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Two Years of "Aquinomics"

Two Years of "Aquinomics"

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CONTENTS BUSINESS NATION WORLD TECHNOLOGY HEALTH/LIFESTYLE
Two Years of
‘Aquinomics’
The economy’s growth and
credit ratings are up, but watch
out for investment, prices,
poverty and jobs
STRATEGY POINTS
With ñscaI reforms and higher growth IeveIs
in place since 2006, the economy is showing
increasing strength under President Aquino
Beyond GDP growth and credit ratings, what
economic development needs are reforms to
boost competitiveness and investment
The rise in self-rated hunger, poverty and
unemployment despite P50 billion in CCT
underscores the need for jobs, not stipends
G
enuine, meaningful change.” That was
Iow MuIucuñung PuIuce ussessed LIe hrsL
two years of President Benigno Aquino III’s
term. The Palace statement added: “No longer
is the Filipino mired in paralysis and despair; he
Ius seen LIe seemIngIy dIIhcuIL Lusks ucIIeved.¨
The message builds on its hrsL-yeur sLuLemenL:
“In one year, apathy has been replaced by
a renewed sense of partnership between
government and the people.”.
There are undoubted gains, as may be expected
wILI un economy bequeuLIed hscuI reIorms,
massive infrastructure and 7.6% growth by the
previous administration. After a disappointing
2011 due to government underspending and
global slowdown, the Philippine economy
appears off to a rousing start this year. Its
6.4% growth Ior LIe hrsL quurLer exceeded
many economists’ expectations, and made the
Philippines the second fastest-growing major
economy in East Asia, after China.
After dropping sharply in late 2010, business
conhdence as measured by the Bangko Sentral’s
By Verbo Bonilla
BUSINESS
70
60
50
40
30
20
10
0
-10
-20
-30
-40
2001 2002 2003 2004 2005 2006 2007 20
Current Quarter
Next Quarter

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4
:NKcenSEI8KVUXZ - July 9-13, 2012
quarterly survey, has been on the upswing
through last year until mid-2012, though it is
down for the coming quarter. Foreign direct
investments (FDI) showed a huge 72.4%
increase in January-March over a year ago.
The local stock index is trading above its highest
ever. And the country’s credit rating has been
seeing upgrades by several agencies since the
start of Aquino’s term, the latest being last
month’s rerating by Standard & Poors to BB+,
the best since 2003.
Exactly how much of these positive
developments have been due to genuine,
meaningful reforms instituted by the
present administration? More importantly,
how much of the reported gains so far
would prove long-lasting? And what major
initiatives should the President and the
Cabinet prioritize to boost long-term growth
and development?
Competitiveness is key. Not all news
has been positive, of course. Just late last
month, in the midst of the surge in investor
optimism, Ford Philippines, the country’s
sole motor vehicle exporter, announced its
decision to close its assembly plant due to “
lack of a broad supply base” for car
components, as there is in Thailand.
With its closure, there were fears voiced by
remaining players in the automotive assembly
industry that others might follow Ford’s
example if meaningful reforms are
not undertaken.
The country’s overall competitiveness
also remains low compared to its peers, as
assessed by the Swiss-based Institute for
Management Development in its latest World
Competitiveness Rankings. The 2012 grades
released in May, had the Philippines drop two
notches from its previous perch. And foreign
direct investments into the Philippines still
lag behind its neighbors. Perhaps the most
disappointing statistic is the one project bid out
among 22 under the public-private partnership
(PPP) program touted by President Aquino in
IIs hrsL SLuLe oI LIe NuLIon Address neurIy
two years ago.
THE PHILIPPINES BOUNCES BACK
Business Confdence and Year-on-Year Quarterly Growth
Charts by Bangko Sentral ng Pilipinas
Two years of ‘Aquinomics’
08 2009 2010 2011 2012
55.4
44.6
33.0
31.8
40.5
44.5
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CONTENTS BUSINESS NATION WORLD TECHNOLOGY HEALTH/LIFESTYLE
In her
Philippine
Daily
Inquirer
column
last week,
former
economic
planning
secretary
Solita
Monsod
raises
similar
concerns
about
investment,
citing the
World
Investment
Report 2012
recently
published
by the U.N.
Conference
on Trade
and
Development. The University of the Philippines
professor summed up the UNCTAD assessment
of the country, based on low rankings in
FDI attractiveness and contribution despite
investment potential better than most countries:
“The Philippines is among the least attractive
oI counLrIes Lo Inßows oI ¡D¡, und LIe ¡D¡
it attracts contributes the least (relative to
other countries) to our development.” Hence,
the country is deemed to be doing “below
expectations” (see PERFORMANCE AND
POTENTIAL table).
It is consistent and persistent concerns like
these about the Philippines’ competitiveness
and sustainability that puts a damper on many
glowing reports and makes premature any
chest-thumping by the government. And the
Aquino administration does acknowledge that a
lot remains to be done.
So what exactly
has been
achieved?
According to
the Philippine
Development
Plan (PDP)
2011-2016, the
administration’s
overarching
goal is inclusive
growth: broad-
based,
cross-sectoral
development
benehLIng LIe
majority of
the population
especially the
poor. Broad
economic
strategies under
the PDP include
“boosting
industry
competitiveness
to generate
more employment,” “improving access to
hnuncIng,¨ und ¨mussIve InvesLmenL In pIysIcuI
infrastructure.”

