The Post-SONA Economic Briefing; FVR’s economy
There were a number of important economic events that occurred last week, I will discuss four of them here.
FIRST SONA OF PFMJ
Last Monday, July 25, President Ferdinand Marcos, Jr. (PFMJ) delivered his first State of the Nation Address (SONA). It was a 3S — sane, statesman, sensible — address by a head of state. No cursing, no threats like “I will expropriate your business” that we heard in the SONAs of the previous administration.
Instead, the opening statements were all about the economy: “sound fiscal management… Tax administration reforms… spending efficiency… Productivity-enhancing investments… Ecozones supported… tax system adjusted to the digital economy… ease of paying taxes.”
“GDP growth targets 6.5 to 7.5% in 2022, 6.5 to 8% in 2023-2028… 9% or single-digit poverty rate by 2028. Three percent deficit to GDP ratio by 2028. Less than 60% debt-to-GDP ratio by 2025. At least $4,256 income (GNI) per capita and the attainment of upper middle-income status by 2024… objectives of this Medium-Term Fiscal Framework (MTFF) being submitted to Congress.”
For me this indicates one thing: the economy, not politics and populist pandering is primary on PFMJ’s mind. Which implies that if those economic goals contradict with politics and populist lobbying, the former will prevail over the latter. Good start, Mr. President.
POST-SONA ECONOMIC BRIEFING
The next day, July 26, there was a big event, the Post-SONA Economic Briefing at the Philippine International Convention Center (PICC). I was invited and I attended it. There were three panel discussions: Economic, Infrastructure, and Social Sectors, and these provided more details that were not elaborated on in the SONA.
In a panel by the economic team, all five heads came and spoke — Finance Secretary Benjamin Diokno, NEDA (National Economic and Development Authority) Secretary Arsenio Balisacan, Trade and Industry Secretary Alfredo Pascual, Budget and Management Secretary Amenah Pangandaman, Central Bank Governor Felipe Medalla.
In a panel by the infrastructure team, speakers were Public Works and Highways Secretary Manuel Bonoan, Information and Communication Technology Secretary Ivan John Uy, Tourism Secretary Ma. Esperanza Christina Garcia Frasco, Energy Secretary Raphael Lotilla (by phone) and Energy Director Mario Marasigan, plus Transportation Undersecretary Cesar Bermejo Chavez and Agriculture Assistant Secretary Arnel de Mesa.
And in the Social or Human Development team, the speakers were Vice-President and Education Secretary Sara Duterte, Social Welfare and Development Secretary Erwin Tulfo, Labor Secretary Bienvenido Laguesma, Environment and Natural Resources Secretary Maria Antonia Yulo Loyzaga, Migrant Workers Secretary Susan Ople, and Health Officer-in-Charge Maria Rosario Vergeire. Program hosts and panel Moderators were Budget and Management Undersecretary Margaux Salcedo and Central Bank Managing Director Antonio Joselito Lambino II.
A total of 12 Secretaries including VP Sara plus the Central Bank Governor spoke. Plus undersecretaries of some departments. It was a huge event and many corporate leaders, other government officials, and practically all media networks were there.
In a presentation for the Economic team, Finance Secretary Diokno showed the Philippines’ GDP growth trend from 2015 to 2021 and the projections until 2028, and net foreign direct investments (FDI) inflows from 2015 to 2021, extended to January-April 2022. There is a rising trend — good.
To further situate the Philippines growth trends, I created this table extending the period from 2005 to 2021 and covered five other major ASEAN countries. Data came from the International Monetary Fund’s (IMF) World Economic Outlook (WEO), and UN Conference on Trade and Development’s (UNCTAD) World Investment Report (WIR) 2022.
Pre-pandemic — 2015-2019 — the Philippines was the second fastest growing economy in the ASEAN-6 next to Vietnam. And when it came to FDI (foreign direct investments) inflows, the Philippines had the lowest in the ASEAN-6 in 2005-2009, but by 2015-2019 the Philippines had caught up with Malaysia and Thailand (Table 1).
These are good trends — except for the deep contraction of 2020, -9.6%, due to the severe and business-killing lockdown imposed by the previous administration.
Budget and Management Secretary Pangandaman made a good distinction and division of labor between national and local governments. Big infrastructure projects by the national government, support and smaller infra by the local governments. And the agency’s “rightsizing” program will complement this new division of labor, not only in infrastructure but also in the social sectors. Some agencies will shrink if they are not abolished, other agencies can expand.
Economics Secretary Balisacan briefly discussed the Philippine Development Plan (PDP) 2023-2028 that includes the Eight-Point Agenda, among which are: protect households’ purchasing power, sound macroeconomic fundamentals, ensure a level playing field, and uphold public order.
Central Bank Governor Medalla signaled an additional mild interest rate hike this August when the Monetary Board meets, while ruling out an additional “off-cycle” big rate hike.
In a presentation for the Infrastructure team, Public Works and Highways Secretary Bonoan showed a map of the Luzon Spine Expressway Network (LSEN) program, a total of 1,213 kilometers of completed, under construction, and proposed toll roads that will reduce travel from the Ilocos to Bicol regions from 20 to just nine hours. Then there are the Inter-island Linkage/Mega Bridge program, including the Bataan-Cavite bridge (32.2 kms) and Panay-Guimaras-Negros bridges (32.5 kms). And the various seaport, airport, and railway projects. Beautiful grand plans that will need fast and sustained economic growth to finance and materialize them.
Energy Secretary Lotilla emphasized the need to have more power plants, a bigger power supply base, and wider or more diversified energy sources. Such energy diversification will include nuclear power and new natural gas via investment incentives to the upstream sector. I support these, plus the additional target to have 100% electrification of households nationwide including far-flung barangays.
The dirtiest and most dangerous power sources are candles and household gensets, not coal and nuclear power plants. A friend based in Calapan, Oriental Mindoro told me that until now they still have blackouts of three to five hours a day, sometimes two times a day — horrible. More candles mean more fires and more destruction of property if not deaths of people. More gensets mean more air and noise pollution.
DECELERATING GROWTH OF THE WEST
Last week, the GDP growth for the second quarter (Q2) of 2022 were released by a number of industrial and Asian countries. I averaged the Q1 and Q2 growths into first half (H1) and commented whether H1 2022 was a strong (S), weak (W), or very weak (VW) recovery in Table 2. I say VW when H1 2022 growth is low on the already low recovery in H1 2022.
RIP, FVR
Last Sunday, former President Fidel V. Ramos died at the age of 94. I went back to the macroeconomic numbers during his presidency (July 1992-June 1998), with the last three years of the Cory Aquino administration (1990-1992) as the base period, and compared it with five other major economies of the ASEAN-6 (Table 3).
The Mt. Pinatubo eruption, the big earthquake in Luzon, and major blackouts all occurred in 1990-1991, so growth was adversely affected and supply chains were tangled, so inflation was high. President Ramos was able to make a quick economic recovery in his first three years and reduce the inflation rate. And he sustained the momentum when the Asian Financial Crisis occurred in 1997-1998 — the Philippines grew 3.5% in 1996-1998 while Indonesia and Thailand experienced contractions.
You did well as President of the Philippines, Sir. Peaceful journey.
Bienvenido S. Oplas, Jr. is the president of Minimal Government Thinkers.
