Books on The Philippines
Update No: 050 - (28/02/08)
FIRST WORLD BY 2020? FORGET IT!
Last month we noted the forgotten anniversary of EDSA II-the second
"people's power" uprising that led to the ouster of President Estrada
and the installation of (then) Vice President Gloria Macapagal-Arroyo. That
anniversary went almost unnoticed, certainly in official circles.
This month (February) brings the 22nd anniversary of the original "people's
power". This one is a little more difficult for the government to brush
aside. For a government that is once again embroiled in crisis, it is not
surprising that there has been yet another bout of soul searching over where the
country is headed.
But we are probably getting a little ahead of ourselves… President Arroyo
should be on a roll. The numbers from last year are finally coming in and at
first sight look very encouraging. The economy grew by some 7.3 percent, the
fastest rate of increase in 31 years-since a peak of 8.8 percent achieved in
1976. The economy grew by just 5.4 percent in 2006. The final quarter of 2006
represented the 27th consecutive quarter of positive growth and Mrs. Arroyo can
justifiably claim to have had oversight of the longest continuous spell of
expansion in recent history.
There have been gains too on the fiscal front. The budget deficit was down to
Php9.4 billion last year; the lowest in 10 years and the government looks set to
balance the books this year.
The peso appreciated last year by more than 15 percent against the US
dollar-well above the Asian average. This suggests that there was more to the
enthusiasm for pesos than just a wounded American economy. Of course overseas
remittances-another record year-totalling some US$14 million played no small
Last year the per capita gross domestic product (GDP) of the Philippines climbed
above US$1,700 at current prices for the first time, on the back of rapid
economic expansion and peso appreciation. President Arroyo, at a recent economic
briefing for the business community trumpeted that the country was on the verge
of achieving "first-world status" by 2020.
How come nobody outside of government is cheering? Well, we gave you a clue last
month. Our January comment noted that President Arroyo was widely perceived to
have oversight of "an abusive and corrupt regime." Just when people
thought it could get no worse, it got worse.
Firstly, the much vaunted economic progress is demonstrably shallow. Neither the
population at large nor the small business sector sees much to cheer about.
There has been hardly a dint made in hunger and while the government claims
unemployment is down to around seven percent of the workforce that is only
because the official definitions have been redefined to exclude people who have
given up looking for work. Unpaid household labour by contrast has been
included. Using the older definition, the unemployment and underemployment rate
is well above 30 percent.
Certainly the budget deficit was down but then too was the revenue effort of the
main collection agencies, the Bureau of Internal Revenue (BIR) and the Bureau of
Customs (BOC). The deficit was down because revenue was boosted by one-off asset
sales of government. Sustainability remains as elusive as ever.
And while both remittances and per capita GDP look good in dollar terms, let's
remind ourselves of the currency appreciation that took place. When converted to
pesos, the amount of money pumped into the economy was flat and probably not
even ahead of inflationary effects-which have again started to climb.
A first-world country by 2020? Forget it. Quoting rates at current prices makes
for a good political sound byte but the more meaningful figure comparing
purchasing power parity, paints a different picture entirely. When PPP rates are
considered, by 2020, the Philippines may just be ahead of Pakistan-but still
bringing up the rear among Asian countries.
The sad fact is that while window dressing the economy, the present
administration has done nothing to come to terms with issues associated with
corruption, transparency and nepotism. Indeed most observers believe that the
Arroyo regime is worse than that of President Marcos a generation ago. The
extent of corruption in high places is now becoming only too clear and no amount
of stonewalling by government officials,' up to and including the president of
the country, can hide the fact.
The issue that has brought corruption back into the limelight is one that we
have mentioned several times before-the ZTE deal. It is back to haunt those in
Malacañang. For those who may not recall it, this was a contract for a national
broadband network to link up all government offices and agencies around the
country and improve efficiency in communication. It started as a
Build-Operate-Transfer contract whereby a private contractor would have built
the network at no cost to government. Then, in mysterious circumstances and just
ahead of the 2007 election the contract suddenly morphed into a loan-financed
deal. The loan contract, which originally was said to be just over US$200
million but which later became $329 million, was to be financed by the Chinese
Government and the contract awarded to a Chinese company, ZTE.
Now it has been revealed that the final contract was padded by a cool $130
million at the very least. This was the amount due to be paid out in commissions
to people in high places and to be paid back, of course, with taxpayers money.
