Anti-corrupt drive not enough to spur inclusive economic growth, says think-tank

MANILA, Philippines—It will take more than a strong anti-corruption thrust – as highlighted in the President Aquino’s State-of-the-Nation-Address – to bring the Philippines to the level of growth that benefits more people, according to New York-based think tank Global Source.

In a commentary written by economists Romeo Bernardo and Geoffrey Ducanes, Global Source said the last two SONAs of Aquino had underscored a clear and simple framework: end the culture of entitlement and corruption, leading to better use of public funds and an increase in investor confidence and translating to inclusive growth.

“One may argue, and many have, that this framework is overly simplistic…,” Global Source said.

“One could also easily quibble about the achievements reported in the SONA. According to Social Weather Stations, from which the SONA figures on hunger incidence were obtained, self-reported poverty has been essentially flat and unemployment has been rapidly increasing instead of declining so far in President Aquino’s term,” the report said.

Still, the report noted a general sense that the country has been making significant strides, at least in governance.

“Whether and how long before this translates to growth, however, and whether the government can put in place the other necessary ingredients, remain important questions,” it said.

Judged solely as a political document intended to inspire and inform his constituents about his accomplishments, Global Source said the President’s SONA must be counted a “success.”

“It was written in the vernacular, spoken with confidence, and mostly adhered to issues that resonate strongly with the broad public, such as corruption, poverty, security, and social services programs,” the report said.

But as a document that lays down clearly the economic, political and legislative agenda of the current administration – as some hoped it would – Global Source said the SONA was notable for its “many omissions.”

For instance, Global Source said the second SONA made no explicit mention of Public-Private Partnership (PPP) projects, after touting them as the lynchpin of the government’s ambitious investment program in the first SONA.

“The SONA was also quiet about tax policy reforms and fiscal sustainability, apart from an admonition to the self-employed and professionals to pay the correct amount of taxes, and the vow to convict and jail tax evaders.

“The implicit assumption appears to be that improvements in collections, as a result of taxpayers toeing the line, a more streamlined system (e.g. better cross-checking of records within government), and better use of available funds (e.g. Pagcor, Malampaya), will be sufficient to ensure fiscal sustainability without raising new taxes. This remains to be seen,” the report said.

On agriculture, Global Source said the President may be setting himself “too lofty a goal” by aiming for rice self-sufficiency within his term, noting that analysts have noted that the increase in rice production so far this year is mainly due to an increase in area planted and favorable weather conditions compared with last year.

“Given the fickleness of weather and the country’s robust population growth, zero rice importation appears nearly unachievable in the near term. And even if achievable, rice self-sufficiency may be expensive and sub-optimal from a budget point of view,” Global Source said.

It noted that the government’s own Development Plan acknowledged that in terms of land productivity in rice, the country was trailing Vietnam, Indonesia and Malaysia.

Meanwhile, Global Source said the “saber-less rattling” gesture directed at China was “intriguing but may be potentially costly,” depending on how China would perceive and react to it.

“Will China look at it as mere political posturing? Could it have an impact on tourism and investments from, and trade with China?” the research noted.

In 2010, bilateral trade with China was estimated to reach $30 billion. “The build-up in military hardware necessary to lend a sliver of credibility to the gesture could also be financially steep,” the research said.

Other issues that did not merit a mention in the recent SONA but were key components in the previous one and were expected to be cited in the second were anti-trust measures, the reproductive health bill, the Freedom of Information Act, and peace initiatives in Muslim Mindanao and with the Communist Party of the Philippines-New People’s Army-National Democratic Front.

In the case of the PPP, the report said the omission might be viewed as the administration’s means of managing expectations.

“Finance Secretary Cesar Purisima has been quoted as saying that he expects the economy to follow a J-curve growth path, with growth first dipping as solid foundations are being laid, and then to pick up and be sustained afterwards,” the report said.