Two very disappointing sets of figures were released last week.
One: the anemic 3.4% GDP growth experienced by the Philippines in the second quarter of the year. That places growth in the first half at 4%. Economic managers have had to revise downwards their full-year projection to 4% from the targeted 7-8% (it would require growth of 10% in the second half of the year for the target to be reached, and not even the budget department’s assumption of 5% seems likely at this point).
Two: the abysmal jobs market in the US which saw no new net jobs created in August as many private firms became spooked by events in Europe and the US credit downgrade. The fact that high unemployment is expected to persist until 2015-16, perhaps even to 2016-17 (with many states coping with the end of stimulus by laying-off workers) has led many to conclude that the US is teetering on the brink of a double dip recession.
Bracing for the harsh winds from a US downturn, Sen Frank Drilon has called on the government to step up its infrastructure spending. Amando Doronila uses the findings of Credit Suisse which downgraded its growth prospects in the region which is expected to suffer “more than most” and cast doubts on the Philippines because it doubted whether
(T)he planned PPP (public-private partnership) infrastructure projects that many were bullish about were likely to get off the ground in a hurry.
In fact, the first couple of projects are scheduled to be bidded out at the end of the year, 18 months after the SONA in which it was announced. That means actual investments will not flow until well into the next year.
Economist Solita Monsod in her weekend column chastised our economic managers for not heeding the official early warning signs by accelerating public construction expenditure. She likened it to economic sabotage when she concluded
Public construction contracted by 23 percent in the third quarter of 2010 and 14 percent in the fourth quarter. Okay, that’s the price for trying to tighten procedures. But decreasing by 38 percent in the first quarter of 2011? And 51 percent in the second quarter?
Prevent plunder? Maybe. But there is economic sabotage in the process. What a choice Filipinos are faced with: between ill-intentioned plunderers and well-intentioned saboteurs.
Amando Doronila had more harsh words in today’s op-ed piece
The straight path to governance sainthood under the Aquino administration’s mantra, “without corruption there’s no poor,” is littered with the derelicts of pious slogans as well as the detritus of incompetent economic management. These derelicts cannot make up for the big deficit in economic performance.
Much like his American counterpart whose followers have become disenchanted with the meager results of his lofty campaign rhetoric, PNoy could soon find the public’s receptiveness to his slogans waning with each passing day.
After experimenting for a year with his idealistic Daang Matuwid will hard-nosed pragmatism be resurrected? A dual track is needed in which the administration pursues its good governance agenda in a way that does not hamper economic growth and development.
This is perhaps what the purists in his camp failed to consider, that the path to development is not a single lane, and that the two agendas can run side-by-side.
On Wednesday, I wrote a piece on the cabinet re-organization, called The Plan, hailing it is a significant positive development in the administration of the benevolent one.
In today’s Inquirer, Amando Doronila seems to think that it is more of the same, saying that it is a factional maneuver by Executive Secretary Paquito Ochoa, Jr, a member of Camp Binay, preempting the entry of rival camp leader Mar Roxas into the cabinet. Doronila opines that
The adoption of the cluster mechanism was no less a coup staged by Ochoa to fortify his position. It was announced amid statements by the President that he intends to appoint former Sen. Manuel A. Roxas II as chief of staff, a new Cabinet position with still unspecified functions and jurisdiction. The EO explicitly situates the ES at the apex of the Cabinet hierarchy, as the overarching “premier” of the President’s official family. There is no mention in the EO about the position of the chief of staff and the place of Roxas in the nomenclature and Cabinet hierarchy. The EO promulgated by Ochoa, presumably with the approval of the President, is an exclusion order that puts Roxas on notice that he has no place in the Cabinet, or a power base (emphasis added).
The basis for Doronila’s conclusion is the provision under Section 5 of the executive order that promulgates the cabinet restructure, which states
The Executive Secretary and the Secretary of the Presidential Management Staff shall attend all Cluster meetings as regular members, in the performance of their general monitoring and oversight functions (emphasis added).
This is where perhaps Doronila’s logic has gone astray. He seems to be reading too much into the above statement. How the ES goes from being an attendee to all cluster meetings to occupying the ‘apex’ of the process is beyond me. Why does he not make anything of the fact that the head of the Presidential Management Staff is also meant to sit in all the meetings?
Naturally, the President has to stay informed over the deliberations by his cabinet officials to stay on top of the situation. It would naturally mean being represented in all of these meetings by the ES, the PMS head and his communications people.
That is not to say that these representatives will be chairing the meetings or directing the process. The EO specifically designates two department agencies within each cluster, one to chair and the other to manage the secretariat.
