Welcome to the lost decade
Former president Benigno Aquino III repeatedly mentioned his predecessor presided over a “lost decade” of opportunities for the country, a basic truth that irritated people no end. Unfortunately the next two administrations will likely make similar, justifiable, assertions because that is how long it will take the country to recover from the ongoing mismanagement of the current gang. That is, assuming the next two governments will be moderately serious about fixing what’s broken, which is an increasingly remote possibility. But hope springs eternal if only because one of the things that has kept matters from being even worse — the remarkable resilience of remittances — is the same thing that basically made the country immune to the governance, or more precisely the lack of it, of past administrations.
Stimulus has been the name of the game in the developed world. And stimulus spending by governments to essentially subsidize their citizens and enterprises during their extended lockdowns has ended up subsidizing our own economy through the funds sent home by relatives abroad. Us natives stuck at home haven’t been as well treated. DILG itself said the P1,000 tranche for the poor to tide them over the first ECQ week more than a month ago has only reached 61.8 percent of NCR beneficiaries as of April 26. And you wonder why community pantries were an idea whose time has come? As business journalist Prinz Magtulis recently tweeted, the Philippines officially meets the technical meaning of “stagflation”: a combination of stagnation and high inflation.
This comment was in relation to the latest economic numbers which saw the economy contract 4.2 percent in the first quarter of this year, with inflation at 4.5 percent. The Philippine Statistics Authority Prinz Magtulis said the major contributors to the decline in growth in terms of expenses were: a) construction, -3.9 percentage points; b) household final consumption expenditure, -3.6 p.p.; c) durable equipment, -1.1 p.p.
Note that Neda had forecast first quarter GDP to be “close to zero,” which would have been something, coming as we were, from -9.5 percent for 2020. It means we would have at least returned to where we were, prior to the pandemic. So much for Neda’s finger on our economic pulse, and as is being pointed out now, if Q1 was bad news, wait until we see what happened during Q2 when lockdowns resumed. But we should be careful of linking downturns to lockdowns; the whole point, as I’ve said time and again is, for its own reasons, government has refused to spend in any meaningful way and the only reason things didn’t totally collapse is that the middle class resorted to barter and belt-tightening while the upper class and big business went into community outreach in a big way to prevent mass starvation and unrest.
What were the government’s reasons for refusing to do what every other reasonable government has done, which is to freely distribute money to prevent businesses from folding up and people losing their assets or any sort of income? In a nutshell, the government decided that credit ratings are based solely on a government’s balance sheet, and that whatever the cost (to the citizenry) the balance sheets must continue to look good, which means putting a lid on deficit spending. A very old-fashioned notion, according to some economic observers who point out the ratings agencies themselves look at more things than simply the balance sheet.
What’s more, government basically put up a “Go away” sign when it enacted CREATE which did what its title promised — for our competitors. Simply put, if you remember the bidding among cities to host the HQ of Amazon — plying the company with promises of incentives—that’s the name of attracting investments in the global economy. We abolished existing incentives and destabilized the process, just when big opportunities for investments looking for safe havens occurred. Japan decreed support for factories to relocate outside China, for example; but Vietnam and Indonesia did the opposite of what we did: they expanded increased incentives under existing rules, just when we cut ours and changed our rules. So smart money went to those non-foolish countries. And those already here decided not to expand their operations in a country that keeps changing the rules.
In the 1980s, the middle class of our country went abroad. They again left during Arroyo’s time. As one observer sadly put it, “what’s left will flee now.”