infrastructure bottlenecks

Snap, Crackle, Pop!

The media and blogosphere may have been mindlessly harping on the fumbling errors and bumbling missteps committed by the current administration of PNoy over the past six months in its first year in office, but the mood of the public and the markets seems to have taken it all in stride.

As latest polling by SWS reveals, PNoy and his policies continue to enjoy unprecedented confidence levels from the public. This exuberrant satisfaction is mirrored by the investor community which has driven the local bourse to all time highs following the normal transfer of power from one administration to the next during the middle of the year.

Despite its fiscal woes, the government very recently finds itself situated at a very auspicious moment in which it is able to borrow at very favorable terms. Its treasury issuance last month was oversubscribed four times leading to extremely low borrowing rates of just over three quarters of a percent for its 90-day treasury bill, nearly half what it was the previous month.

This makes it not far off from the yields of similar notes issued by the US Treasury and that of the UK, Eurozone and Japan! The governments of the struggling PIIGS economies of Portugal, Iceland, Ireland, Greece and Spain are having a much harder time raising funds to bridge their fiscal gaps having resorted to the IMF for credit while the Philippines exited from that program back in 2006 having paid all of its debts to the Fund in full.

With stellar economic growth predicted to hover around 6-7% per annum and a relatively benign inflation outlook predicted to continue over the next few years, the country is poised to take-off along with other emerging economies. The next decade could see the nation address some fundamental problems like infrastructure bottlenecks and social inequity if the government plays its cards right. Already the Gini coefficient a measure of income inequality reached its lowest point for quite some time.

What many will find most remarkable in all this is that there have hardly been any changes made to the socio-economic policy settings left behind by the previous administration despite all the campaign rhetoric about change. It could be seen as an acknowledgement that many of these settings prepared the conditions now evident for better times ahead.

As proof of this consider the following: the Conditional Cash Transfers program initiated in 2008 (CCT) is being expanded, the RH bill, which was drafted and vigorously pushed for in the previous Congress by the now leader of the opposition in the lower house and ally of the former president, is being supported, and reforms in education, training, research and development are continuing.

“Normalcy” restored

The boost in confidence has occurred because of the observance of the rule of law during and after the elections which led to a credible outcome. The political transition and stability this engendered has restored the notion of the Philippines as a “normal” state once again. The same transformation of perception occurred previously in Indonesia that led to it attaining G20 status (its recent setbacks notwithstanding).

Problems of corruption and conflict will still linger, but as was shown during the 90s under the Ramos administration, they can be tempered for as long as growth with equity is pursued (it should be noted here that it was during that previous period of expansion that poverty incidence as measured by the share of the poor to the overall population, fell to its lowest point since records were kept, and the country became relatively peaceful as a result, despite the fact that the poverty headcount, or the number of poor individuals kept rising-just not as fast as the rate at which the overall population grew, proving the point that equity is important).

What is crucial over the next six years is for the observance of good governance and the “market for rules” to be enforced. As demonstrated by two previous administrations, it is quite possible for political corruption and influence peddling to co-exist with an open market economy despite the enactment of “world-class” procurement laws and the application of electronic/automated processes in awarding government contracts.

The roll out of the PPP contracts beginning next year will be a litmus test as to whether the government can enter into such agreements without anomalous transactions occurring on the side. Another one will be the ongoing campaign to lift the tax take of the country which has not been buoyed by the recent recovery in economic activity.

With these key planks in place, the government will have sufficient funds to resource reforms in social policy arenas. Without them, an overall tax hike could loom as a distinct possibility which would threaten social cohesion particularly if an increase to the regressive VAT rate is pushed.

As the year draws to a close, it is worth considering the journey the country has taken. At the start of the year, there were doubts as to whether we would be faced with a doomsday scenario come election day. There were talks of civil unrest and military adventurism following a no-election or no-proclamation scenario.

At the close of the year, the country’s financial, economic and dare I say social outlook could not end at a brighter note. Indeed there is much cause to celebrate as the prospect for an economy that crackles and pops as opposed to one that merely sizzles but fizzles takes shape.