Explaining Aquinomics

Cielito Habito wrote a very good op-ed on the Inquirer today explaining what Aquinomics is— Aquino’s economic policy is.

“What defines “Aquinomics,” then? One description that comes to mind is “economics of business confidence,” as that has been the driver of the economy under Aquino’s leadership so far. Over the past four quarters, growth in private domestic investment has been consistently surging, based on the quarterly National Income Accounts. This investment surge comes after many years of relative stagnation. Cross-country data from the Asian Development Bank reveal that in 2002-2007, our annual growth in total investment—that is, putting public and private, and foreign and domestic investments together—averaged zero percent. In contrast, our neighbors posted positive investment growth ranging from 3 to 19 percent per year. For most of the past decade, then, our neighbors were leaving us behind in building even greater productive capacity in their respective economies.

What is remarkable about the investment growth we are seeing lately is that it comes in the face of a significant drop in foreign direct investments (FDI). Latest Bangko Sentral ng Pilipinas data report that actual net FDI inflows so far this year are 17 percent lower than in the same period last year, a steep drop by any standard. Similarly, latest data on foreign investment approvals by the different investment bodies taken together (namely the Board of Investments, Philippine Economic Zone Authority, Subic Bay Metropolitan Authority and Clark Development Corporation) report a 53 percent drop from last year. And yet, overall investment has jumped 37 percent, implying that domestic investments must have jumped by much more, far overcoming the foreign investment decline.”

Habito says, in a nutshell, Aquinomics is “economics of fiscal responsibility”.


Photo credit: Malacañang Photo Bureau

Why Fuel subsidy is a hard swallow

BusinessWorld writes that the Government is preparing for fuel subsidies. This isn’t even fuel subsidies for all forms of transportation, but rather cherry picked to go only for the jeep and tricycles sector. Fisher folk are some of the other beneficiaries being considered by the government. Subsidies no matter how well meaning, never do work out. Not in the long run. Take for example why LRT and MRT are fiscal black holes.

This begs the question: why only these sectors of society? Are the jeep and tricycle drivers any less poor than the maid or the office worker or the student riding along each day? Teachers riding the jeep to school every day are no less in a precarious situation than the Jeep driver and their families. Police officers and Military men likewise are at the bottom of the food chain. Others too experience poverty. And of course cutting taxes from fuel is not an option.

BusinessWorld quoted President Aquino who said that this will only run for a month. That it will issue only PHP500 Million for this project. Do we intend for example to reduce inflation by pumping 500 million? Half a month’s reprieve from high fuel costs doesn’t seem to be a good idea. Fuel subsidies is a hard swallow because its impact is questionable, except of course for the obvious public relations effect for the government

So the question that needs to be asked, wouldn’t money allocated for fuel subsidies better allocated as resources for the Conditional Cash Transfer program?


Photo credit: Some rights reserved by kahunapulej

Macroeconomic targets under review

IT’S BACK to the drawing board for the Development Budget Coordination Committee as economic managers on Friday decided to revisit targets for 2011 and 2012.

“We will reconvene the Executive Technical Board (ETB) so they can review our assumptions. We have to look at various scenarios like the conflict in the Middle East and the disaster in Japan,” Finance Secretary Cesar V. Purisima told BusinessWorld in a telephone interview 

Oil prices have been escalating since civil tensions erupted in various Middle East and North African countries this year. Mr. Purisima said a potential oil crisis, and its possible effect in food prices as well, could change the DBCC’s inflation forecasts for 2011 and 2012.

The natural catastrophes and nuclear disaster that hit Japan last week could also depress trade in the short-term, he said. But in the long-term, the hope is that Japan’s reconstruction could act as a stimulus for their economy and boost the Philippines’ as well.

Japan was the Philippines’ biggest trading partner last year.

Read more at Business World


Bangko Sentral says 2011 is critical year

Business World published an article saying:

“”2011 is beginning of a new decade. It is also a critical year that could spell whether we would be able to press on the road to sustained strong recovery,” Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco, Jr. said in a forum at the Makati Shangri-La hotel yesterday.”

