Page last updated at 11:10 Asia/Manila, Wednesday, 14 January 2015 PH
Christine Legarde, managing director of the International Monetary Fund, has introduced a new phrase into global economics. It is the “new mediocre.” She is referring to the lacklustre growth that advanced countries are now doomed to suffer almost perpetually. Most forecasters are agreed that the former engines of growth of the world economy—the U.S., Japan and Europe—may recover from their present malaise but will not enjoy growth rates for the foreseeable future of more than 2 per cent per annum in GDP. This is way below the growth rates of 4 to 6 percent annually which they enjoyed in the boom years of the last century or even in the first five years of the present millennium. A combination of the demographic winter, macroeconomic mismanagement, and failure of economic regulation may be responsible for this “new mediocre.”
Investors from all over the world are now focusing on the so-called emerging markets, especially in the Asia Pacific region, for non-mediocre growth rates of 5 to 7 percent per annum. For 2015, for example, emerging markets are still expected to grow by an average of 5 to 6 percent even in a recessionary global environment, with China, India and the Philippines still managing to grow by more than 6 per cent. With export prospects looking dim, these growth rates will be mainly propelled by domestic consumption and government spending on infrastructures.
Can we say unqualifiedly that the Philippines is exempted from this “new mediocre”? Speaking like a typical economist, my answer is Yes and No. Yes, if we are to consider that whatever happens to our very uncertain political future, the Philippines can still notch a GDP growth rate of more than 6 percent per annum at least for the next five or more years. The engines of growth of the Philippine economy today are mainly immunized from the travails of democratic politics. We will continue to receive $25 billion or more of remittances of OFWs; our BPO/KPO sector will continue to earn $15 billion or more employing 1 million workers and counting; close to 40 million Filipinos from low middle and high middle income households will spend the incomes from these two engines of growth on a variety of consumer goods and services, on housing, and on domestic tourism; the business sector will continue to demand spaces in office buildings for the increasing number of BPO/KPO workers spread out more and more outside of the National Capital Region; and we can experience a moderate renaissance of manufacturing as more Japanese and South Korean factories relocate in the Philippines as a consequence of much higher wages in China. On the part of the Government, there are enough institutional reforms that will guarantee that increasing percentages of our GDP will be spent on infrastructures and education. All these are bound to happen even in a recessionary environment in the global economy and less than ideal choices for the Presidency and other national leaders in the 2016 elections.
But should we be satisfied with a 6 to7 GDP growth rate in the coming years? I am afraid that is where the “new mediocre” applies to the Philippines. Considering that almost a quarter of Filipinos are still living in dehumanizing poverty, a growth rate of 6 to 7 percent can still be considered “mediocre.” When the tiger economies in the last century and China in the last quarter of the same century were at a similar stage in which we are now, their economies grew at an average of 10 to 12 per cent annually for at least two decades for them to dramatically bring down their poverty incidence. The Philippine economy has to grow at least at 8 to 10 percent for the next ten years to even begin aspiring for inclusive growth. Our leaders cannot be complacent about our “being one of the fastest growing economies” in Asia today. We have been growing at subpar rates for too long that we cannot be satisfied with what we have attained so far. I repeat: 6 to 7 percent is going to be the “new mediocre” in our present circumstances.
How do we get a GDP growth rate higher than the “new mediocre”? We must make sure that our next national leaders, starting from the President and the key officials in our executive department, must be both honest and competent. A critical mass of good leaders will enable our society to liberate itself from the massive wastes due to corruption as well as from the incompetence of the present leaders in implementing hundreds of billion pesos worth of infrastructure projects because of government underspending and the “paralysis by analysis” syndrome that inflicted the Public Private Partnership (PPP) projects. More arguably, more enlightened leadership in the next Administration can unleash forces that will attract levels of Foreign Direct Investments (FDIs) at $5 to $10 billion annually that have already been long achieved by comparable countries like Vietnam and Indonesia. Among other means of reaching these higher levels of FDIs is the amendment of the Philippine Constitution to remove the unreasonable restrictions inhibiting foreigners to invest more in public utilities, real estate, media and education.
For us to generate the resources needed to lift the poor from their sufferings, we must go beyond the “new mediocre” of the present Administration. Much is at stake in the next national elections. The young voters, those between 18 and 30 years of age who constitute the vast majority, must be very discerning in their choices of candidates. Otherwise, we will just coast along indefinitely at the present 6 to 7 percent that is made possible by forces largely independent of government leadership. For comments, my email address is email@example.com.