The National Development Project

In the first year of President Noynoy Aquino’s ascension into Malacanang, a revisit of the national development project was announced with the unveiling of the Philippine Development Plan 2011-2016 (aka The Plan).

The document which the ProPinoy Project has made available here took most of the year to churn out through the consultative process managed by the NEDA, the government’s lead economic planning agency.

Its ten chapters make for more hefty reading material than the scant Social Contract adopted by the Liberal Party during the last election. The Contract was simply a collection of principles mixed in with a number of promises covering key election issues.

It starts off with an exposition of our underdevelopment problem in chapter 1 and a broad treatment of macroeconomic policy in chapter 2. The remaining chapters are divided into different sectoral and thematic topics. Three chapters are devoted to the industrial, agricultural, and financial sectors. The remaining five cover the physical, social, governance, safety, and environmental themes.

Those whose expertise and hobby horses are located in any one of these sectoral or thematic areas will find the contents quite rich. For novices, it may sound like a lot of gobbledy gook given the numerous acronyms and different writing styles that tend to leave an at times incomprehensible and disjointed feel to the whole document.

As far as the big picture goes, the Plan drills down into too much detail to be considered a strategic document. A more cutdown version with a summarized version of the strategic objectives, outcomes and the strategies, targets and indicators for measuring them employed per area needs to be developed.

I believe the Cabinet Clusters announced through Executive Order 43 will in due course provide such a bird’s eyeview of the Plan. I have discussed in detail how I think that process will pan out here. At this point, however, I would like to focus on the underlying development theory embodied in the Plan itself.

Underdevelopment Explained

The failure of the Philippines to achieve growth that is rapid, broad and inclusive enough to cope with our growing, complex and geographically dispersed needs is the reason for our underdevelopment, the Plan states.

To understand the way the Plan works, several points have to be made:

  • The Plan identifies the lack of investment in physical and human capital as the main hindrance for fast, sustained and inclusive growth.
  • This in turn is hampered by poor governance and insufficient revenues.
  • For this reason, the chapters on infrastructural development, governance issues and social development would comprise the three most critical elements of the Plan. The rest are what it terms as ‘complementary strategies’.
  • To address the infrastructure bottleneck, the idea is to use a zero based budgeting process and the public private partnerships model.
  • This will be aided by a more competent and honest bureaucracy.
  • This will spur greater industrial development, which will generate jobs and improve revenues.
  • The increased flow of revenues will be allocated to more human, social, defense and environmental spending.

The Main Targets

The Plan targets several things, namely:

  • growth in the economy is to average 7-8 percent over the next five year period,
  • the share of investments to the economy is planned to rise from about 15% in 2010 to 22% by 2016,
  • one million additional jobs per year are to be generated,
  • the unemployment rate to hover at 6.8 to 7.2 percent (just below where it is now) as the labor force is expected to grow by 2.75% per year, and
  • poverty is to decline to 16.6 percent, half what it was in 1991 (in line with external UN commitments).

Despite failing to meet its targets in the past, the planners believe that things will be different this time around due to a number of auspicious events including the smooth transfer of power in the last election and a comfortable balance of payments position which has led to our exit from the IMF stabilization program (which means for the first time in decades, our policymakers would be free to chart an independent course).

When you strip away all the fluff from the document, it is really saying that with PNoy’s mandate and the favorable economy he inherited not just from his predecessor’s work but from the policy reforms instituted since the mid-80s, the country is poised to enter a new chapter in its development as a nation.

So does the Plan go boldly into previously untrammelled territory, or is it really promising more of the same?

Reality Check

The government itself acknowledges that its growth target of 7-8% is aspirational. It takes its cue from reports by Goldman Sachs and the like that a higher growth trajectory could be achieved with better governance. The more realistic outcome in the near term from which government has based its own revenue and budget projections on is the 5-6% band consistent with recent history and projections made by external agencies.

There are three conclusions I would like to draw:

  • What we have learned from recent history is that this level of growth of 5-6% is not sufficient to make a dent in our unemployment and poverty rates.
  • PNoy’s government hopes to emulate the infrastructure spending of Mrs Arroyo during her last couple of years which elevated the growth to 7%.
  • The only difference this time is that it seeks to avoid the irregularities and excessive clientelism that hampered her administration.

This explains why in his first year in office, PNoy has been setting the governance framework for properly overseeing the PPPs. If the government intends to increase growth by 1-2% points equivalent to 100-200 billion pesos per year, it had to lay the groundwork for allocating these resources. The second year will be crucial in testing this framework.

The most significant test will be whether the bidding of the projects is transparent and free of clientelism. PPP’s in the Philippines have had a spotty record. Rather than a national development project, the public has tended to view these projects as a conspiracy for enrichment by the ruling elites.

The delayed roll-out of the PPPs along with personality issues hampering the president’s bossom buddy involving the takeover of a private contractor were early warning signs that all was not well within the administration. The president’s uncle’s takeover of one major concessionaire also added to these conspiracy theories. This has given the cynical public reason to be apprehensive to say the least.

