Tuesday, 15 December 2009

Time to leave the sugar daddy

John Mangun
Outside the Box
Business Mirror

You could probably make a full-time career out of reading all the “experts” commenting on why the Philippines has failed to achieve sustainable economic development. In fact, it seems like everyone is an expert on this topic.

But no one seems to be able to put a finger on the root cause of sustainable growth and development.

In Public Affairs magazine, there comes a very enlightening article and analysis about the lack of economic development of the Philippines. Author Thomas McHale starts from the beginning: “Despite widespread physical destruction and economic disruption caused by the Pacific War, the Philippines occupied a uniquely favorable position in the Far East at the time it gained its independence in 1946. For one thing, the country had abundant dollar resources and a stable currency which permitted unrestricted imports. For another, it possessed extensive material resources on which to base a sound economy. Of equal importance was the availability of an experienced administrative class, as well as a rapidly increasing number of skilled technicians in many fields.”

The interesting thing about this is that virtually all of those same conditions that existed in 1946 exist today. We have abundant natural resources upon which to build an economy, the peso is stable, and our foreign-currency reserves are more than adequate. We can buy almost any technology and expertise we need to develop Philippine business and commerce. Government institutions and agencies have been in place for a long time, some since the beginning of the American occupation. We have at least the core of all the labor and management skills we require as evidenced by the number of these highly skilled individuals who are employed overseas.

McHale is not optimistic in spite of the positive foundation that the Philippine holds. “Despite the disbursement of more than $2 billion by US government agencies, the national economy has shown no basic improvement. Indeed, the basic structure of the economy has become weaker and will probably continue to do so.”

In summary, the Philippines had many positives after World War II, we still have those positives, and yet the outlook is not bright.

Many of you are nodding in agreement with McHale and thinking, “Of course, and it is obvious why. It is because of corruption, or problems with peace and order, or the politicians, or specifically the President, or the rich oligarchy, or whatever else you want to point your finger at. And, of course, also, nothing will change until that particular “problem” is solved.

So McHale is another of the long line of “experts” forecasting gloom and doom for the Philippines. Except for one little thing. The issue of Public Affairs magazine that carried McHale’s analysis and dismal forecast was published in June of 1952. Yes, McHale may be the only true expert as he wrote his words 57 years ago.

From the June 1952 article, McHale continues: “In the immediate postwar years, government finance and domestic production suffered from the combination of an unrestricted import policy and a lack of constructive economic planning which left the country almost wholly dependant upon external agencies for its existence.”

Note that all of the “problems” you might have mentioned above, existed in 1952. However, the two core problems that McHale cites, unrestricted imports and a lack of constructive economic planning, do continue until today.

It would be easy to attribute economic-planning failures to the individuals in charge of that planning. But I think the problem is deeper and more theoretical.

The Philippines has never asserted itself through its foreign policy, which has had a direct impact on its economic development.

For 50 years this country took its foreign and economic-policy signals from the United States. McHale writes later in 1962, “The US made two contributions which, according to American observers, were of great assistance to Philippine economic welfare: free trade with the US and the peso was pegged to the dollar at the rate of two to one. However, it was precisely because of free trade and the artificially high value of the peso that the Philippines could not protect its industries.”

We see the same things still occurring, hurting the economy. The government is always looking for freer trade with China which has and will continue to destroy local manufacturing businesses from everything from shoes to washing machines. The government is keeping the peso artificially low in relation to the dollar, trying to keep our imports to the US competitive with China (impossible) and others with whom we are still uncompetitive. Further, a lower peso psychologically keeps the Philippines on the same side as the Americans who desperately need the dollar to remain the world’s currency while others are making their own independent currency policy.

The Philippines allows and even encourages foreign governments and organizations to influence policy decisions in a manner that is forbidden in all other Asean countries. Can you imagine the Chinese response to Greenpeace and others protesting their mineral-development policies?

The Philippines had a “Sugar Daddy” in 1952 and that did not work out very well. It is time to try a different approach to economic policy, like finding our own path, creating our own priorities and making our own decisions based exclusively on our own self-interests.

PSE stock-market information and technical-analysis tools were provided by CitisecOnline.com Inc. E-mail comments to mangun@email.comThis e-mail address is being protected from spambots. You need JavaScript enabled to view it .

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