political will to give the ombudsman the power
to investigate independently and without fear of favour. Rather the reverse is
true. Those close to the centre of power can act with impunity without fear of
prosecution. Those hapless individuals trotted out for the press are often mere
Improved quality of governance is needed in many areas and is not confined to
the need to reduce corruption and such behaviour, endemic in many government
agencies. There is an urgent need too to improve the rule of law especially as
it applies to contract law and contract transparency. There is a need for
greater levels of harmonization between the national, provincial and local
government levels since major investment projects can be held to ransom at many
levels, especially when the site of the investment is far removed from Manila.
But above all else there is a need to change the growth drivers of the economy
from consumption led growth on the strength of remittance income and to domestic
expenditure and savings on the back of renewed investment.
Those in power are well aware of their vulnerabilities should they seek to
change the paradigm in any meaningful way. Instead we have a regime that is
buying time for itself while the new economic drivers kick in. In the meantime,
many a finger is being kept crossed for fear that increasing global volatility
will spoil the game.
It is not all bad news and indeed there is much good happening in the
Philippines. It all depends how you set the benchmarks. Certainly by emerging
market standards the Philippines is not doing too badly. It is rather a case
that it should be doing so much better.