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2018: The Good, Bad and Ugly

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Andrew J. Masigan

Numbers Don’t Lie

2018 should have been a banner year for the Philippines. If President Duterte’s campaign promises are anything to go by, drug cartels should have been obliterated by now, peace and order should be firmly entrenched across the country, the flaws of the 1987 Constitution should have been amended, Metro Manila’s traffic woes should be solved and the economy should be soaring at a 7.5% growth rate.

President Duterte promised us the moon but has so far only delivered rainclouds. After all the hoopla, he has not proven to be the “game changer” that everyone hoped he would be. At least not yet. 2018 was underwhelming, reform-wise.

So what were the political and economic highlights of 2018? It was a mix of good, bad and ugly.

THE GOOD
Tourism. Last summer, the Commission on Audit exposed a P60-million ad placement made by then tourism secretary Wanda Teo on a non-rating TV show produced by her brother. This opened a Pandora’s box of graft allegedly orchestrated by Teo and then COO of the Tourism Promotions Board, Cesar Montano. Also uncovered was a P320 million rip-off called “Buhay Carinderia” and numerous junkets/promotional activities that were scandalously overpriced.




The exposé led to Teo and Montano’s forced resignation. This was the best thing that happened to the tourism industry. Replacing them were Bernadette Romulo-Puyat as DoT Secretary and Venus Tan as COO of the TPB. The industry is now under professional, experienced management.

Tourism is a vital component to the economy for its ability to pump in much needed dollar revenues in a relatively speedy manner. The country needs these revenues to help balance its widening fiscal deficit. In 2017, foreign inbound tourists generated some $8.6 billion on the back of 6.62 million visitors. For 2018, the DoT expects to have realized 7 to 7.2 million visitors, a tad below its 7.4 million target. An eight percent growth rate was realized despite the closure of Boracay and the empty coffers to spend on tourism promotions. This by itself is an achievement.

Another win is Secretary Romulo-Puyat’s focus on sustainable tourism. The six-month closure of Boracay was an exercise in political will, one that bodes well not only for Boracay but all other environmentally fragile destinations. The lessons learned in Boracay will be applied to other hotspots like El Nido, Siargao and Panglao.

The Philippines is poised to attract 8.2 million foreign visitors in 2019, generating $11 billion in revenues and 5.8 million jobs for our countrymen. Under Secretary Romulo Puyat’s baton, we are optimistic these targets will be met.

Foreign Direct Investments (FDIs). In 2017, the country realized $10.2 billion worth of FDIs, the highest intake ever recorded. In the first eight months of 2018, FDIs already stood at $7.4 billion, 31% higher than the same period the year prior. The Department of Trade and Industry is confident that $12 billion in FDIs was realized in 2018.

Deserving kudos is the Board of Investments. The BoI ended 2018 with $17.5 billion worth of investment approvals, a new high from the previous record of $11.9 billion in 2017. The unprecedented figure represents a 47% increase.

What is notable is that a large chunk of investments will go towards upstream, heavy industrial projects that will allow the economy to produce technologically complex goods it was not capable of producing before.

The Manufacturing Sector. The Philippines is in the midst of a manufacturing resurgence after a contraction that lasted three decades. From 2010 to 2017, manufacturing posted an average growth rate of 7.6%, outpacing the growth of the service sector. This shows that the country is well on track towards industrialization.

Food and beverage manufacturing leads the charge but headway was also made in heavy industries like auto and aeronautic parts, shipbuilding and chemicals.

The Philippines had the second best performing manufacturing sector in the region after Vietnam.

Build, Build, Build. I categorize government’s infrastructure program as a qualified “good.” I say this because while some projects have been completed or have started in 2018, many of the 75 keystone projects in the “Build, Build, Build,” program are delayed and languishing in the pre-construction stage.

Despite the best efforts of DoTr Secretary Arthur Tugade to expedite projects, delays have been unavoidable due to the difficulty to negotiate loan or official development assistance terms, complete feasibility studies and obtain interagency approvals.

The P9-trillion infrastructure program is the centerpiece of the Duterte administration. As such, the business sector expects the President to use his enormous political capital to expedite projects, especially in resolving right of way issues. He has not helped in this aspect and this has been a source of frustration for many.

The good news is that numerous projects were completed last year. Among them were: The Parañaque Integrated Terminal Exchange, the Mactan and Panglao International Airports, the night rating of 18 airports, the Cavite Gateway Terminal and the Laguna Lake Highway. The MRT3 rehabilitation and maintenance contract was also signed in record time. Almost done are the NLEX harbor Link Segment, Clark International Airport, MRT 7 and the South Integrated Transport Station.