Tetangco has set a tone. Three things he cited:

1. uneven economic growth.
2. unpredictable investor preferences.
3. market reaction to regulatory changes

When has it been a year that wasn’t critical?

ABS-CBN noted things to watch out for in 2011.

Forum cites development tasks

Forum cites development tasks
BusinessWorld Online

ASIA is now increasingly the focus of growth in the world, but individual economies like the Philippines and similarly less developed markets have to identify sectors that need support in order to boost their competitiveness, experts said at a forum yesterday in the Asian Institute of Management in Makati City.

In her presentation, Suzanne Rosselet, deputy director of the International Institute for Management Development World Competitiveness Center, noted that Asia’s population will hit 5.26 billion by 2050, compared to Africa’s 1.77 billion, the European Union’s 628 million and the United States’ 447 million.

“This pretty much sums up where the long-term growth will be. [It] will be in Asia,” she said.

In the Philippines, she said, the government needs to focus on supporting small- and medium-scale enterprises (SMEs) and services, which have been an engine of growth.

She added that “there has to be job creation for young people moving into the workforce.”

David Jay Green, a fellow of the Asian Development Bank-Asian Institute of Management Knowledge Hub for Trade and Investment, noted that within the Association of Southeast Asian Nations (ASEAN) are pockets of less developed clusters like that of the otherwise resource-rich sub-region grouped into the Brunei Darussalam-Indonesia-Malaysia-Philippines-East ASEAN Growth Area (BIMP-EAGA).

He noted this group, which was formally established in 1984, was formed precisely to enable the less developed component areas to pool resources and efforts to help them catch up with more developed urban areas in the same countries. The Philippine components of BIMP-EAGA are Palawan and Mindanao.

Experts have prescribed increasing trade and other economic ties within Asia, as demand recovery in the US and Europe remains sluggish.

But Mr. Green stressed the need to further streamline trade processes within BIMP-EAGA if it is to live up to expectations as a driver of growth in Southeast Asia.

This, in turn, requires more efficient government operations, better infrastructure and “connectivity policies” — all of which will facilitate the transport of goods and trade in services.

“It’s a whole series of things that has to be done to encourage the business environment, trading environment and the ability of people to invest in their own country,” Mr. Green said.

Sought for comment, Augusto B. Santos, deputy director general of the National Economic and Development Authority, said the government has been finding ways to provide cheap loans to SMEs, help localities focus on a few products and services they can excel in, and is poised to embark on an infrastructure buildup under public-private partnerships in order to lay the groundwork for sustained, faster growth. — JJAC

ODA use just slightly better in first half

ODA use just slightly better in first half
BusinessWorld Online
THE GOVERNMENT slightly improved its use of official development assistance (ODA) in the first half, compared to the same period last year, the National Economic and Development Authority (NEDA) said in a press release yesterday.

Citing details of its latest ODA loan performance report, NEDA noted that ODA commitments totaled $8.8 billion as of June, about $800 million more than the amount pledged in the same period last year.

The government availed of $3.899 billion out of the $4.764 billion scheduled for use in the first half, NEDA said.

That, in turn, brought availment rate, or actual use of loan against the total programmed for a specific period, to a slightly better 81.84% from 81% last year.

Of the amount availed, the government disbursed about $963.74 million in the first half, or 16.59% more than the $826.59 million disbursed in the same period last year.

Disbursement rate (actual versus target disbursements) slightly increased to 86.68% in the first semester from 86.37% in the same period last year.

Moreover, disbursement ratio, or the proportion of actual disbursement against the total loan balance, rose to 20% from 17%.

