Thursday, 24 November 2011

2011: A Wasted Year

Business Mirror
ONCE again the Philippines is locked in political drama while economic issues are placed far on the back burner of government priorities.

The Aquino administration inherited an economy that survived well the first wave of the global meltdown. Given the public support during and after the last elections and a continued high approval rating, it was an opportunity to make some far-reaching proposals and create programs that would have had a very favorable impact both in the short and long term.

In the business community, while always skeptical of government, the Public-Private Partnership Program was greeted with optimism and even enthusiasm. This was to be the center point of the new government. Unfortunately, the PPP seems stillborn at best and aborted at worst.

There is a sharp contrast between what you can see economically at ground level and what the economic experts see while sitting on top of the mountain.

Business activity continues to be good. Go to the malls in Makati, for example, and you will find evidence of business being brisk. Travel to Davao City and see the huge revenues that the Shoemart group is generating for the local economy with their new mall.

Yet the World Bank has again lowered the economic growth forecast for the country. The World Bank at one time expected a near 5-percent growth. Now its projection is down to 4.2 percent.

The Philippines needs 4-percent gross domestic product growth just to stay where it is, to break even so to speak. Five-percent growth is acceptable as it keeps the economy a little ahead of the game. But 4.2 percent basically says that the nation, after some 18 months of the Aquino presidency, is no farther along, no better than when the President took office. This is not good at all.

While the Malacañang press releases harp about all the foreign investment that the President’s foreign trips have generated, the real numbers are dismal. The newspaper headlines say that foreign direct investment jumped 32 percent in the third quarter. The truth is that during January through September, a grand total of $2 billion had been invested in the Philippines. That is the equivalent of giving each man, woman and child in the country P1,000. It’s nothing near what the economy needs.

More could and would come if positive action on the economy was not just one of the priorities but the top priority of the government.

Several foreign chambers of commerce joined Philippine business groups to create a long wish list of things that the government must do both for local and foreign businesses. It is ridiculously long. However, the specifics are critically important. The government has yet to formulate a clear and concise policy on mining. There has been no movement on rationalizing the fiscal incentives for new investment. Nothing has been done to improve the build-operate-transfer law.

The key is that this list shows that in the last 18 months, economic policy decisions and laws dealing with the economy have been placed on hold.

A new and comprehensive framework for both local and foreign investment does not exist on paper, only in the mouths of the political leaders.

The current administration has done a good job of building on the government’s fiscal foundation laid by the last administration. The budget deficit is in good control. The amount of foreign-currency reserves actually makes the Philippines a creditor nation rather than a net borrower. It is very likely that the country will soon receive a credit-rating upgrade. But at what future cost?

Government spending primarily on infrastructure is down 12 percent since last year. That is a huge amount and would have made the difference between current expectations and a 5-percent growth rate.

The difference between the economy growing at 4.2 percent and 5.2 percent is enormous in terms of private wealth creation, taxes and investment for the future.

Because the government has not done an adequate job in 2011, 2012 growth will also be lower than an acceptable 5 percent.

The government has failed in its responsibility in 2011 to maximize economic growth. While it speaks of preparing and planning for any major global economic problems, at this point, it is all words.

It looks like 2012 may be a very difficult year for the global economy. The government may be forced to come in with more handouts, which would not be the case if had spent taxpayers’ money on projects in 2011 to create wealth. It’s like giving fuel subsidies to jeepney drivers, when government should be working instead on policies to ensure cheaper and adequate fuel supply.

And by some miracle if the world can come out of economic stagnation next year, once again the Philippines will be behind all the rest.


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