May I suggest to those who think along similar lines as the mischievous columnist that the reason why the EO is silent over the role of chief of staff is probably because it hasn’t been created yet. A subsequent EO could well and truly clarify that role.
To me, Doronila is deliberately fanning the flames of factionalism by assuming there is some clandestine agenda in the design of the restructure. He seems to be second-guessing the intentions of players at every turn:
This jigsaw puzzle developed as the President made a great show of the eminent entry of Roxas into the Cabinet with a bicycle caravan around Quezon Circle, dressed in the emblematic yellow color of the administration.
In an ostentatious show of unity that failed to mask the factional infighting within the administration over the spoils of office, the President led the bicycle brigade, with Roxas and Ochoa riding along. There was, however, a sour note in that demonstration. Vice President Jejomar Binay, who defeated Roxas in the May election, did not show up. Ochoa is said to be allied with Binay in the cleavage that divides the administration supporters into two main contending factions.
The fact that the soon to be determined role of the chief of staff was not mentioned in the EO is not to say that when the official appointment comes it will not define his role in this process. Even assuming that the chief of staff is not directly involved in the cluster process (for argument’s sake) does not mean that he cannot make a significant contribution to it.
As a strategist, the chief of staff could look at the process as an outsider who is allowed to think outside the box. The cabinet clusters are designed to create strategies and implement them under current constraints. Those constraints include a budget that at the moment is limited by our current tax system and a set of policies that are in the president’s legislative agenda.
Who is to say that someone with a bird’s eye view cannot look at the overall architecture of the strategy and decide that a structural break or re-design needs to happen.
Doronila makes much of the yet undefined organizational and financial clout the chief of staff will or won’t have. A strategist does not require huge resources to perform that role. It only requires a person daring enough to think in an innovative manner. Ideas don’t require huge bureaucracies, in fact, sometimes heft creates a handicap in this department.
So in the final analysis, what are we to make of EO43? More of the same, or a positive development? Over to you…
What the president needs is a roadmap that focuses on the big picture and provides substance beyond the spin, something which is sorely lacking at the moment.
For a president whose meteoric rise on the back of wall-to-wall coverage and fawning over by the media delivered him instant rock star political status during the campaign, the complaint that the media has now turned from doting parent to vengeful god, is rather questionable.
For the first time in our political history, a triumvirate (someone called it a three-headed beast) weaves and spins the yarn concerning the goings on in the palace. If three heads are better than one, then why should the Benign One not be receiving more favorable coverage from the echo chamber? The problem has got nothing to do with the messaging and all to do with the message itself.
“Without vision, people perish,” so the biblical proverb goes. Every occupant of the Palace knows that after a while, the daily grind of official duties prevents him or her from thinking about the broad frame. It is easy to get lost in the day-to-day political tussle to get on top of the 24 hour news cycle. The most precious commodity for any leader is time to think and reflect. They say, the minute that goes, you’re basically a goner.
So it seems now with the Benevolent One, in his first year, his communications group has successfully come up with a plethora of platitudes that are an instant hit with the public. Kung walang kurap…, Daang matuwid, Bawal ang wang-wang: these make for good slogans and rallying cries. The problem is that the administration lacks a coherent roadmap that would convert these into the kinds of meaningful results that people have been craving.
Approaching the first full year in office, three alarm signals are flashing. They point to a lack of crispness in the strategic frame hampering this presidency. These signals involve a mix-mash of mental models to guide the broad philosophy of governance that defines the role of the state; personality-driven factionalism that breeds organizational dysfunction, and an absence of credible commitment to deliver on its promises. Together, these signals flag the need for Palace insiders to re-group and re-think their strategic priorities.
Outmoded mental models
When the president made his “no new taxes” pledge before the Makati Business Club forum during the 2010 election campaign, he was evoking a theme often presented during the 1980s and 90s by the Washington elite that espoused a limited role for government or the “magic of the Market” as a formula for development. This meant that the best state was a reduced one. Economic development could proceed if countries followed the mantra to “stabilize, liberalize, privatize.”
This dovetailed neatly with the post-EDSA-I contempt for anything to do with the state apparatus and crony capitalism fostered under the deposed dictator. The Aquino-I regime promised to honor all loan contracts entered into by the Philippine government regardless of whether they were tainted with corruption as a way to maintain its creditworthiness. To make room for debt repayments, it practiced fiscal austerity and reduced the state’s role in performing many of its social obligations.
