Bernardo M. Villegas
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Answers to the Doubting Thomases

           The news that Fitch Ratings has given investment grade rating to the Philippines was generally accepted with jubilation from the local and foreign investment communities.  There were, however, the usual skeptical and cynical remarks from the "doubting Thomases" who consider the good economic performance of the Philippines today unsustainable and/or not inclusive enough.  Some of the reasons for this skepticism were summarized in the article in the International Herald Tribune that announced the investment grade rating last March 28.  Among these are the continuing inefficiencies of infrastructures in the Philippines; widespread poverty, especially in the rural areas; corruption in the lower levels of government; high rates of unemployment and underemployment; political instability in the South; and over dependence on remittances from overseas Filipino workers (OFWs).

          Let us start with the OFW issue.  Although it is true that remittances for OFWS (which are estimated to be close to $25 billion annually if we include unofficial remittances) can account for anywhere from 8 to 12 per cent of GDP, it is not true that this represents a serious imbalance in the sources of economic growth.  There are other equally strong engines of growth in the ongoing recovery:  the IT and BPO sectors that employs 700,000 workers and generate more than $10 billion of income annually; the tourism sector that has a great multiplier effect on employment and income in the countryside; the infrastructure spending by both the public and private sectors, especially on roads, bridges, toll ways, airports, seaports, power plants, water facilities; education and health expenditures; and investments in agribusiness projects, especially in high value crops.  The improvement in rural infrastructures over the last ten years or so has benefited agricultural production that is now growing at a respectable rate of 2.5 to 3.0 in production volume annually.  The very problem identified by the skeptics, inefficient infrastructures, can be converted into an opportunity of increasing the percentage of investments in public works from the historical low of 2 percent to the average in Asia of over 5 percent.  Because of the strong fiscal position of the Government and the very low interest rates prevailing, we can expect that infrastructure spending in the next ten years will help bring the rate of infrastructure spending to the desired level of 5 per cent of GDP.

          This brings us to the answer we have to give to those harping on the need for "inclusive growth."  They belittle the exceptional performance of the Philippines in today's beleaguered global economy by pointing out that the poor are not yet participating in the bonanza of growth.  They have to be reminded that growth rates of 7 to 10% had to be sustained year in and year out for ten to twenty years in all the countries in Asia that have succeeded in  attaining inclusive growth, such as South Korea, Taiwan, Singapore and Hong Kong.  These critics have to be patient.  One swallow does not make a spring.  A year or two of high growth will not have a demonstrable impact on poverty.  If we persevere in the good policies we are now implementing, which of course include the Conditional Cash Transfer Program and other measures to directly address poverty, then in ten years' time, we can see a significant reduction of poverty as GDP grows annually at 7 to 10 percent, a feat that is achievable if we are to consider the recent experiences of China, India, and Vietnam.

          Going back to the OFW issue, there are those who are afraid that this unique source of foreign exchange, consumption expenditure and employment generation may dry up.  There is not a ghost of a chance that it will. I am willing to bet that at least for the next twenty years there will continue to be millions of Filipinos working abroad and remitting foreign exchange to their families in the Philippines.  The first reason has to do with the supply of the right kinds of workers.  OFWs have already developed a unique brand of overseas workers who are fluent in English, adaptable to diverse cultures, hardworking and pleasant to work with.  As the IHT report last March 18 commented, "about one-third of Filipinos are 14 or younger, according to World Bank data.  That compares with 19 percent in China and 13 percent in Japan."  As the Philippine Government spends considerably more in the coming years in improving the quality of basic education, this pool of future adult workers will meet not only the demand for the expanding  economic sectors in the Philippines but also the care givers, tourist workers, IT professionals, seafarers, etc.  that an aging developed world would be needing very badly.    OFWs will be around for a long, long time to come and will continue to be one of the strong foundations of a progressive Philippine economy.

          The skeptics are also oblivious to the ongoing renaissance of manufacturing in the Philippines.  Starting 2013, there will be numerous manufacturing ventures from Japan and other labor-short countries that will relocate their operations to the Philippines from China, which has ended its role as the manufacturing center of the world.  Increased wages, high attrition rates, and labor unrest are discouraging manufacturing investments in China.  There is a very perceptible move to relocate these plants to such Southeast Asian countries as Vietnam, Indonesia and the Philippines.  PEZA Director General Lilia de Lima and the association of PEZA companies are doing everything possible to make room for these manufacturing ventures.  One distinct advantage of the Philippines is the prevalence of labor peace in contrast with violent strikes and other demonstrations among our neighboring countries that also have abundant manpower.  In fact, the political instability in a few regions in Muslim Mindanao is irrelevant to these investments which are centered around the urban areas of Luzon and the Visayas. 

          The skeptics and critics, however, do play an important role of preventing us from becoming complacent with what we have accomplished so far.  They remind us to accompany all our efforts at high growth with measures that are directly addressed to alleviating poverty, such as the CCT and other NGO programs such as microcredit, microenterprise, SME development, the fostering of cooperatives and social enterprises.  They also remind us to be relentless in investing in infrastructures, especially those that directly benefit the small farmers.   But most important of all, they remind us exert all possible efforts  to strengthen all of the  institutions that foster good governance, such as the Supreme Court, the COMELEC, the BIR, Bureau of Customs, the SEC, the various regulatory boards, etc.  If we continue to do so under the leadership of President Benigno Aquino III for the remaining years of his mandate, we will  leave to the next Administration a lasting legacy that will motivate those who will be elected in 2016 to continue building on the successes of their predecessors or, in the worst case scenario, to beware of being corrupt because the existing strong institutions will have enough clout to convict them in the courts of justice if they do not resist the temptations against integrity.   For comments, my email address is bernardo.villegas@uap.asia.