The Social Contract with the Filipino People,
which lists Aquino’s campaign promises,
provides additional economic targets for
the administration: impartial government
policies, rural development, anti-poverty
programs that are not dole-outs, private sector
competitiveness, and local opportunities for
OFWs. In assessing the administration’s
economic performance, this article will discuss
achievements in business competitiveness,
job generation, infrastructure investment, and
poverty alleviation.
Industry needs policy and infrastructure
support. On competitiveness there appears
little done in the past two years by way of
Country FDI Year on
Year Growth
FDI (in billion
US$ - Q1 2012
% of Total
Philippines 72% 0.85 5%
Vietnam 0.8% 2.5 13%
Indonesia 30% 5.6 30%
Malaysia 15% 2.3 12%
Thailand 106% 7.3 39%
Total 18.55 100%
WHERE’S THE MONEY?
Foreign Direct Investment, January-March 2012
ailand
39%
Malaysia
12%
Indonesia
30%
Vietnam
14%
Philippines
5%
Chart from "PHL Inbound FDI Increased by $850M in Q1 2012:
So What?", June 13, 2012 blog entry on antipinoy.com
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6
:NKcenSEI8KVUXZ - July 9-13, 2012
genuine, meaningful reforms for industrial
development. Many long-standing policies,
ßuwed or oLIerwIse, remuIn In eIIecL. ¡n
mining, for instance, new policy guidelines to
uddress conßIcLIng sLukeIoIders` concerns Iuve
for the longest time been forthcoming but never
yet issued.
For the business-process-outsourcing industry,
sometimes billed the economy’s lone bright
spot, President Aquino recently announced
₧500 million for training its workers —
continuation of a policy started by his
predecessor. Of bigger and possibly detrimental
consequence to the industry may be Aquino’s
abolition of the Cabinet-level Commission on
Information and Communication Technology,
while the bill creating a Department of ICT has
yet to be enacted.
The administration still has no
industrialization roadmap to speak of,
although efforts are already being taken
towards its development. Industrialization
has been key to the success of many
neighboring countries in Asia. In “Taking
the Right Road to Inclusive Growth,”
a comprehensive Asian Development Bank
study about Philippine development, author
Norui Usui said that “without dynamic
industrial development, the country will
continue to suffer from the long-standing
problems of high unemployment, slow poverty
reduction, and low investment.”
Two years of ‘Aquinomics’
1
s
t


q
u
a
r
t
i
l
e
Chad, Liberia, Madagascar,
Niger
Albania, Bahamas, Congo,
Congo (Democratic
Republic of), Equatorial
Guinea, Jordan, Lebanon,
Luxembourg, Mongolia,
Mozambique, Zambia
Bulgaria, Ghana, Ireland,
Israel, Nigeria, Norway,
Panama, Turkmenistan,
Uruguay
Australia, Belarus,
Belgium, Brazil, Chile,
China, Colombia, Hong
Kong (China), Kazakhstan,
Malaysia, Peru, Poland,
Russian Federation,
Saudi Arabia, Singapore,
Switzerland, Ukraine,
United Kingdom, Viet Nam
2
n
d

