As we begin to open the year 2017, it seems to be an appropriate time to evaluate the performance of the Duterte administration in terms of economic and social dimensions. After all, the new President stated during the electoral campaign in the middle of 2016 that he would be able to solve many problems in the country, “[including] drugs, criminality and corruption in three to six months” after his election, according to an interview with a foreign press agency. Therefore, it would be good to briefly take stock of government actions and also to assess the challenges that need to be undertaken in this year.
At the level of broad macroeconomic indicators, the country continues to enjoy the economic progress that has benefited many Filipinos in the past few years. In the third quarter of 2016, according to national income account data, the economy grew by 7.1 percent in GDP terms, which is almost similar to the 7-percent growth in the same quarter in 2015. Unemployment continues to decline at 4.7 percent of the labor force last October, compared to 5.6 percent in the same month the previous year, even if underemployment slightly increased to 18 percent. Inflation has stayed below 3 percent, even if there has been a recent surge in oil prices during the past few weeks. The self-rated poverty and hunger indices of the Social Weather Stations, which has been monitoring welfare for the past three decades, has declined to record lows, which is a continuation of trends since 2014.
In terms of the eight-point agenda unveiled by the administration in its first few days, there is very little concrete progress so far as many of the items necessitate institutional of more medium- and long-term policy changes. But while the President’s “free hand” given to the government’s economic managers seem to “provide enough leeway to craft a high economic-growth path” (see Businessmirror, December 28, 2016), it might also show the lack of focus on the necessities of development, beyond criminality and drug issues. These agenda points include the following:
- Continuation of macroeconomic policies and undertake reforms in revenue collection. The government has released a package of tax reforms, including restructuring of the personal income-tax system, expanding the value-added tax, adjusting excise taxes on petroleum products and restructuring the excise tax on vehicles. However, the recent approval by the House of Representatives postponing the implementation of single tax rates of cigarettes may derail reform moves to increase public revenue.
- Accelerating infrastructure spending. Fiscal data estimates show that infrastructure spending will increase to 5.1 percent to 5.2 percent of GDP this year and 5.3 percent to 5.4 percent of GDP next year, up from 4.3 percent in GDP in 2016. A policy of multiyear infrastructure spending would help. But the challenge would be to ensure there is sufficient human resources that would enable the targets to be met.
- Ensure attractiveness of the Philippines to foreign investments by also improving security and
reducing criminality. Bangko Sentral data on foreign direct investments for the July-to-September 2016 period show a significant drop in 2016 compared to that of 2015. However, this may be due also to a “wait-and-see” attitude of many foreign investors, especially as a new investments priorities plan is being developed. On the other hand, while Philippine National Police data show a decrease in “index” crimes (including crimes against persons and property) in the July-to-September 2016 period, the number of murders have soared by 50 percent. There have been discussions in Congress on instituting constitutional reforms to improve entry of foreign capital, but, unfortunately, the debate has focused mostly on a specific type of change in government structure, which may not necessarily be the appropriate response at present to a very centralized administration.
- Provide support services to small farmers to increase productivity. Recently, the government announced a significant increase in financing to small farmers, while Congress has approved a 10-percent increase in the government agency focused on irrigation. Attention has also been given to agricultural products other than rice. However, the government’s propensity for putting up specialized banks (see BusinessMirror, December 20, 2016, http://www.businessmirror.com.ph/landbank-to-set-up-ofw-bank-by-septembe...
) may be using resources from government financial institutions and limit the amount of resources necessary for rural development to flourish.
- Address bottlenecks in land administration. There have been very few pronouncements on improvements in land governance.
- Strengthen basic education system and provide scholarships. The current administration has chosen to keep the K to 12 reforms implemented by the previous government. However, the reforms in tertiary education may be threatened with the implementation of a free-tuition program which financing is not clear beyond this year.
- Expand the implementation of the Conditional Cash-Transfer Program. The 4 million Pantawid Pamilyang Pilipino Program beneficiaries will receive rice subsidies next year as part of the government’s efforts to strengthen the program. However, efforts to improve the education component of the program to ensure continuous schooling of children of beneficiary-families need to be undertaken.
Beyond progress on the agenda, there are several political and social challenges, which also threaten the broad economic gains. The rise in extra-
judicial deaths in the country have prompted issues on the human-rights front, and these have implications on foreign resources. During the past month, we have learned that a new round of grant funding from the US government, which has supported infrastructure and poverty alleviation efforts in the past four years, has been suspended. The filing of a bill on the death penalty has put in peril the tariff free entry of most Philippine commodities to the European Union under the so-called General System of Preferences that the country has enjoyed since 2014. There are also fears that the implied change in foreign policy may put into peril the business-process outsourcing industry, in which the basis of the growth of our middle class in the past decade or so.
All of these necessitate a stronger attention that the President and Congress should make to ensure that solid foundations for sustained growth should be in place. While many Filipinos continue to remain hopeful and optimistic about the country’s progress this year, the country faces some peril of a “single-issue” administration.
Tuaño is an associate chairman of the Department of Economics.