After 15 years

On Feb. 8, 1998, Cebu Daily News (CDN) was born. That was exactly 15 years ago. Happy Birthday CDN!

A few weeks after the first issue of CDN came out, I found myself writing this column. Thanks to CDN, most especially to publisher Eileen Mangubat and vice president for advertising Thea Riñen (former editor-in-chief) who came to my office one day to ask me to write for CDN. I agreed because they wanted me to write about the subject with which I am more at home – economics and how we are touched by what happens to the economy as it is affected, for good or ill, by changes in government policies and by what happens globally, including our collective behavior as consumers and producers as we respond to the challenges and opportunities that come our way.

Fifteen years ago in 1998, Philippine economic growth suddenly went flat. Many people who did not know much about what was happening outside the country pointed to the new President as the culprit. A college dropout, Joseph Estrada or “Erap,” which many believed to know nothing about economics and how to manage the national economy, won the May 1998 presidential election.

That Erap knew next to nothing about economics and how to run the economy may be true but the real culprit of the 1998 economic debacle was beyond his control in Malacañang: the mid-2008 sinking of the Thai baht which triggered the Asian financial crisis. Unprepared, and with very little in international reserves to cushion the fall of the peso as foreign capital stopped coming in or moved out of Asia with the collapse of the baht, the Philippine economy which just started to recover under Fidel Ramos from hibernation in the final two years of Cory Aquino’s rule, went down fast, although not as deeply because we were not as exposed financially as our neighboring Asian tigers that were favored by foreign investors.

The Ramos administration was characterized by a balanced budget with accelerating economic growth as it widened the area of the economy deregulated by Cory. It also allowed the independent power producers to come in to solve the debilitating power lack that Cory left unattended after she disallowed the commissioning of the Bataan Nuclear Power Plant built by her predecessor.

Under Erap, the large government fiscal deficit returned, starting with P49 billion in 1998 and ending with P112 billion in 2000. It came not so much because of Erap’s profligacy, however, but because of the felt need to stimulate the economy when private sector activity slackened with the Asian financial crisis.

EDSA II came in 2001 and thus began the rule of president Gloria Macapagal-Arroyo who claimed to be an expert economist. Powered by the fast growing Overseas Filipino Worker remittance which allowed consumption demand to stay at high level, along with the ever increasing government deficit, the economy under PGMA started with low 1.8-percent growth in 2001, went up and down in the next 8 years, and ended with a bang when the economy shot up by 7.6 percent in 2010, much of which came in the first half before she ended her tenure in the mid-year.

PGMA’s time was the fastest economically in the post Marcos years at 4.8 percent annual average growth rate. It was still lower than the average for East Asia, however. Less the 2 percent annual growth in our population, PGMA’s time allowed our per capita income to grow by less than 3 percent year, a rate which will require more than 20 years to double.

What now under the new Aquino government? Is the Philippines becoming a tiger finally?

Many people in and outside the government think so after seeing the 6.6-percent gross domestic product growth registered last year from 3.9-percent in 2011 despite the weakening of the global economy. Basing on the World Bank’s latest report on the Global Economic Prospect released last month, global economic growth went down from 2.7 percent in 2011 to about 2.3 percent in 2012, with this year’s growth expected to reach 2.4 percent only.

That the Philippines is now on the right footing to move higher in its potential growth path than the average recorded in the past is highly possible given the new confidence that business is placing on the new government resulting from its fight against corruption which is believed to be genuine and the recent effort to confront the need to improve our infrastructure under the Private Public Partnership scheme which is starting to take off.

The only trouble is that much still remains to be done to increase our propensity to save and to make more room for investments that we badly need to increase our stock of capital and raise our output per worker, not to mention the other more important need of improving the quality of our workers over the course of time to increase further our productivity.

Right now we bask in our high level of consumption which provided the necessary kick for more production. In the short run this is good but not in the long haul for lack of savings. Higher consumption prevents us from accumulating the physical capital needed to increase our output of goods and services on a sustained basis in the next 10 or 20 years.

Would you save when interest on bank deposits is below the inflation rate? And what good are savings if they will only be cornered by a few large companies, who also would not hesitate to fire their workers when in trouble to protect their profits? What good are savings if they are not given to small business enterprises for their lack of collaterals?

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To my relatives, friends and neighbors in Dalaguete town, southeastern Cebu, Happy Fiesta! Viva San Guillermo!