Shortly after my piece on the Philippines' continuing structural economic vulnerabilities, which generated considerable controversy and heated discussions among experts and observers alike, the country’s stock markets managed to record new historic highs — breaching the 7,000 mark and beyond. Meanwhile, Standard & Poor's Ratings Services, following in the footsteps of Fitch Ratings, has just awarded the Philippines with its second credit ratings upgrade — raising hopes of sustained economic boom in the years to come. Vaunting its newly-acquired “investment grade” status, the Philippines — widely celebrated as Asia’s new economic tiger — is poised to access the global investment pool on a wider scale, while benefiting from lower borrowing costs in international markets. In addition, the two main drivers of the country’s recent economic uptick, notably the Business Process Outsourcing (BPO) sector and the multi-billion remittances from Overseas Filipino Workers (OFWs), are expected to post healthy rates of growth in the foreseeable future. So far, so good!
The Philippines is no longer the “Sick Man of Asia,” now home to one of the region’s most dynamic economies, but there are still huge challenges in “trickling down” the growing economic pie. The country is benefiting from the “clean governance” initiatives of its top leadership, with ramped-up infrastructure spending fuelling economic expansion, but the current development paradigm is in need of some fundamental re-configurations if it is to address rampant poverty, mind-boggling inequality, and double digit underemployment rates in the short- to medium-run. Two important reports in recent weeks seem to be vindicating my earlier concerns with the necessity to institutionalize inclusive and sustainable growth in the country.
While the World Bank and the United Nations Economic and Social Survey of Asia and the Pacific (UNESCAP) forecast a solid 6.2 percent GDP growth for 2013, complementing a stunning performance in the preceding year, the latest report by the National Statistics Coordination Board (NSC), however, suggests that — despite impressive rates of economic growth in recent years — poverty rates have remained virtually unchanged since 2006. In the first half of 2012, the national poverty rate stood at 27.9%, compared to 28.8% in 2006 and 28.6% in 2009. No wonder, according to the NSCB, “poverty remained unchanged as the computed differences are not statistically significant.” In addition, the report suggests, some provinces in the conflict-prone southern island of Mindanao have experienced an increase in poverty rates. Not to mention, the (extreme) "poverty threshold" used by the government agency was merely $0.62 per day, while that of the World Bank is $1.25 per day.
Then, most recently, came another study indicating that as much as 1 million people have joined the ranks of unemployed in early 2013. According to the Philippine pollster giant Social Weather Station (SWS), the latest survey (March 19-22) shows that unemployment rates have risen up to 25.4%, or the equivalent of 11.1 million individuals within the working force. This compares to 24.6%, or 10.1 million jobless individuals, back in December 2012. Meanwhile, the official unemployment rate increased from 6.8 percent in 2012 to 7.1% in January 2013, meaning a total of 2.9 million individuals are now struggling to find a permanent job.
What these two studies suggest is pretty straightforward: Yes, the Philippines is booming, and the country’s macroeconomic profile is at its best in recent memory, but the current growth trajectory is neither significantly poverty-alleviating nor job-generating. Obviously this means that much of the recent economic expansion has been confined to few sectors: namely retail, real estate, gambling, and BPO, none of which tend to provide quality, permanent jobs for the majority of the working force. Meanwhile, manufacturing exports — already struggling with uncertainties in the global economy — are hammered by Philippine currency appreciation, largely due to the flood of ‘hot money inflow’ that has buoyed the recent stocks bonanza.
What was the response from the government? Some would say flustered and in denial. Seemingly shrugging off the disappointing statistics, the country’s technocrats are flushed with what legendary ex-Federal Reserve Board Chairman, Alan Greenspan, characterized as “Irrational Exuberance”: The tendency among market participants to obstinately focus on instantaneous, shallow gains at the expense of recognizing more fundamental structural imbalances in the economy, which carry long-term risks of destabilization. They rather focus on the boom in the stock markets and the investment grade euphoria, than, let’s say, re-examine the merits of the current growth trajectory. In fact, some studies, as business columnist Ben Kritz notes, suggest that there is little correlation between acquiring an investment grade status, on one hand, and growth in Foreign Direct Investment (FDI), on the other.
To be fair to the Aquino administration, there is no single magic formula for addressing the country’s perennial economic challenges. The government has tried very hard to address extreme poverty, namely through the expansion of the Conditional Cash Transfer (CCT) scheme, which provides financial benefits to indigent sectors in exchange for performance-based improvements in crucial areas such as education. It takes years, if not decades, to reverse the impact of previous government’s counter-productive policies.
But this should not be a reason for complacency and obstinately sticking to an economic paradigm, which sustains boom in certain sectors, but provides limited opportunities for the huge swaths of unemployed and poor. The answer to the country’s continuing socio-economic challenges may lie in the policy proposals of Asian Development Bank’s (ADB) brilliant senior country economist, Norio Usui, who has continuously argued for a re-focus on the flailing manufacturing sector in order to address the issue of economic inclusiveness and sustainability.