Recent Senate hearings have heard tales of "shock and horror" with the
good senators looking surprised to learn that most government contracts have 20
percent built into them to accommodate commissions to persons in high places. No
less than former Socio-economic Planning Secretary, Romulo Neri, was offered no
less than Php200 million (around $5 million at present exchange rates) to affix
his signature to the tainted contract but who chose instead to report the matter
to President Arroyo. Her reaction? Well, she told Mr. Neri to refuse the bribe
but to sign the contract anyway. Instead he despatched his own consultants to
talk to the brokers in an effort to get them to "moderate their
All this has come from the revelations of the consultant involved, Mr. Rodolfo
Noel Lozada Jr., former president and CEO of state-owned Philippine Forest Corp.
and a consultant of the National Economic and Development Authority (NBN) who
had helped facilitate the NBN project, said the Chairman of the Commission on
elections, Benjamin Abalos had demanded the US$130 million as his own personal
cut from the NBN deal (and which would have made the total payout considerably
more than this). He said Mr. Abalos had consulted President Gloria Macapagal-Arroyo's
husband on how to go about securing their own financial stake in the project.
There is much more to it than just the testimony. Indeed the manner of Mr.
Lozarda's return to the Philippines, brought him to the public eye and turned
him into the latest folk hero. Refusing to stay outside of the country for an
extended period he was met at the airport by members of the Presidential
Security Force and taken "for a sightseeing tour" of adjacent
provinces-in the middle of the night. Government spokespersons have claimed that
Mr. Lozarda was taken into protective custody-a claim that he denies. The forced
airport abduction while deplaning (caught on surveillance cameras), the midnight
car ride with military escort while waiting for instructions are eerily
reminiscent of the Marcos era and the "salvaging" operations used to
dispose of inconvenient witnesses. That was before the cellular phone however,
and Lozarda was able to text his wife before his phone was taken from him.
She alerted the media and then of course the game was up.
All of this came just days ahead of the 22nd anniversary of the overthrow of the
Marcos regime. The president is now facing fresh calls for her resignation amid
accusations of massive corruption and abuse of power perpetrated by her close
allies in government and business. Senator Panfilo Lacson, a leading opposition
spokesperson and likely presidential aspirant in 2010 said President Arroyo has
lost all her moral ascendancy to stay in Malacañang Palace. He said it is time
to call for snap elections. The president will certainly ignore the call. Most
people, it seems, are prepared to wait until 2010.
Oppositionists are calling for snap elections or a further people's power
uprising to force Mrs. Arroyo to relinquish government. She will not do so. Like
Mr. Marcos she will cling to power as long as she can. The question is whether
she will step down at all? Certainly she and her close advisors are not behaving
as though they are mortal beings.
A recently issued UNCTAD report showed that in global terms foreign direct
investment (FDI) was up by 17.8 percent last year for a total (provisional) of
$1.538 trillion. Of this some $438 billion flowed to developing economies and a
little more than half of it ($224 billion) into South, East and Southeast Asia.
Within this envelope, the Philippines is estimated to have received some $2.5
billion-a paltry amount and the lowest among the original ASEAN economies.
Singapore, received US$36.9 billion worth of FDIs in 2007; Thailand, US$10
billion; Malaysia, US$9.4 billion; and Indonesia, US$5.9 billion.
The UNCTAD data was calculated on the basis of the first three quarters of the
year and may be an overestimate. Separate data issued by the Bangko Sentral ng
Pilipinas (Central Bank) shows that the net inflows of foreign direct
investments (FDIs) in the Philippines went down by 5.6 percent year-on-year in
the first 11 months of 2007 from the same period a year ago. Cumulative FDI net
inflows reached only US$1.9 billion in the January-November period last year.
This level was lower compared to the US$2.0 billion net inflow posted in the
comparable period in 2006.
The domestic economy supported by consumption expenditure which in turn is
fuelled by remittance income may have some insulation from all the political
shenanigans taking place but foreign investment is a different matter. FDI has
shown virtually no growth (and certainly no consistent growth) over the period
of the Arroyo presidency and this has to be her major failing. Remittances
support spending which supports the mall owners and big business. FDI builds
factories and creates jobs. Simple economics really but an inconvenient fact.