Rules on the easier hiring and firing of workers and the dismantling of monopolies may trigger a flood of investments that can create new jobs and lift more people out of poverty.
The International Monetary Fund (IMF) late last Friday praised the government for its success in carrying out painful reforms over the last decade that served to stabilize the economy.
Renewed confidence in the current administration also helped to boost the economy, enabling it to grow by a faster clip in the last three years.
Following through would be the government’s challenge now, IMF resident representative to the Philippines Shanaka Jayaneth Peiris said.
“Macroeconomic stability has been achieved … that provides the precondition for faster growth,” Peiris said in a speech during the Economic Journalists’ Association of the Philippines (EJAP) Business Journalism awards last Friday.
He said the absence of a competition policy in the country allowed monopolies to flourish, discouraging innovation and triggering higher prices for consumers. A more interventionist government is needed to break up the elite’s stranglehold on vital industries.
“Markets are not competitive. Are regulators doing enough or do they have a different focus?” Peiris said.
Another key area that needs to be reformed is the country’s rigid labor law regime.
While minimum wages in the country have become more competitive as a result of rising salaries in China, he said, rules on permanent employment in the Philippines continue to be a hindrance to potential investors.
The IMF official said the government should revisit the country’s labor code, which mandates that people employed in a company for more than six months be declared permanent. This makes workers more difficult and costly to let go.
This is one reason why many firms today prefer to hire workers on five-month contracts, Peiris said.
The academe and industries would also have to work together to address the problem of graduates not being trained for the jobs offered by local firms.
Through these reforms, along with sustained investments in infrastructure, the country will be able to take advantage of its more stable macroeconomic standing, he said.
Since the early 2000s, the state’s debt level as a percentage of gross domestic product has been more than halved from about 90 percent to under 40 percent today, he said.
This provides room for the government to ramp up spending on vital areas that have been neglected over the last decade, among them, the country’s power supply and new roads and bridges.