q
u
a
r
t
i
l
e
Armenia, Cambodia, Guinea,
Nicaragua, Saint Vincent and the
Grenadines, Solomon Islands
Costa Rica, Georgia,
Honduras, Kyrgyzstan,
Libya, Maldives, Malta,
Namibia, Seychelles,
Sudan, United Republic of
Tanzania
Brunei Darussalam, Croatia,
Dominican Republic, Egypt,
Estonia, Iraq, Portugal,
Qatar, Serbia, Tunisia,
Uzbekistan
Austria, Canada, Czech
Repubic, France,
Germany, Hungary,
India, Indonesia, Meico,
Netherlands, Romania,
Spain, Thailand, Turkey,
United Arab Emirates,
United States
3
r
d

q
u
a
r
t
i
l
e
Antigua and Barbuda, Belize,
Cape Verde, Central African
Republic, Djibouti, Dominica,
Fiji, Grenada, Guyana, Mali, Sao
Tome and Principe, Vanuata
Barbados, Botswana,
Cameroon, Lao People's
Democratic Republic, the
former Yugoslav Republic
of Macedonia, Mauritius,
Moldova, Myanmar,
Uganda, Zimbabwe
Algeria, Azerbaijan,
Bolivia, Denmark, Gabon,
Guatemala, Iceland,
Jamaica, Latvia, Morocco,
Oman, Pakista, Syrian Arab
Republic, Trinidad, and
Tobago
Argentina, Finland, Iran
(Islamic Republic of), Italy,
JApan, Korea (Republic
of), South Africa, Sweden
4
t
h

q
u
a
r
t
i
l
e
Afganistan, Benin, Bhutan,
Burkina Faso, Burundi,
Comoros, Cote d' Ivoire, Eritrea,
Gambia, Guinea-Bissau, Haiti,
Kiribati, Lesotho, Malawi,
Mauritania, Nepal, Rwanda,
Samoa, Sierra Leone, Suriname,
Swaziland, Togo, Tonga
Angola, Bangladesh,
Bosnia and Herzegovina,
El Salvador, Ethiopia,
Kenya, Papua New Guinea,
Paraguay, Senegal,
Tajikistan, Yemen
Bahrain, Ecuador, Greece,
Kuwait, Lithuana, New
Zealand, Philippines,
Slovakia, Slovenia, Sri Lanka
Venezuela (Bolivarian
Republic of)
4rt quartile 3rd quartile 2nd quartile 1st quartile
PERFORMANCE AND POTENTIAL
Matrix of Foreign Direct Investment Attraction and FDI Potential Indices, 2011
Above expectations In line with expectations Below expectations
F
D
I

