Bernardo M. Villegas
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Origins of Filipino First Mentality (Part 1)

             Among the major economic reforms for which the Duterte Administration will be remembered by posterity is the passing of the Public Service Act which dealt a big blow to the “Filipino First Mentality” which inflicted much economic harm to the Philippines for several decades after we gained political independence in 1946.  In my crystal ball foreseeing the future,  the Philippine GDP growth can accelerate to 8 to 10% if the  next Administration will be characterized  by good governance and by more openness to Foreign Direct Investments.  In my opinion, a 6 to 7 percent growth is achievable whoever is elected President in May 2022 since I expect the next President, whoever she or he is, to continue to benefit from the strong institutions already in place after some thirty years of slow and painful reforms.   It is also highly probable, that the next President, whatever her or his weaknesses or limitations may be, will be appointing some of the best people to his Cabinet in the fields of the economy, finance, industry and trade,  agriculture, public works, and other critical positions that have to do with sustainable and inclusive development, as we have witnessed over the last thirty years.  To be very candid, the outgoing Administration was led by a person who did not exactly excel in leadership qualities.  The proof of the pudding, however, is that under him the economy grew at an average of 6 to 7 % before the pandemic and is bouncing back relatively well after the pandemic.

            The next Administration, however, will face a humongous debt burden as a result of the huge borrowings occasioned by the pandemic.  By the end of 2021, the National Government recorded P 11.73 trillion in outstanding debts.  Our debt-to-GDP ratio has gone over 60% (from the previous 30% pre-pandemic) and our fiscal deficit has topped 8% (from a low of 3%).  There will be a serious shortage especially of long-term capital to continue the Build, Build, Build program and to rehabilitate the numerous business establishments that suffered from the economic collapse brought about by the pandemic, especially In the transport, travel and tourism, private education, and public utilities sectors. For long-term capital, there is no alternative to attracting bigger doses of Foreign Direct Investments (FDIs), especially in telecommunications, shipping, airlines, airports, trains, subways, expressways, tollways and canals.  All these have to be open to 100% foreign ownership if we are to attract the necessary long-term capital.  Fortunately, the President has already signed the Public Service Act allowing 100% foreign ownership of these strategic industries. Those who worked on the bill expect some P 299 billion in increased FDIs over the next five years.

              Vietnam was able to surpass the Philippines in GDP per capita at the height of the pandemic in 2020 because, among others, it has been a great deal more open to FDIs than the Philippines.  For example, from 2015 to 2019, before the pandemic, Vietnam attracted an annual average of US $14.0 billion compared to our annual average of US $ 8.5, despite our having  a larger population of 110 million compared to Vietnam’s 95 million.  We must do more in the coming years to attain the potential of 8 to 10 % GDP growth during the post-pandemic period.

            I am hoping that in the next Administration, there will be further moves to allow more foreign direct investments even in what are still considered “public utilities” as well as in such strategic areas as higher education, mass media and real estate through amendments to certain economic provisions of the 1987 Constitution.  I would like to call attention of those aspiring to be President of the Philippines and to other top positions in our National Government to an article that appeared in the Opinion section of The Inquirer last February 3, 2022.  Written by Kaushik Basu, former Chief Economist of the World Bank and Chief Economic Adviser to the Government of India, the article warned emerging markets like the Philippines about the disastrous consequences of ultra nationalism or what he calls “hypernationalism” (aka Filipino First mentality). In an article entitled “The Economic Costs of Closed Minds,” he warned that the world economic recovery from the pandemic will be slow, greatly burdened by huge debts incurred during the pandemic.  As he wrote: “…the World Bank forecasts that global economic growth will slow to 4.1% in 2022, from 5.5% last year.  With debt burdens rising, supply chain bottlenecks impeding the flow of goods and services, and inflation picking up, governments are losing the capacity to provide further fiscal support.  The report warns that the surge in debt caused by countries trying to soften the ‘pandemic-induced global recession’ means that several economies are now ‘at high risk of debt distress.’ Some may need debt relief.”

            Dr. Basu strongly warns about the economic harm that can be done by what we call the “Filipino First” mentality among our policy makers.  He stresses that hyper nationalism is usually disastrous for an economy in the long run.  This is because strident nationalism leads to bloated egos and blurry thinking.  Countries in its grip try to become self-sufficient by raising barriers to trade, capital and ideas from elsewhere.  He gives as an example the case of Argentina, which was among the world’s fastest growing economies in the early decades of the last century and was even expected to overtake the US.  Things turned for the worse in the 1930s when a military coup resulted in the installation of the hyper nationalistic Lieutenant General Jose Felix Uriburu as president.  Tariffs subsequently rose, together with barriers to immigration.  Argentina’s open economy, now closed to the world, soon stagnated and the US surged ahead. 

            Today, avoiding ultranationalism is even more important.  In a globalized world, with new ideas and research emerging in all parts of the world, countries that succumb to extremes of nationalism will pull down their economies.  It is important for us to understand what is behind the Filipino First mentality and to educate the public about the great harm it can do to sustainable and inclusive growth. In the next article, we shall review the very well intentioned efforts of Filipino leaders during the Commonwealth under the U.S. and in the first decade or so of Philippine independence to wean the Philippine economy from over dependence on the U.S. economy.  We shall also see how, unfortunately, these truly patriotic attempts to gain economic independence evolved into ultranationalistic policies that did more harm than good to Filipino workers and consumers.    To be continued.