Road to low growth paved with good intentions

(Second of three parts)

President Benigno Aquino III INQUIRER FILE PHOTO

When then presidential candidate Benigno S. Aquino III appeared before the Makati Business Club (MBC) in early 2010, he was greeted with a hearty round of applause in a fully packed ballroom of the Manila Peninsula Hotel even before he delivered what was to become one of the defining speeches of his campaign.

In his remarks, he outlined the nascent idea of what would become the cornerstone of his good governance-oriented economic program—the Public-Private Partnership (PPP) Program.

To no one’s surprise, then Senator Aquino’s speech ended to the sound of thunderous clapping and a long standing ovation by the standing-room crowd.

To many members of the country’s umbrella organization for big firms, the prospect of a “President Aquino” was clearly a welcome relief after years of being ignored by Malacañang for the group’s backing of the 2005 Hyatt 10 Cabinet revolt.

Spending shortfall

Sixteen months later, the MBC still counts itself among President Aquino’s staunchest supporters. But its optimism has been somewhat tempered by the new realities on the ground.

“The President’s anchor statements are ‘daang matuwid’ (the straight path) and ‘Kung walang corrupt, walang mahirap’ (without corruption, there would be no poverty),” MBC chairman Ramon del Rosario Jr. told the Philippine Daily Inquirer.

“We ourselves [in the business community] have taken this on and launched our Integrity Initiative,” he said.

Del Rosario lamented, however, that the “dynamism” of the private sector in the first nine months of the year was not matched by the public sector, which had opted to tighten its purse strings in an effort to weed out deeply rooted corruption.

“Everybody is talking about integrity,” he added. “But the flip side of that is that everybody also wants to see the government spend more. It is clearly the government’s underspending that has dragged the economy down.”

The underspending amounted to about P135 billion as of the first half of the year alone.

Deliberate

Finance Secretary Cesar Purisima, the de facto head of the economic team, said the underspending was a deliberate strategy by the Aquino administration to rebuild the corrupted base from which more sustainable economic growth would ensue in the coming years.

“At the initial part, there will be this dip [in growth], and you just have to sustain it because as you set the foundations, you complete the J [curve],” Purisima said, referring to the economic principle of experiencing a brief pullback in growth before reversing and moving upward sharply.

However, Socioeconomic Planning Secretary Cayetano Paderanga Jr., who served as director general of the National Economic and Development Authority (Neda) under the first Aquino administration, paints a slightly different picture, revealing how the economic managers failed to foresee the deep consequences of their policy decisions.

Process review

The economic team did not set out to cut spending per se, Paderanga said, but had wanted various implementing agencies like the Department of Public Works and Highways to review and streamline their processes for implementing PPP and non-PPP projects.

“As they reviewed that, there were delays right away [precisely because of the review] instead of [executing projects] right away,” he said. “And then it all added up, because all of the implementing agencies were doing this.”

Blindsided

Paderanga said the upper echelon of the economic management team was initially unaware that the system-wide reviews were costing the country in terms of foregone economic growth.

“Only the implementing agencies would have seen that,” the Neda chief said. “Unless you are there [on the ground] doing it, you will not quite see that. The oversight people will not see that until the reports come in. And the reports sometimes come in quarterly.”

Paderanga said the economic team saw the review’s impact on growth only in the last part of the second quarter.

By then, the gross domestic product growth rate had fallen sharply to 3.4 percent, even lower than the already low 4.9 percent for the first three months of the year.

Unfortunately, the much-hyped PPP Program itself fell victim to the administration’s overarching desire to prevent a repeat of anomalous contracts like the $400-million Terminal 3 project of Ninoy Aquino International Airport or the $329-million NBN-ZTE deal.

Breakout year

The PPP Program was meant to enlist the financial muscle of private investors to take up the economic slack while the government tried to cleanse the system of corruption.

All these developments have been making MBC’s Del Rosario slightly impatient, given that the Philippines had “a golden opportunity” to make 2011 a “breakout year.”

“There used to be a lot of issues [with the past administration], but now it seems that all the issues have been addressed,” he said. “So, hey, if we’re to have a breakout year, we really need to get things together, particularly in terms of government spending and in infrastructure where we’re so far behind.”

“Whatever it is we need to do, let’s do it and let’s get it going,” Del Rosario added.

Coming off the scandal-ridden Arroyo administration, the MBC chair commended the Aquino administration’s commitment to fighting corruption.

But he said getting “frozen into inaction by the fear of corruption” was undesirable as well.

“It’s good to try to install systems that will try to ensure a reduction in corruption,” Del Rosario said. “But I don’t think it’s appropriate to aspire for a system that will do away with corruption 100 percent. Such a system does not exist.” To be concluded