OUTSIDE THE BOX
The number of trained, academic economists whom I have respect for their judgment I can count on one thumb. That person is Dr. Cielito F. Habito, director of the Ateneo Center for Economic Research and Development.
Dr. Habito is a rare academic who has a practical, reality-based perspective in his economic analysis. While I am sure he brings incredible performance to Ateneo, I have always been surprised that some huge multinational conglomerate is not paying him megabucks for his wisdom.
In a newspaper column for the Inquirer last month, Dr. Habito talked about “Aquinomics,” what that has meant to the country but, more important, what Aquinomics truly is.
The confusion of economic policies under the Aquino administration makes it difficult to figure out actually what the broad Aquino economic policy is. The public-private partnership is a campaign slogan, not a program. Policy contradictions between critical departments like finance and the central bank are common. The fiscal policy of government spending against fiscal policy of a balanced budget seems to go in circles.
Yet, Dr. Habito tries to make sense of Aquinomics by characterizing it as “economics of business confidence.” Government spokesmen would like to make this connection: if the government pushes for good government, this creates a climate of business confidence.
There is some validity to that view. However, when you look at the practical aspects of this newly found “good governance,” the theory may fall apart. Reviewing the 2004 election might be an interesting mental exercise. But I am sure one defeated presidential candidate from 1992 would like that election examined also. And there are probably those who would like a recount from 1986. While the administration makes a point of noticing new judicial cases filed against smugglers and tax evaders, I wonder how much confidence-building can come from the government simply enforcing the laws that it is elected to enforce.
With respect to Dr. Habito’s “economics of business confidence,” confidence is a two-way street.
Business and the public can have confidence that the government will do the right thing, policy-wise. But also, “confidence” can mean that we believe the government will not do anything seriously bad.
Dr. Habito points out that local investment and capital spending have been “consistently surging.” Yet at the same time, foreign direct investment (FDI) is falling, this year already down by 15 percent.
Those who focus on FDI have plenty of excuses: Middle East turmoil, Japan’s earthquake, the general global economic condition. But all that is really just nonsense. Foreign portfolio (buying Philippine stocks and government debt) investment is up 244 percent over last year.
I believe that locals are convinced, have confidence that the administration is not going to do anything terribly wrong to hurt the economy. Note: that is not the same as having confidence that the administration is going to do anything very good for the economic situation.
The flow of foreign money seems to echo that idea. FDI is a longer-term commitment that is based in part on longer-term confidence. The foreign money does not have that kind of confidence level to come in with a few billion dollars to buy corporate infrastructure and set up for the long haul.
Foreign money does have enough confidence to send in billions of dollars for the stock market and to purchase government debt “that they can turn into cash almost immediately” and then get out of the Philippines, if need be.
Foreign money is happy to buy local mining company stocks on the Philippine Stock Exchange and make a healthy profit. Foreign money is not willing to invest in setting up mining companies here in the country since the Department of Environment and Natural Resources refuses to give permits under President Aquino’s leadership and the administration is thought of as antimining.
It is as if both local and foreign money is saying, “We are willing to go out on a date but we are not confident about a permanent relationship.”
The administration has done little to arouse positive confidence and has also done little to force a feeling of “negative confidence.”
But here the country is after a year of the administration. The current situation cannot continue indefinitely. Local business spending has more than offset the fact that foreign money is not investing in the Philippines. But that is an impossible condition for the longer term.
At some point, the government is going to have to present a clear and concrete vision and specific proposals for the Philippines’ economic future. This must come sooner than later. The country is suffering, not from a lack of confidence in government, but from a lack of confidence that government can provide economic leadership.
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Wednesday, 20 July 2011