Bernardo M. Villegas
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Rebalancing Strategy
published: Mar 31, 2017



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President Duterte Is Not Socialist (Part 1)

           A few days before the last elections, I met Carlos (Sonny) Dominguez, currently Secretary of Finance, in a board meeting of a conglomerate in which both of us have been independent directors.  Half-seriously and half-jokingly, I told him that  I was about to give an economic briefing to some business people about the economic prospects of the Philippines after the May 9 elections and that It was difficult for me to be optimistic because the mostly likely to win,  his Presidential Candidate Rody Duterte,  just shocked members of the Makati Business Club with a rambling speech replete with expletives but with no content about the economic policy that he would follow if elected as President.  Sonny told me to tell my business people friends not to pay attention to what comes out of the mouth of Rody Duterte but to focus on his accomplishments when he was Mayor of Davao City for over twenty years. 

          With that advice, I recalled what members of the Davao Chamber of Commerce and Industry had told me two weeks earlier when I visited their City.  Davao entrepreneurs literally waxed lyrical about how business friendly their Mayor had been.  He not only transformed one of the most violence-torn cities in the country to a very peaceful community with a low crime rate.  He also significantly improved the business climate by shortening the time for securing all types of business permits, getting rid of corruption in the offices of the City and significantly improving the City’s infrastructures.  His long years of experience of respecting market forces and the human right of individual economic initiative contrast markedly with his constantly referring to himself as a “socialist.” 

          In fact, what I told the business audience I briefed after my conversation with Sonny was that President Rody Duterte was in truth and in deed not a socialist but a social democrat along the lines of the social market economy of the Federal Republic of Germany.  After listening to the same Sonny Dominguez a few days after the elections announcing the 8-point economic agenda that President-elect Duterte intends to pursue, I was even more convinced that Rody Duterte is far from being a socialist.  He has no intentions to nationalize strategic industries, distribute more private lands to small farmers, substantially increase both the fiscal deficit and national debt of the Government as did the most recent socialist leaders of Greece, Venezuela, Brazil and up to recently Argentina, bankrupting their nations and drastically increasing the number and the misery of the poor in their respective countries.   On the contrary, he wants to continue and maintain the very prudent macroeconomics policies of the Aquino Administration (even considering the willingness of Secretary of the Budget Benjamin Diokno to prudently increase the fiscal deficit in order to invest in more infrastructures and social services of the poor), which leftists are referring to derisively as “neo-liberal.”  He wants to remove the restrictive economic provisions in the 1987 Constitution in order to attract more Foreign Direct Investments.  He wants to involve more private participation in the construction of infrastructure projects through addressing bottlenecks in the implementation of the Public Private Partnership (PPP) Program.  He will be open to the Swiss challenge approach to bidding out infrastructure projects.  These are all market friendly policies that have made the leftists (especially the National Democratic Front leaders) literally see red!

          Duterte, however, does not believe in the absolute monopoly of the market (to quote Pope Francis).  Very faithful to the principles of a social market economy, he firmly believes that the Government has to be strongly interventionist in areas where markets fail.  Actually, he is just reminding all of us of what Adam Smith, the father of free enterprise, already pointed out more than two hundred years ago:  that the State has some indispensable roles to play in society.  The State must be responsible for keeping peace and order, administering justice, constructing public works, assuring competition, and delivering social services especially to the poor.  That is why he wants to pursue a genuine agricultural development strategy that will depart from the simplistic approach of land redistribution.  He wants to focus on providing support services to the small farmers who have been the beneficiaries of the first phase of agrarian reform.  These are marching orders to the new Secretary of Agrarian Reform. He wants to address bottlenecks in land administration and management systems.  I interpret this as a desire to enable small farmers to either lease their farms or even sell them outright to those who can make more productive use of them (whether corporations or cooperatives).   He intends to improve the income tax system to make it progressive.  I read this as a plan to lower the taxes for the most harassed tax payers, the middle class or those who are earning less than P200,000 annually.  Already, the Secretary of Finance Carlos Dominguez has opposed any increase in any consumption tax because of its obvious regressiveness.  The poor and the middle class are the ones most burdened by any increase in the VAT.

            Because of his genuine concern for the poorest of the poor, he will not hesitate to continue a program that dates back to the Administration of former President Gloria Macapagal Arroyo:  the Conditional Cash Transfer (CCT) which he intends to expand and improve as an instrument to keep children, especially in the rural areas, longer in the school system.  He acknowledges that  the best service the Government can give to the poorest of the poor is to provide their children free access to quality  basic education and to tertiary education that is relevant to private employers’ needs.  In this first pronouncement about his economic agenda, President Rody Duterte tried to strike the desirable balance between respecting market forces in which private initiatives effectively achieve income and employment objectives of the economy and addressing the requirements of inclusive growth through decisive implementation of government policies, programs, and projects.  As someone who “has been copying since he was in grade school,” (to quote one of his many jokes during the campaign trail), the President is doing very well copying the examples of the tiger economies of the last century, i.e. Singapore, Taiwan, Hong Kong and South Korea.         The GDPs of these economies grew at 12 percent annually for more than a decade because they allowed market forces to operate side by side with strong government intervention.  (To be continued).