A
t
t
r
a
c
t
i
o
n

I
n
d
e
x
FDI Potential Index
HIGH
L
O
W
HIGH
Table from UNCTAD World Investment Report 2012, page 32
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CONTENTS BUSINESS NATION WORLD TECHNOLOGY HEALTH/LIFESTYLE
The ADB senior economist added that
boosting the industry sector could lift more
people out of poverty because it, unlike
the service sector, is capital-intensive and
provides jobs even to individuals with low
educuLIonuI uLLuInmenL. OLIer specIhc poIIcy
recommendations to help craft the Philippine
industrialization roadmap are contained in the
report. Also worth government attention are
prescriptions for building competitiveness and
attracting investment in the UNCTAD World
Investment Report 2011 (see How to Attract
Investment table).
On jobs, LIe IuLesL oIhcIuI unempIoymenL hgures
sIow sIIgIL guIns. TIe NuLIonuI SLuLIsLIcs OIhce
Actions
Selected measures on the part of...
LCD governments Development partners
Strengthen
public-private
infrstructure
development
efforts
· Pursuing a liberalization of infrastucrture
sectors and stable regulatory frameworks to
ensure competitive outcomes and protect
the national interest
· Legal and regulatory framework for PPPs,
with pipeline of projects and regional
coordination
· LDC infrastucture development
fund focused on infrastucture
PPPs: risk coverage, direct
participation and lending on soft
terms
· Technical assistance for
regulation and implementation of
infrastucture PPPs
Boost aid for
productive
capacity
· Increased public investment in technical
and vocational training
·Reform of immigration and work permitting
procedures
· Aid-for-prodcutive capacity
funds, including support for
technical and vocational training
and entrepreneurship
Enable frms of all
sizes to capture
LDC oppotunities
·Proactive targeting of SME FDI and "impact
investors"
·Proactively promoting of the primary sector
with opportunities for fast technological
catching-up, e.g. telecom services,
renewable energy
· Risk coverage institutions at
the national level to service SME
FDI
·Home-country measures to
help frms tap into business
opportunities in LDCs: IPA-
EPA coordination mechanisms,
"impact investments" regulatory
framework
Foster local
business and
ease access to
fnance
· Credit guarantee schemes for micro, small
and medium-sized frms, and strengthened
development banks
·Regulatory reform to enable SME access to
bank lending and strengthen infrastucture
·Simplication of procedures for formal
business development
· Technical support for the
development of fnancial
infrastucture and regulatory and
institutional environment
· Support for increased lending
and credit guarantee schemes
for SMEs
Start the next
wave of regulatory
and institutional
reform
· New reform to put increasing emphasis on
aspects of regulations that shape FDI impact
and strengthen State institutions, including
taxation and competition
·Building on mutually reonforcing interests:
avoid command and control regulatory
bias, establish systematic consultation
mechanisms with investors on draft laws
·Build client-oriented investment institutions
·Strengthened efforts to combat corruption
under top to bottom zero-tolerance policy
·Strengthened technical
assistance on key regulatory
issues, including taxation and
competition
·Systematic institution twinning
·Adoption of home-country
measures to support LDCs: tax
engineer avoidance, oversight of
business practices by TNCs
THE UNCTAD FORMULA
Table from UNCTAD World Investment Report 2011, page 78
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:NKcenSEI8KVUXZ - July 9-13, 2012
(NSO) reported 6.9% unemployment as of
April, down by tiny 0.3 percentage point from
a year ago. But the private Social Weather
Stations (SWS) survey of May 24-27 estimated
the jobless at 26.6%, down from the usual
surge In hrsL-quurLer unempIoymenL soon
after graduation, but up from 22.9%, the more
compurubIe hgure In June zo11. And job queues
may get longer in the current quarter, when
rains limit construction work, idling tens of
thousands of building workers.
The fact is, despite Aquino’s avowed goal
of inclusive, job-generating growth, the
government still has no comprehensive
job generation program up to now. In all
LOOKING FOR WORK
SWS and NSO Unemployment Data
Two years of ‘Aquinomics’
Chart and data from Social Weather Stations
SWS Adult Unemployment Rate*
SWS and NSO Unemployment RAte*, Philippines, SEp 1993-May 2012
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CONTENTS BUSINESS NATION WORLD TECHNOLOGY HEALTH/LIFESTYLE
probability, this problem is linked to the
earlier discussed absence of any clear
industrialization plan. Regardless, this is
time and again raised against him since the
start of his administration.
With regard to public works, the
administration has made PPP the centerpiece
of its infrastructure development program.
But none of the big-ticket infrastructure
projects announced by government in
2010 has been awarded. Only the medium-
sized Daang-Hari road project was
contracted in late December, and it has
yet to commence construction.
State infrastructure projects have also
suffered from slow implementation.
Last year, government underspending
largely contributed to the sharp decline in
economic growth to 3.7%. This year it
remains a concern. Economist and former
budget secretary Benjamin Diokno writes in
his Malaya newspaper column that the Aquino
udmInIsLruLIon, ¨mIssed ILs hrsL quurLer zo1z
spending goal by some ₧46 billion.”
Despite
accelerated budget
