Aquino performance hampers growth

Less opimistic than most assessments tracking the slump of  Philippine economic growth since President Aquino took office in July last year, Credit Suisse, the Swiss financial services firm, has downgraded its full-year economic forecast for the country from 4.6 percent to 4.3 percent.

Credit Suisse reported that based on a new research of Asian markets, it expected growth in the region to “slow down more sharply than most” in the coming months. It also scaled down its Philippine growth forecast for 2011 to 4.2 percent from 5 percent. It said the downward adjustment was less optimistic about the country’s growth compared with others’ analyses.

“This was partly because we didn’t think that the planned PPP (public-private partnership) infrastructure projects that many were bullish about were likely to get off the ground in a hurry,” Credit Suisse said.

This is a critique directed at the administration’s underspending on infrastructure. The PPP is the administration’s anchor for its economic growth strategy.

Credit Suisse added that the adjustment for its 2010 forecast was larger as it assumed that the “less optimistic global growth scenario” would dampen remittances from overseas Filipino workers (OFWs) and export growth.

It also said Manila “might undershoot” its full-year fiscal deficit program of P300 billion because of slow spending. It said underspending might have dragged down second quarter gross domestic product (GDP) growth, which was below expectations at 3.4 percent.

The forecast came in the midst of a review of the government’s growth targets by economic managers following reports that the economy expanded just 3.4 per percent year-on-year in the second quarter—well below the government’s target of 4.5-5.5 percent, placing the Philippines in the category of one of the weakest performers in Asia.

The slump took place in a year of a profuse proliferation of moralistic sloganeering on honest governance as the key to expanding economic growth, as well as reducing poverty.

By contrast to economic growth, the main output of the Aquino administration consisted of a Herculean campaign to dig up skeletons of corrupt transactions during the previous administration that consumed most of its energy at the expense of neglecting economy-boosting measures.

Political sermons on the virtues of good governance were in abundance, saturating the political atmosphere.

Mission impossible

Socioeconomic Planning Secretary Cayetano Paderanga Jr. blamed the economic slowdown from the 4.6-percent growth in the first quarter to a host of factors, mostly exogenous in origin, in an analysis that hardly touched the issue of the government’s competence in economic management and its priorities on governance.

According to the economic gospel of the Aquino administration, as articulated by Paderanga, “the economy was constrained by surges in world oil prices, triple disasters in Japan, slow recovery of the US and European economies, the social and political unrest in the Middle East and North Africa, and adverse weather conditions.”

The slowdown translated into growth in the first half of just 4.0 percent, from 8.7 percent for the same period in 2010, means that the government’s target of 7-8 percent “looks impossible to achieve.”

“To attain the 7-8 percent target for 2011, the economy needs to grow by at least 10 percent in the second semester,” he said. He pointed to the worsening international environment. He said “global downside risks could hamper our growth prospects.”

Paderanga cited the budget problems and weak consumption in the United States, the Philippines’ top trading partner, and the Eurozone debt crisis, among the biggest concerns. Export growth slowed to 0.1 percent for the April-June quarter, compared with the 28.6-percent expansion a year earlier.

Remittances

He said that another key constraint was remittances from the 9 million OFWs, a key driver of consumption, which had grown only 1.4 percent, a four-year low.

Paderanga described the economy as having performed “dismally” in the first quarter, with a gross domestic product of only 4 percent. This performance prompted the downward revision” of this year’s growth targets by government fiscal and economic planning authorities.

Nongovernment economists, including those at the University of the Philippines’ School of Economics, have come up with a critique of small public spending on construction projection.

One of them, Benjamin Diokno, has written that the economy grew by 3.4 percent during the second quarter of 2011, “the slowest since President Aquino took power, and significantly, lower than the 8.9-percent growth in 2010.” With this “dismal” economic performance, the critique said, “the aspirational goal of 7 to 8-percent GDP growth for 2011 is virtually unreachable.”

The critique points out that public construction continues to plunge from negative 24 percent in the third quarter of 2010 to negative 37.3 percent in the first quarter of 2011. Despite assurances from the Department of Budget Management officials that a catch-up was in effect, public construction took a dive, contracting by as much as 5.2 percent in the second quarter of 2011.

Pious sloganeering

“The Philippines lags behind its Asean neighbors in terms of public infrastructure. Its roads and bridges are crumbling, The Ninoy Aquino International Airport is an embarrassment,” the critique says.

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.

This review of priorities between sermons and economic growth targets is the huge task that faces the interdepartmental committee by economic managers.