decision making

Nothing New

Strange but true, the cat calls made by Mrs Arroyo and her allies have goaded the P-Noy administration to return fire.

Over the weekend, as the country suffered from the effects of yet another powerful cyclone, there was a different kind of disturbance inserted into twitterverse with Congresswoman Mitos Magsaysay and Deputy Presidential Spokesperson Abigail Valte quareling over the economic legacy of Mrs Arroyo.

The tempest in a teacup was over whether P-Noy was up to the task of maintaining the momentum. Today, the Cabinet’s chief ideologue, Budget Sec Butch Abad joined the fray. From the government’s official gazette, Abad was quoted as saying

It is amusing at the same time galling for Congresswoman Gloria Macapagal-Arroyo to lecture President Noynoy Aquino about building on the gains of her government. The first question that comes to mind is what gains? The people’s gains, or her gains? …Prudent expenditure took a back seat to political survival and political patronage during the previous administration.

It is worth noting that whenever the opposition bring up Mrs Arroyo’s glowing economic credentials, the administration can only point to the waste and alleged corruption in her government as a counterargument.

The irony is that contrary to their claim that good governance leads to growth, the administration in its first year has proven that actually cleaning up government can have the unintended consequence of lowering growth. The silver lining in all of this is that as Presidential Spokesman Edwin Lacierda claims the administration has completed its housecleaning, spending and growth can resume their normal pace.

Sensitive for a reason

In its second year, having made good on its promise to clean up processes for procurement, the government is now prepared to make good on its promise to bring about better economic outcomes. It is hoping to do this with an 8-12% boost to its budget in 2012 (after a nominal growth of 2% last year) and a re-alignment of physical infrastructure spending to social spending for the remainder of 2011 (having missed the chance to spend on the former during the dry season).

At this point, the administration seems vulnerable on two fronts, the first being that it has not delivered on its clean government completely having fallen victim to potential charges of cronyism, the so called KKK (kaibigan, kaklase, kabarilan). The second one has to do with the less than stellar employment and growth figures in its first year.

The real subtext of the opposition’s attack is that P-Noy’s government has been inept at delivering both good governance AND growth. With stiff economic headwinds from a souring world economy over the next twelve months resulting from austerity measures in Europe and the US, the government’s growth target of 5-6% may be difficult to attain given the weak first half of the year.

Key to the attainment of the government’s growth projections will be its ability to attract foreign direct investments as fund managers look to emerging markets to offset the bleak outlook in the West. The problem is that during the first three quarters of his presidency, investments from abroad have sunk. While the slack may have been made up for by domestic investors, the same cannot be expected to hold true in the future after domestic pent-up demand for new plant and equipment runs out.

Should the public private partnerships fail to gain traction in a timely fashion, it could spell the end for investment prospects in the latter part of the year. Having staked all its eggs in the PPP basket, the big risk is that the absence of an alternative economic strategy or Plan B could lead to a loss of public support for this government. Having refused to look at new taxes, the government’s revenues and spending capacity are totally dependent on the economy growing as expected.

Binary Choices

From psychology we have learnt that the mind can only distinguish things in contrast to others. That is why we can relate to stories that use binary opposites (good versus evil, light versus darkness). Our eyes are not trained to see a black strand when it is set against a black canvass. We need to see things in black and white.

The same goes for the narrative of this government. Its legitimacy came from distinguishing itself from the previous administration in terms of honesty and integrity. Its continuing popularity is based on its ability to make that contrast.

When it was in opposition, it claimed that Arroyo’s economic record was tarnished because it was not able to translate economic growth to the welfare of its citizens. It claimed it alone could do that through a good government agenda. Now that it is in government, it is finding that its own economic management is being called into question.

The nationalist legislator Teddy Casino, an ally of the president has stated that the main reason why the economic performance of the Aquino administration does not differ from the Arroyo regime is not because it has failed to address good governance, but because it has failed to set a different economic agenda. He may not be too far off the mark.

In the end, the tendency of governments to turn to patronage as a form of political survival is not due to their failure to bring about good governance, but because of their failure to make economic growth felt by the broader community. For this reason, the charge that P-Noy is doing nothing new, may be the most damaging of all.