Projects painfully delayed due to right of way issues are the all-important NLEX-SLEX connector road (which will have the greatest impact on Metro Manila’s traffic), LRT 1 extension to Cavite and the MRT2 extension to Masinag. Others projects still under construction are the Bicol and Bacolod International Airport.

The DoTr announced that the Metro Manila Subway will break ground this month.

Projects that have yet to break ground are the much needed MRT-LRT common station, PNR North and South Railways, EDSA and Bonifacio Global City BRT systems, the Subic-Clark Railway and the 12 bridges across Pasig River that China promised.

THE BAD
Exports. Exports is the missing link in our economic equation. Its dismal performance has left us with a gaping trade deficit. Data covering January to September show that imports rose by 16.2% to $80.66 billion while exports slipped by 2.1% to $50.75 billion. This resulted in a trade deficit of $29.91 billion, nearly twice the deficit registered the year prior. The deficit will worsen when the fourth-quarter figures are factored in.

Consider the difference. Philippine merchandise exports amounted to $68.71 billion in 2017. Compare this to Thailand’s $237 billion, Vietnam’s $214 billion, Malaysia’s $176 billion and Indonesia’s $169 billion. The Philippines has a lot of catching up to do.

Almost half of Philippine exports are composed of electronics and semiconductors and its growth rate is seen to slow down to just 5% in 2019 due to the rationalization of fiscal incentives from TRAIN 2. With this, we can expect less investments in the sector, resulting in less output.

The impediments to our export performance are the restrictive provisions of the Constitution relating to foreign investments, high power cost and insufficient infrastructure.

Extensive structural changes need to be effected to eliminate these impediments. In the end, government must make the conditions right for manufacturing industries to flourish and build their capacities to export. As it stands now, our exports are only capable of growing linearly. We need extensive structural reforms to achieve exponential growth. This is the only way can balance our trade deficit.

We must also diversify our merchandise exports mix. Among the promising product categories are auto and auto parts, frozen fruits, agro-industrial products and design-driven furniture and garments.

Inflation. Inflation rose steadily throughout the year, peaking at 6.7% last October. This was due to a confluence of bad weather, low agricultural output, disrupted supply chains, currency depreciation and the effects of TRAIN 1. Unfortunately, our economic planners did not foresee this.

Inflation dampened consumer spending and the production of consumer goods. It dragged GDP growth by nearly one percentage point.

The good news is that inflation eased to 6% in November and is seen to decrease further to 5.5% in December. This is due to stern price controls by the DTI, importation of grains and a drop in crude oil prices.

TRAIN 2 is set to push inflation upwards when it is implemented this year. Let’s hope that the tariffication of rice and lower crude oil prices will blunt its effect.

THE UGLY
The Justice System. Former Senator Bong Revilla was acquitted by the Sandiganbayan in his plunder case. The acquittal reeked of political favor as it was based on the testimony of Marina Sula who claimed she never saw Bong Revilla receive cash from PDAF scam mastermind Janet Napoles.

The fact that Sula never saw Revilla in the act of receiving cash doesn’t mean that he wasn’t aware of the scam and was not a party to it. Revilla’s right hand man, Richard Cambe, was found guilty while his boss goes scot-free for the same crime. Are we suppose to believe that Cambe acted without Revilla’s knowledge?

Further, the Sandiganbayan ignored the disparities in Revilla’s SALN and how cash deposits jived with the ledger of Napoles.

This just proves that the Judiciary is the weak link in our democratic system.

Political Dynasties. The 1987 Constitution is clear in its intent to ban political dynasties. Yet our congressmen have failed to pass an enacting law even after 31 years, obviously due to self-serving reasons.

This is why the slate of candidates for the 2019 elections are not the best and brightest but one composed of next of kin, no matter how unqualified.

Cha Cha. The “coup” staged by Gloria Macapagal-Arroyo against Pantaleon Alvarez for the Speakership of the House was a welcome development by many. In just a few months, however, the GMA-led House passed its version of a federal draft charter that did not cure the flaws of the 1987 Constitution but instead released incumbents from term limits.

Peace and Order. The assassination of Congressman Rodel Batocabe in broad daylight speaks volumes about the state of law and order in the land.

The War on Drugs. While scores of people have been killed in the name of the war on drugs, it did not deter P6.4 billion worth of shabu from slipping through customs and into our streets last August. The war on drugs is a losing battle for as long as big-time drug lords are allowed to operate.

Here’s wishing that 2019 will be a better year for us all.

 

Andrew J. Masigan is an economist.