disbursements
In LIe hrsL IuII oI
2012, only 27% of
the ₧287-billion
“total public
infrastructure and
capital outlays
program in 2012”
been disbursed
as of June. With
the rainy season
slowing down
most construction
work, it is doubtful
whether the
infrastructure
agencies will be
able to make much
of a dent in the remaining ₧209.7 billion, or 73%
of the 2012 program, between now and the end
of the year. This will have an impact not only on
growth and jobs, but also on competitiveness
and investment, given that inadequate
infrastructure is a perennial business complaint.
Can CCT solve poverty? To uplift the poor,
the Aquino administration expanded the
Arroyo-era conditional cash transfer program,
dubbed Pantawid Pamilyang Pilipino, as its
centerpiece poverty alleviation strategy. From
an allocation of P10 billion in 2010, its budget
has been increased, to P21.2 billion in 2011
and P39.5 billion this year. The proposed
2013 government budget would raise the CCT
outlay to an unprecedented ₧45 billion, easily
exceeding some departments’ entire budgets.
This supposedly would increase the number of
benehcIurIes Lo ¸.; mIIIIon IouseIoIds Irom LIe
current 3 million.
Critics say that reliance on CCT is a complete
turnaround from Aquino’s campaign promise
of eschewing dole-outs. Its impact on poverty
remains uncertain, especially in the long-term,
Self-Rated Poverty: Families Who Are "Mahirap"
Philippines, Apr 1983 to May 2012
POOR AND
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:NKcenSEI8KVUXZ - July 9-13, 2012
and recipients still prefer jobs to stipends. Even
immediate, short-term results gleaned from
Iunger und poverLy hgures ure mIxed. Average
self-rated poverty according to SWS polls has
risen from 48% in 2010, to 49% in 2011, to 53%
In LIe hrsL IuII oI zo1z, despILe LIe IncreusIng
CCT allocation during the period. This is
accompanied by average severe hunger of 3.3%
in 2010, to 3.7% in 2011 and 5.3% in January-
May 2012.
More recent self-rated poverty and hunger
polls for the second quarter of the year
show slight improvements: 51% in self-rated
poverty and 4.8% in severe hunger. But these
are still higher than year-ago levels, when
the CCT budgets were much smaller. With
results such as these, the increase in the
stipend program’s budget has stirred
suspicions, in light of next year’s national
elections, that politics might play a role in the
continuation of assistance.
Reform remains slow. Summing up
two years of “Aquinomics,” three broad
realities emerge. First, President Aquino’s
quest for credit ratings led to underspending,
which slashed 2011 growth and delayed
infrastructure — two major investor concerns
which led to lower IMD competitiveness
rankings. Fortunately, the government
has since ramped up spending, even if
many public works and PPP projects remain
stuck in neutral.
Second, poverty alleviation has largely
been left to the Department of Social
Welfare’s CCT program, with little stress
on mIcrohnunce, vocuLIonuI LruInIng,
emergency employment, and other
livelihood programs pushed in the past
administration. With the CCT-centered
strategy, self-rated hunger, poverty and
unemployment have hit record levels this
year, even if they have since come down.
That unimpressive outcome, despite the
disbursement of nearly ₧50 billion in
monthly stipends, tends to cast doubt on
the overall strategy.
Lastly, despite repeated pronouncements that
its good governance program would make the
Philippines a
more preferred
business
destination,
the IMD and
UNCTAD
rankings show
that reforms
to boost
competitiveness
and investment
attraction still
have far to go.
And unless
those policy
moves make
solid advances,
gestures such
as the $1-billion
loan to the
International
Two years of ‘Aquinomics’
HUNGRY
Degree of Hunger in Households,
Philippines, July 1993 to May 2012
Charts from Social Weather Stations, May 2012
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CONTENTS BUSINESS NATION WORLD TECHNOLOGY HEALTH/LIFESTYLE
Monetary Fund to help “stabilize the world
economy” will do little to lift the Philippines in
the eyes of global investors.
Rather, it is imperative to deliver real
ImprovemenLs In busIness eIhcIency.
On this front, one more crucial barometer
is the World Bank-International
Finance Corporation annual Doing Business
report. In the 2012 rankings and indicators
for the Philippines, the country slipped two
notches to No. 136 overall among 183 countries
and territories. In the crucial Starting a
Business process, the country rated
even worse: 158th, behind Malaysia (50th),
Thailand (78th), Vietnam (98th), and
Indonesia (129th).
For a leader and an administration that
trumpets good governance as the key to
economic growth and liberation from poverty,
cutting red tape and corruption in business
processes has to be a crucial measure of
government success. So far, in this key category,
President Aquino has yet to get a passing grade.
government success. And so far, in this key
category, President Aquino has yet to get a
passing grade.
EASE OF DOING BUSINESS 2012
Where the Philippines Ranks in Key Indicators
Graphic from World Bank-IFC Doing Business 2012 Report, page 8
Two years of ‘Aquinomics’
Starting a Business (158)
Dealig with Construction Permits (102)
Registering Property (117)
Getting Credit (126)
Protecting Investors (133)
Paying Taxes (136)
Trading Across Borders Paying (51)
Enforcing Contracts (112)
Resolving Insolvency (163)
Getting Electricity (54)
183
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