Analyst says Aquino should make hard decisions soon

BAGUIO CITY, Philippines—President Benigno Aquino should start making hard decisions to assure true economic growth, an investment analyst said here, stressing that the government must invest heavily in infrastructure and must be consistent about rules that regulate its use.

During this year’s national convention of credit managers here, Paolo Azurin, vice president for investment banking of CLSA Exchange Capital, said Mr. Aquino must display “the gravitas to say, ‘Tama na ito. Ito na dapat (Enough. This is how we do things).’”

Azurin said the Aquino administration occasionally displayed a tendency to retreat when huge protest rallies are mounted against unpopular decisions that are meant to improve the economy.

He also urged government to correct flaws in the country’s agrarian reform program to improve food production efficiency.

Reacting to a concern raised by Philippine Finance Association (PFA) members that agriculture must be improved, Azurin said, “This is touchy, but the agriculture sector is handicapped because of CARP.”

He was referring to the Comprehensive Agrarian Reform Program initiated by the President’s mother, the late former President Corazon Aquino, in 1988 which, he said, has failed “to draw out productivity [from every] farmer.”

He said the country achieved strong economic growth in 2010, largely from election spending.

But Azurin introduced participants of the 13th PFA national convention here on Friday to the concept of “Dutch disease,” which, he said, threatens to unravel the economic progress being attributed to President Aquino.

“Dutch disease” is an economic principle that describes the fragility of a country, which reduces its scale of industrialization once it starts profiting from natural resources or in the Philippines’ case, remittances from overseas Filipino workers.

The principle states that reliance on a natural resource tends to strengthen a country’s currency but it would be detrimental in the long run because once profits from natural resources dry up, restoring competitive manufacturing industries would not be fast enough to sustain the economy.

Azurin said the Philippines has these symptoms: a booming non-traditional sector, which is the overseas labor market; dollar inflow [which] causes a strengthening of currency; and profits from OFW remittances being injected into the services, retail and property sectors instead of manufacturing and agriculture.

Secretary Herminio Coloma Jr. of the Presidential Communications Operations Office, on Friday said that adding the personal economic growth of 9,867,421 “global Filipinos” to the country’s gross domestic product would result in the Philippines ranking 23rd among other developing nations instead of its current bottom rank.

He presented the 2011-2016 national development plan, which noted the country’s weaknesses and which offered as solutions improved education, 10 public-private partnership projects and a competitive labor market.

“We are at the crossroads of wealth and poverty,” Coloma said.

He said the Philippine economy relies on the investment and the consumption pattern of “a thin middle class,” which represents only 10 percent, compared to 67 percent of Class D (the working class) and 23 percent of Class E (people with little access to jobs).

He said the government’s development plan would adapt “inclusive growth models,” which meant that all of the programs the Aquino administration would enforce should benefit all sectors of society at the same time.

Coloma said Mr. Aquino intends to reduce poverty from 33.1 percent in 1991 to 16.6 percent in 2015 by increasing domestic job market opportunities.

But he said the government would also pursue a “re-branding” of migrant work, because the OFW is still associated with “mahirap (poor)” and “kawawa (pitiful).”

Azurin, however, said he was more concerned about how the OFW status has changed social behavior.

“What struck me was the fact that the farmer’s ambition is to have someone [in his family] become an OFW [which is to say that] the agriculture sector is not growing and production is bad, and it is better to be an OFW,” he said.

He said the country is confronting inflationary threats attributed to climate change, which has reduced world food supplies, and to increasing world oil prices. Yet the government economic model has the country importing vegetables and manufactured commodities without the corresponding exports “to pay for them,” he said.

Manufacturing has taken a backseat to sectors like real estate and trading that attract business from OFWs.

“Since exports are generally drivers of economic and productivity growth, the direction of this economy will be affected,” Azurin said, noting that top export sectors like electronics and business process outsourcing have been experiencing declining profit margins.

To cure the “Dutch disease,” Azurin said Mr. Aquino’s ultimate solution would be to finance massive infrastructure spending now.