Three program loans worth a total of $452.8 million accounted for bulk of the disbursements in the first semester, namely:

  • the French Development Agency’s “Local Government Financing and Budget Reform Program-Subprogram 2,” which aims to strengthen financing of local governments to enhance delivery of environmental, health and social services;
  • the Japan International Cooperation Agency’s (JICA) “Emergency Budget Support Loan,” designed to support economic measures deemed needed to expand domestic demand amid the economic crisis; and
  • JICA’s “Development Policy Support Program III,” which aims to help improve the country’s attractiveness to foreign investments through reforms in tax refund, customs services and procedures.

ODA consists of either loans or grants, provided for purposes of capital or technical assistance to the government. Loans are earmarked either for specific projects, designed to achieve particular objectives given specific resources and implementation time tables, or for programs in the form of budget support for regular activities of the government.

More Filipinos poor, Arroyo adviser admits

More Filipinos poor, Arroyo adviser admits
Salceda: Rich also became richer
By Gil C. Cabacungan Jr.
Philippine Daily Inquirer

MANILA, Philippines—The rich have gotten richer, but the ranks of the poor have expanded amid the economic growth since 2001, an economic adviser of President Gloria Macapagal-Arroyo said Sunday.

“My biggest frustration as a presidential adviser is that 34 quarters of uninterrupted expansion in the past nine years did little to reduce poverty and the number of poor people,” Albay Gov. Joey Salceda said in an interview.

While the Arroyo administration continued to crank out glowing economic growth data, “these rosy figures cannot hide the fact that there are more poor people now than when the President started her term,” Salceda said.

He cited data from the National Statistical Coordination Board which showed that the number of poor Filipinos—five-member families living on a little more than P1,200 a month—rose to 27.60 million in 2006 from 25.47 million in 2001.

In addition, the incidence of hunger nearly doubled from 11.4 percent in 2000 to 20.3 percent last year, he said.

“That is a lot of poor people. Given our average economic growth in the last four decades, it would take 37 years for this poor to get out of poverty,” Salceda said.

Economists expect the number of people living below the poverty line to further go up because of natural disasters like Tropical Depression “Ondoy,” Typhoon “Pepeng” and the dry spell caused by El Niño, power outages and the economic slowdown.

Highest GDP growth

The Arroyo administration has boasted of having the highest gross domestic product (GDP) average growth of 4.4 percent among all presidents since 1966, according to Salceda.

But the windfall earnings have been enjoyed entirely by the country’s richest corporations and families, he said. GDP is the value of goods produced and services rendered in a particular country in a given period.

Government efforts to provide direct subsidies to the poor through power and fuel rebates, cheaper rice and medicine, and healthcare benefits have been negated by what he calls “structural constraints” to a more equitable distribution of income.

Salceda said profits of the country’s top 1,000 corporations jumped 21 percent a year while their return on equity or investments increased 15 percent a year since Ms Arroyo took power.

“Their total earnings amounted to P3.1 trillion of which P2.1 trillion was pocketed as dividends or earnings of the stockholders. Only P1 trillion was reinvested,” he said.

Salceda said he and the rest of Ms Arroyo’s economic management team “honestly believed” that economic growth would be enough to lift the well-being of the destitute.

Oligarchies too sturdy

Historical structural factors, however, have persisted and are tougher to get undone despite deregulation, liberalization and privatization, he said.

“The oligarchies were just too sturdy as the state was weak due to the ‘Hello Garci’ case. The business sector really exploited it,” Salceda said. He refused to elaborate.

The “Hello Garci” scandal refers to taped conversations between a woman believed to be Ms Arroyo and Election Commissioner Virgilio Garcillano about ensuring her lead while votes for the 2004 presidential election were being counted.

The opposition claimed that the tapes proved that Ms Arroyo stole the election. Amid calls for her resignation and street protests, she denied any wrongdoing but apologized to the public.

Salceda added that the annual population growth added more people to the ranks of the poor. There are now more than 92 million Filipinos.

He was nevertheless hopeful that the country’s next leader would have a broader base of popular support to help him or her carry out pro-poor programs.

The programs, he said, should be inclusive and should target the rural sector. Seventy-four percent of poor Filipinos are in the rural sector.