By Camille A. Aguinaldo, Reporter
BANGKO Sentral ng Pilipinas (BSP) Deputy Governor Diwa C. Guinigundo said the “strong political capital” of the Duterte administration has provided government a leverage to push for policies that would further improve the country’s economy.
“Reforms pursued in the past puts the current administration in a favorable position to push for further reforms and leverage on the strong political capital that it possesses. It has to leverage on that very important aspects of policymaking,” he said at the Pilipinas conference forum organized by the Stratbase Albert Del Rosario Institute (ADRI) on Friday.
In discussing the interplay of politics and economic policies, Mr. Guinigundo noted that suboptimal economic policies could cause public discontent which may lead to adverse political events. In turn, uncertainty in current economic environments may also be driven more by political issues, rather then usual factors in the market.
He said the Philippines in the past 25 years has embarked on “often difficult and painful reforms,” which he said were necessary to strengthen the country’s institutions and to propel the economy forward. These policies included the liberalization of the banking, telecommunications, transport and power sectors, the creation of the BSP as the country’s independent monetary authority, as well as the efforts to strengthen the banking system.
The BSP official said these past reforms have helped the Duterte administration to push for more favorable policies, with the help of its strong political capital.
Mr. Guinigundo noted that the government is already addressing bottlenecks in government services by establishing online services aimed at improving the public’s transactions with government. The BSP is also adopting technological innovations that would improve efficiency in the monetary policy and would help them adjust in emerging challenges of the digital landscape, he added.
“These ongoing reforms are aimed at further reducing cost of doing business to translate to a more competitive and productive business and workforce,” he said.
He also assured that the central bank is focused on inclusive growth and price stability, noting that issues on equality, even if it may appear as a non-monetary concern, may transform into a major disruption if it leads to political unrest and dissatisfaction.
“We need to look at the bigger picture because good policymaking is about good economics, good politics and their interaction,” he said.
Other analysts, government officials, and business leaders highlighted the hits and misses of the Duterte administration halfway into its term, and shared prospects in 2019 and beyond on the country’s economic, security, and political future.
Foundation for Economic Freedom (FEF) president Calixto V. Chikiamco said the government faced challenges in achieving its gross domestic product (GDP) targets due to issues on the manufacturing sector and the poor state of agricultural productivity.
He said a large percentage of the country’s exports have been focused on low-value added products in the electronic sectors. He added that manufacturing growth is also declining due to the government’s unstable policies.
“Most probably we’ll have to be happy with 6% (GDP) or even less. The Philippine economic growth has been constrained by its agricultural export sector….(L)ow agricultural productivity will remain the biggest drag to manufacturing growth,” Mr. Chikiamco said.
National Scientist and University of the Philippines (UP) economics professor Raul V. Fabella stressed the need for manufacturing to outpace the services sector in order to help reduce poverty.
He also pointed out that if the government achieved the goals of the Build, Build, Build infrastructure program, the Philippines will be able to stretch the potential growth of the economy beyond the estimates of the Asian Development Bank (ADB).
Mr. Fabella also backed Malacañang’s decision to proceed with the scheduled increase of fuel excise tax under the tax reform law and the passage of the Tax Reform for Attracting Better and High-Quality Opportunities (TRABAHO) bill, which proposes to reduce corporate income tax and rationalize the country’s fiscal incentives system.
“When the global fuel prices are on a downward trend, it’s always the time to push for structural reforms because the inflationary effect, especially on fuel, tax adjustment, would not be felt as much,” he said.
For Mr. Chikiamco, the government needs to increase the country’s foreign direct investments by removing the constitutional economic restrictions, to increase agricultural productivity by removing the restrictions preventing farmers from expanding, as well as to diversify exports by having stable mining policies and to amend the Labor Code to allow for more labor-intensive industries.
Philippine Chamber of Commerce and Industry Inc. (PCCI) president George T. Barcelon expressed optimism in the prospects for the Philippine economy. But he also said the government needed to work on tourism, agriculture, and manufacturing growth.
“We are recognized as one of the more resilient economies in Asia. So we look forward, that 2019 will continue its steady growth,” he said.
As for security prospects in the country, Defense Secretary Delfin N. Lorenzana said President Rodrigo R. Duterte pursues an independent foreign policy that will allow the Philippines continue to deepen its security ties with the United States, but at the same time forge closer relations with China, and other regional powers like India and Russia.
“Engaging more partners does not mean we are letting go of old friends,” he said.
Mr. Lorenzana said the Duterte administration’s approach, especially with regards to the South China Sea, does not mean it is turning its back on the 2016 Hague ruling on the disputed waters. He said the government continues to view the ruling as “valid and legitimate.”
The Armed Forces of the Philippines (AFP) has also established its presence Philippine-claimed islands in the South China Sea by constructing facilities, such as the beaching ramp and mooring bollard in Pagasa island as well as a fisherman’s shelter in Mavulis island, the Defense Secretary added.
Asia Maritime Transparency Institute Initiative Director Gregory Poling cited the need for the United States to clarify its commitments under Mutual Defense Treaty (MDT) with the Philippines. He said this would be the Philippines’ greatest leverage in its alliance with the US to deter China’s activities in the South China Sea.
“My contention would be the only way that we would carry a position of real leverage and real strength is the workability of the alliance to effectively respond to a timely manner to any provocation,…for the US to offer clarification of the MDT paired with a recognition of Manila that EDCA (Enhanced Defense Cooperation Agreement) is necessary. And without full implementation of EDCA, the US cannot come to the Philippines’ aid,” he said.
On the political outlook, analysts noted that the upcoming 2019 midterm elections would not only provide a referendum on public support for the Duterte administration but would also indicate if the support would extend beyond the election period and into the legislative agenda.
“The real question is if the support can be translated still into approval of his legislative reforms, such as TRAIN, federalism. And so on. And the way that they prepared for elections is actually addressing that. I’m referring to the establishment of the Hugpong ng Pagbabago….I’m saying…that it’s a pragmatic way of consolidating forces,” said Institute for Political and Electoral Reforms (IPER) executive director Ramon Casiple.
Stratbase ADRI program convenor Francisco Mango said for his part, “It’s really about political capital on why are there concerns on popularity (during midterm elections)….What is important is that the political capital from public perception is meant to be harness to push for key policies….”
For Ateneo School of Government Dean Ronald U. Mendoza, the 2019 midterm polls may also see the rise of alternative leaders that would counter the increasing number of so-called fat dynasties, which he said have hampered development in some parts of the country.
“Our economic institutions seem to be improving and it is showing in our economic system but our political institutions seem to be lagging very very much behind and could be our weakness moving forward,” he said.
“There are good signs….There are alternative leaders emerging and are taking up the cudgels….But it would be an uphill climb for them and of course a challenge for us to support these alternative leaders,” he added.