In search of a new model

In 2011, the ten or so projects set to be bidded out amount to some 149 billion pesos. Not all of that amount will be spent in 2011 or 2012 for that matter. Even with a multiplier effect, one can plainly see that the spread and scale of the original roll-out will be insufficient for meeting the growth targets in the first and second years. Some of the initial projects in fact merely involve auctioning off existing operations of the LRT and Laguindingan Airport, which will not produce many new jobs.

What will provide them are investments in productive industrial sectors in the regions. The PPP Center is meant to assist local government units in identifying and proposing such kinds of projects.

The government has identified the areas in which it is looking these projects to invest. The priority list mimics its investment priority plan for industry, services and agriculture. Whether it chooses to admit it or not, the government is already in the business of picking winners.

The question is according to economist Dani Rodrik who has studied this area, not whether the government can determine if it has a winner, but whether it can determine when it has a loser. To perform this function well, it will have to take its cue from East Asia and re-examine its overall governance agenda.

(to be continued…see Part 2: Re-defining Good Governance)

Doy Santos aka The Cusp

Doy Santos is an international development consultant who shuttles between Australia and the Philippines. He maintains a blog called The Cusp: A discussion of new thinking, new schools of thought and fresh ideas on public policy (www.thecusponline.org) and tweets as @thecusponline. He holds a Master in Development Economics from the University of the Philippines and an MS in Public Policy from Carnegie Mellon University.

  • UP nn grad

    Can an all-foreign enterprise ( like SKA Air and Logistics, Egis, Celebi Hava Servisi or PortGround gmBh) be PPP-airport-project winners, or do these foreign enterprises need to do handshake-deals with Makati Business Club names?

  • GabbyD


    What we have learned from recent history is that this level of growth of 5-6% is not sufficient to make a dent in our unemployment and poverty rates.”

    why not?from the internet, the country has never had sustained growth in this range for too long.

    • If you follow the link to the Golman Sachs report, it says that the average growth rate from 2001-2006 was 5%. The report was written in 2007. If you factor out 2009, where we saw the effects of the global financial crisis, the average for 2007, 08 and 10 is around 6%. So nearly a decade of sustained growth at 5-6%.

      Like China which when it grows at a slower clip of 7-8% from its usual 9-10%, which it did during the Global Financial Crisis and saw 20 million migrant workers lose their jobs, if the Philippines grows below 7%, at 5-6% the tendency is for unemployment to rise simply because of the growth in the labor force every year.

    • GabbyD

      but look at the google data explorer. you’ll find that the gdp growth figs of the philippines has huge variation, and isnt smooth over time. in other words, there is no sustained growth at that level. the average hides this. china’s growth rate over time is much smoother, more sustained. so there’s a difference.

      • Most economic plans are based on averaged growth rates, usually five year moving averages anyway. The original point remains valid I think despite the qualifier that there has been some variability.

        The govt continues to maintain an aspirational target that is higher than the historical trend in its planning document, but its budget documents are based on the continuation of the past.

        The record shows that this type of growth falls short of producing the one million jobs needed to reduce poverty. Ergo, you cannot help but draw the conclusion made in the piece.

      • GabbyD

        huh? my point is simple. you claim that 5-6% growth is insufficient for so-and-so.

        my point is that we dont know, because we havent had sustained growth of this magnitude in recent history. whereas, other countries, have had at least 7 years straight of such growth.

        • Your point is invalid GabbyD for the simple reason that you conflate sustained growth with constant growth.

          • GabbyD

            ok. i’ll bite. whats the practical difference?

          • Constant growth would mean growth that doesn’t deviate from the mean. Sustained growth means continuous growth around a mean.

          • GabbyD

            in terms of effects growth, there is no practical difference between the two concepts.

            the difference is that,as an empirical matter, (truly) constant growth is impossible to observe.

            the point i was making is that the philippines has had NEITHER SUSTAINED NOR CONSTANT growth at that level.

            so we dont know anything about the effects of growing at that rate.

          • You are simply nit-picking, GabbyD. As an economic development planner, I assure you that no one uses your definition of sustainable growth in the Philippines or in Australia.

            Remember that as per the Plan, they expect growth to be 7-8% ON AVERAGE, and unemployment will be just below the present rate of around 7.2-7.4% to be at 6.8%-7.2%.

            Conversely, if the growth AVERAGES 5-6% as it has in the past, then it would mean that the unemployment rate would not budge very far from where it is currently.

            It is such a simple argument really. I don’t understand why you have to complicate it with these hair-splitting exercises.

          • FYI, sustained growth is just a continuous period of growth that does not produce asset bubbles, contagion or financial fragility. Going by that definition, the Philippines has experienced sustained growth.

            The problem now is how to attain a higher level of growth that is sustainable which means will not cause a crash later on.

    • UP nn grad

      One may want to look at the historical GDP growth rates of Thailand, Malaysia and Taiwan. To stay-even, Pinas has to have the same growth rates of Thailand.

      To catch up, Pinas has to achieve a higher growth rate than Thailand.

      And since governments usually achieve LESS than what they hope to get, Malacanang targetting a lower growth rate is to doom Pilipinas as an oddity — a persistent underachiever — among its neighbors.