In the breach, the (big M) Market would step in to provide public infrastructure and jobs that would reduce social dislocation. This was the underlying philosophy that prevailed at that time. To complement this strategy and to make good on its promises to meet its financial obligations, a comprehensive adjustment to the tax system was implemented in 1986.
This re-structure according to one of its chief architects allowed the tax-to-GDP ratio to steadily climb, so that by the early 90s, when Aquino-I stepped down, the fiscal situation was on a sound fiscal footing. The administration that succeeded it sought to bring about the full blooming of the Washington world view on local soil by accelerating trade liberalization and expanding fiscal incentives to foreign investors.
The early success in the 1990s of this formula eventually bred euphoric overconfidence. After reaching a high-water mark in the mid-90s of 19% (high for a developing economy with a limited tax base), the tax-to-GDP ratio began a steady decline as a result of the comprehensive tax reform package of 1997. Meanwhile the Asian Financial Crisis intervened and began challenging the mental frame of the policy elite.
From 1998 onwards, a new post-consensus consensus was being formed. Market liberalization was necessary but insufficient, it declared. State capacity had to be built up to ensure that the right institutions would govern market transactions to prevent “exuberance” of the kind that led to market crashes. It also had to provide social safety nets to protect those adversely affected by market reforms and business cycles.
This became evident to the Philippine elite, whose business interests escaped relatively unscathed from the Asian flu, but saw them subsequently threatened by a number of anomalies involving the Securities and Exchange Commission and the Office of the President which nearly short circuited the banking system and local bourse. Meanwhile the costs of a war in the south began to hurt the bottom-line and a fiscal crisis loomed.
Corrective measures had to be put in place to raise personal and corporate income tax rates (temporarily) at a time when other nations in the region were cutting theirs. Meanwhile, the government was treating its sin taxes (which had switched from being a fixed percentage to a fixed level not indexed to inflation in 1997) as a sacred cow and began enacting numerous and redundant fiscal incentives and tax rebates that caused revenues that resulted from an increase to the consumption tax rate to erode.
The conservative Heritage Foundation which ranks countries based on their ability to provide economic freedom often gives a more favorable score to less developed nations in the area of fiscal freedom given their low level of tax collection as a share of the economy. The Philippines over the past decade having a low tax-to-GDP ratio would have fared better under the Foundation’s scoring method but for its “relatively high” income tax rates.
The simultaneous presence of high income tax rates and low tax collections could only mean that either the tax base is too narrow, in which case the solution would be to flatten the rates and widen the base, or that many tax leaks exist and dishonesty in declaring income abound, in which case a closing of those loopholes and going after tax cheats is needed.
Enter the Aquino-II regime which re-branded the privatization model adopted under Aquino-I while expanding the state’s role to deal with a growing social agenda. Unfortunately, it failed to see that this expanded role required a shift in the tax structure. The “no new taxes” pledge was based on the idea that renewing the public’s trust in government would lead to better tax compliance–a view that is increasingly seen as untenable.
Even with a highly competent, honest and dedicated finance team going after tax cheats, the tax take as a share of GDP has fallen. Perhaps the notion that public trust in government engendering proper tax declarations is going to suffer the same fate as the idea that economic growth naturally lowering the incidence of poverty. The Philippines seems to be the graveyard of many grand theories on development.
Having declared during the campaign that there would be no new taxes has meant that any reasonable time table for tax reform would be at least until after the 2013 mid-term elections. That in turn would mean that any structural adjustment involving taxes (raising it from the current 13% back to about 19%) would only bear fruit during the latter two years of this presidency and that many of the Millenium Development Goals will be missed.
Having staked all his eggs in the Daang Matuwid basket, the president now is facing the distinct possibility of failing to deliver on much of his social compact: the result of relying too blindly on an unproven theory that makes for a good sound byte, but lacks a grand vision.
Even with the capitulation of the ombudsman opening up the prospect of jail time for the Inglorious One and her henchmen, the sad fact of the matter is that even if that were to occur, it would not help improve the finances of the government substantially nor bridge the yawning social divide that exists.
Before the president gets locked-in to a kind of group-think paralysis that eventually occurs when one hops on the treadmill of public office, he needs to find a way to re-assess the situation and come up with a strategy that will act as a game changer before it is too late. Key to this would be discarding some of the mental models that act as blinkers and prevent him from seizing opportunities for change.
The ProPinoy Project is a Global Community Center for all things Pinoy, to connect Filipinos at home and abroad by creating a space for ideas, trends and analyses about the Philippines and the global Pinoy community to inspire informed discussion and transformative action.