Bernardo M. Villegas
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Back To Prophecy of Boom (Part 2)

             Why am I expecting that Philippine GDP can grow by as much as 8% in 2022?  As we saw in the first part of this series of articles, even with a slight modification of the draconian lockdown measures, Filipino consumers demonstrated once again their great resilience.  They were able to power a strong recovery in the third quarter.  I foresee a similar trend during the first semester of 2002 when a strong growth in OFW remittances and a continuing rebound of the BPO-IT sector will provide domestic purchasing power a big boost, with some aid from election-related spending in the first four months of the year.  There will also be acceleration of the Build, Build, Build program as sitting politicians at both the national and local levels will vie with one another to impress the voters with their respective infrastructure projects.

            We have to also take into account that Governors and Mayors will receive a bonanza of a total of P 959.04 billion in the form of the Internal Revenue Allotment (IRA) that will be cascaded to them from the national coffers as a result of the so-called Mandanas-Garcia-Malvar Villegas ruling (as Governor Mandanas of Batangas is wont to point out, the lawyer who helped him and Congressman Joet Garcia to argue their case in the Supreme Court was my late brother Jose Malvar Villegas).  As many groups from both the business and civil society sectors are strongly recommending to the LGU heads, they should prioritize the spending of this amount as follows:  (1) farm-to-market roads, irrigation systems, post-harvest facilities and other facilities and services that will help the small farmers improve their productivity; (2) increase their budget for education, improving the salaries and benefits of public schools teachers and build better-quality school buildings as well as improve the internet connectivity to enable some form of blending learning; (3) invest in more health facilities to be readier for more pandemics or epidemics in the future; and (4) significantly improve the readiness to respond to natural calamities such as floods, earthquakes and volcanic eruptions by investing in the relevant infrastructures. 

            In this regard, it is good to note that as a political analyst observed in a recent webinar of the University of Asia and the Pacific, there is unanimous support from all sectors of society for the continuation of the Build, Build, Build program of the present Administration that has managed to increase the budget for public works from a historical average of 1-2% to 5-6%.  Dr. Robin Garcia, Founder and CEO of WR Numero Research and Consultancy Group, reported the findings of a study he conducted which revealed that, in contrast with the 2016 elections where there was a great clamor for change, the voters today are mostly in favor of continuity, especially as regards the Build, Build, Build program and an effective response to the pandemic crisis.

            Given my assumption that the greater willingness of Filipinos to continue with the safety protocols even as we move to Level 1, I do not expect the new variant of the virus called Omicron to wreak havoc on our economy as experienced with the Delta variant in the past.  Coupled with our greater supernatural faith and reliance on prayers, I am assuming that next year will not be having draconian measures of lockdowns.  That is why, my so-called “prophecy of boom” is that 2022 will begin a series of GDP annual growth rates that will accelerate to 8% or more in the coming five to ten years.  Given more normal health-related circumstances, our economy is poised to transition to an upper-middle income status comparable to where the Chinese economy was in the 1980s and 1990s when after the market reforms introduced by Deng Xiao Peng in 1978, their GDP was growing at double-digit rates of 12 to 14%.  The same can be said for India during the leadership of Mamohan Singh.  Many states in India were already enjoying upper-middle income status, helping the entire economy to grow also at double-digit rates.  To expect the Philippines to grow by 8 to 10% for the rest of the 2020s and beyond is not unrealistic, as long as we sustain what have already been started in the last ten years, during which GDP grow at an average of 6 to 7% before the pandemic.

            What have been suggested above for the LGUs in their use of the IRA funds should be replicated at the national levels.  The highest priority should be given by the national government officials elected in May 2022 to rural and agricultural development, improving the quality of basic education, investing in public health and minimizing the harm done by natural calamities.  Since the Government’s hands will be full in addressing these priority sectors, the private sector—domestic and foreign combined—must play a greater role in sustaining the  Build, Build, Build program, improving the quality of tertiary education, and investing heavily in such sunrise sectors as food and agribusiness, health and wellness, the digital industry (Industrial Revolution 4.0),  economic and low cost housing,  the hospitality industry, logistics and supply chain and non-formal and informal education. 

            Of the highest importance is the reform of the foreign investment climate.  If the Duterte Administration is not able to pass in the remaining months of its existence, the three bills related to FDIs (Public Service Act, Retail Trade Liberalization and Foreign Investment Act), they should be treated with the highest priority in the next Congress.  An even greater challenge is to remove from our Constitution the limits to foreign equity in public utilities, mass media, advertising and higher education.  All these reforms are needed to address what The Inquirer in an editorial referred to as a “dismal investment record.”  We compare very poorly with such peer countries as Vietnam and Indonesia in attracting FDIs. For example, as contained in the ASEAN Investment Report 2020 -2021, FDIs into the ASEAN amounted to $137 billion in 2020, of which only $6.54 billion went to the Philippines. In 2019, the amount was at an all-time high of $182 billion, of which the Philippines received only $8.67 billion.  Compare these figures with Singapore that got $114.2 billion and $90.6 billion, respectively in 2019 and 2020.  Indonesia, $23.9 billion and $18.6 billion; and Vietnam, $16.1 billion and $15.8 billion.  In fact, the much larger FDIs that have been pouring into Vietnam (twice or more of the amounts being invested by foreigners in the Philippines) over the last five or more years explain to a great extent why the per capita income of Vietnam finally surpassed that of the Philippines in 2020.

            FDIs are badly needed to supplement long-term equity capital of Filipino investors who are increasingly unable to provide the majority equity of the 60 percent needed in such strategic industries as telecom, airports, railways, institutions of higher learnings, media and advertising  that  are limited to a maximum of 40% foreign ownership.  It is well known that the digital revolution has led to a merging of the telecom industry with computer technology, media and advertising.  We have to open up these strategic sectors that are most critical components of the digital revolution.  Foreign equity will be even more necessary during the post-pandemic recovery when it is not possible for us to repeat the borrowing spree made necessary by the economic recession that resulted from the pandemic.

            Despite the slow progress we may face in attaining good governance in key public agencies, eradicating corruption in both the government and private sectors, in raising the quality of basic education, decreasing the costs of  energy,   and improving the global competitiveness of our industries,. we can still succeed in accelerating our GDP growth from 6 to 7 % to at least 8 to 10 % if we give the highest importance to rural and agricultural development, improve the quality of our infrastructures through the Build, Build, Build program. and combat all anti-competitive forces in the market by continuing with the effective work that the Philippine Competition Commission has demonstrated so far

            The next Administration is well advised to follow the dictum:  allow free market forces to operate as much as possible; but be sure that it is ready to make use of state intervention as much as is necessary.  This is the best combination that has blurred the difference between the right and the left in most advanced countries.  The best label that been used to describe it can be found in the social doctrine of the Catholic Church, which Pope Francis is shouting from the roof tops:  the Social Market model that has been operational in Germany as the foundation of the politics of the Christian Democrats who have shaped German economic society for decades after the Second World War.  For comments, my email address is bernardo.villegas@uap.asia.