Monday, January 5, 2015

It’s a stretch

“Last week, Finance Secretary Cesar V. Purisima insisted that the country is being underrated by three major international credit rating agencies despite Moody’s and Standard & Poor’s (S&P) recent positive rating actions.” [Moody’s defends PH’s ‘underrated’ assessment, Chino Leyco, Manila Bulletin, 24th Dec 2014]

How did Moody respond? “‘In a statement, Moody’s said yesterday that infrastructure constraints, low gross domestic product (GDP) per capita income, and weak revenue generation hinder the Philippines from securing a much higher investment grade status . . . The government’s revenue as measured against GDP and the country’s GDP per capita is low when compared to investment grade peers. Policymakers may also face the challenge of sustaining the positive trajectory of institutional quality through the political cycle,’ Moody’s said.”

How could we not see eye-to-eye with Moody? “The Bangko Sentral ng Pilipinas (BSP) said the country’s economic fundamentals remain solid despite external risks and challenges.” [‘Economic fundamentals remain solid’, Kathleen A. Martin, The Philippine Star, 25th Dec 2014]

“‘The domestic economy continues to expand above historical average. Household consumption is expected to remain steady and growth in services sustained,’ the central bank said in its latest Report on Economic and Financial Developments . . . The favorable trends in the manufacturing sector indicate the potential resurgence of the industry sector, which can potentially transform the sector into a major driver of growth in the Philippines,’ the BSP said.”

Not only the CB keeps to this talking point: that our economic fundamentals remain solid. Many of our opinion makers echo this CB line. Because for the longest time, our gross international reserves were inadequate to cover our foreign debts. But with 10 million OFWs remitting north of $20 billion annually, our reserves situation has turned positive. Yet a swallow doesn’t make a summer! And these remittances are also why we are proud of our consumption economy – and how we created a handful of billionaires. [When we should be ashamed; it's our version of slavery! “9 months at sea can only drive you crazy,” now rings in my ear after several years that my wife and I have gone on these cruises with half of the crew members being OFWs.]

The sad reality is we have yet to recognize that we’ve contracted our own Dutch disease. That is to say, we haven’t yet assembled and erected the requisite building blocks of a truly growing and sustainable economy . . . and are already celebrating! And perhaps it comes from our Pinoy abilidad? That we can make do with an economy without subscribing to a “Western economic model.” But let’s take infrastructure and strategic industries that can be the platform for a growing and sustainable economy.

Even Deng Xiaoping when he was still a regional player subscribed to the imperative of infrastructure development that despite the absence of modern technology, he pushed the railroad system in his region that became the platform of economic activity. It’s not about East versus West, again! [Deng Xiaoping and the transformation of China, Ezra F. Vogel; The Belknap Press of Harvard University Press, 2011]

In his mid-20s, while in Russia, Deng realized how investment, infrastructure and technology – from the developed economies but which Russia was missing – were an imperative, the building blocks of an economy having also spent time in France. And not surprisingly, Russia is yet to progress beyond an oil and gas economy. Much later, while under duress during the Cultural Revolution for his capitalistic bend, that realization would deepen as he saw how Japan had modernized after opening the country to Western technology and investment; and later South Korea as well as countries with Chinese ethnic populations like Singapore, Hong Kong and Taiwan. He asked himself how China could develop a relationship with the U.S. to reap similar benefits.

The JFC (Joint Foreign Chambers) worked with a cross-section of PHL society and came up with the seven industry winners that would attract major FDIs and generate millions of jobs and raise GDP to approximate those of our neighbors yet where was the unequivocal support from us? Or were they too narrow for government to focus on when we have scores of industries that want government support? But that precisely spells “crab mentality” which has undermined PHL progress and development – and not surprisingly, because it runs counter to Pareto.

Does Pinoy abilidad trump all? And so we would read editorials like: “For two decades, Japan borrowed and spent the money to build massive infrastructure projects like bullet trains, subways and dams. It did not work to improve the economy. Now Japan’s debt is so great that it is mathematically impossible for the debt ever to be repaid . . . Two underlying factors have kept the Philippine economy stable in the 21st century: a prudent banking system and responsible government and private-sector borrowing.” [Balancing spending and debt, Business Mirror Editorial, 22nd Dec 2014]

But that take on Japan speaks to a very narrow slice of reality. [Disclosure: as an MNC manager, I covered Japan during the period in question.] Japan’s lost decades have been sliced and diced and the bigger picture goes like this: “Since Japan’s real estate and stock market bubble burst in the early 1990s, companies have focused on cutting debt and shifting manufacturing overseas. Wages stagnated and consumers reined in spending. That led to two lost decades, with no nominal growth in the economy. Prices . . . kept falling, creating deflation that sapped optimism.” [Japan’s Economic Shock Therapy, Andy Sharp,, 14th Dec 2014]

“. . . Japan’s . . . Prime Minister Shinzo Abe is pushing a bold strategy . . . It’s shock therapy for an economy that’s been stagnant for 20 years and was overtaken  by China in 2010 as the world’s second-largest. Abenomics departs from the piecemeal measures of previous leaders and antagonizes powerful political constituencies. Abe tells voters that the strong economic medicine he has pursued over the last two years is Japan’s last chance to remain a world power, framing his policies as a matter of national security.”

Still, we would want to give credit where credit is due: “Palace gives positive summing up of 2014,” Federico D. Pascual Jr., Postscript, The Philippine Star, 25th Dec 2014.

“Ringing a positive Christmas note, Malacañang trotted out comparative figures . . . showing a statistical selfie of sorts of its accomplishments toward the end of year 2014. To have some kind of base, the Palace compared what it has accomplished to what previous administrations had.”

And they covered: Average GDP (Gross Domestic Product) Growth; PSE (Philippine Stock Exchange) Index; Rating; Foreign Direct Investments (FDI); Tax Effort (Tax Revenue-to-GDP Ratio); CCT Beneficiaries; PhilHealth Coverage (beneficiaries); Employment Rate; Education Budget; Tourist Arrivals.

Where do we net out? For example, “PH needs fully integrated steel industry to be competitive,” Amy R. Remo, Philippine Daily Inquirer, 24th Dec 2014. What is noteworthy about this article is that it recognizes “constraints” beyond the steel industry.

“If adequately addressed, these constraints—called “key enablers” by the Men of Steel—are expected to help Philippine enterprises compete on equal footing with their Asean counterparts . . . These were identified as infrastructure (referring to roadways, bridges, airports, seaports, farm irrigation systems, among others); the availability, reliability and cost of electricity; transportation costs; smuggling; investment incentives; access to credit facilities; soft infrastructure; good governance and foreign trade agreements.”

“‘(These) concerns will definitely need early solutions if Philippine business firms are expected to survive and thrive under the new economic order. We shouldn’t leave them with these handicaps as these could be too heavy and cumbersome to carry into the larger regional business battlefields,’ the paper stated.”

We don’t have to stretch reality . . . and instead recognize and acknowledge our shortcomings. If indeed we are to truly move the nation forward . . . and if we believe in ourselves.

Still, we can’t bite more than we can chew . . . Prioritize. Prioritize. Prioritize . . . and Pareto is the rule of thumb. Happy to New Year!

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