Tuesday, January 02, 2007

2006: The Economics of Hype


2006: The Economics of Hype

Administration propaganda one-sidedly presents growth, peso appreciation, lower public deficits and foreign investments as if these were development ends in themselves. But the deteriorating social conditions of joblessness, hunger and poverty are the sharpest rebuttal of any government economic hype.

IBON Foundation
Posted by Bulatlat

The government has been bombarding the public for months with news of a supposedly strengthening economy: continued growth, strong peso, low budget deficits, improving credit ratings and continuing foreign investments. Big business has dutifully joined the chorus with segments even visibly taking the political side of the beleaguered Arroyo administration. Yet the reality of historic joblessness, deepening poverty and hunger of tens of millions of Filipinos is undeniable.

The seeming contradiction merely shows different sides of the same coin – a national economy that, especially under the Arroyo watch, does not serve the needs of the people. The economic “good news” has been good only for foreign creditors, investors and the administration which works so hard to deliver what they want. However even the “good news” as such will likely be short-lived with the underlying fiscal crunch and continuing borrowing portending problems in the near future. The domestic economy remains weak and, moreover, excessively vulnerable to global economic disturbances.

The year just passed has seen four significant economic trends: 1) the continuing historic jobs crisis; 2) the implementation of burdensome economic policies to address the government’s fiscal crisis; 3) the increasing dependence of the domestic economy on external sourcing of financing, especially overseas remittances; and 4) continued efforts to open up the economy to foreign trade and investment. Since all these happen in the context of a backward and pre-industrial economy, their adverse implications are far-reaching: the people have suffered in the year gone by, are likely to suffer even more in the medium-term, and – absent real changes in economic policies – will continue to suffer even beyond this.

Historic joblessness

The biggest failure of the Arroyo regime is the unprecedented lack of jobs where the country is facing its worst jobs crisis. That this is happening amid continued economic growth (5.4 percent growth in gross domestic product in the first three quarters of 2006) and higher net income of corporations (32.5 percent increase in earnings of companies listed in the Philippine Stock Exchange in the first nine months of 2006) underscores the problem of an inequitable economy that favors a few while increasingly unable to provide jobs for millions of Filipinos.

There were 4.0 million unemployed Filipinos and 7.3 million underemployed in 2006 – i.e. 11.3 million Filipinos or nearly a third of the labor force were either jobless or, even if employed, nonetheless still seeking more work. (This dismal reality is barely concealed by a convenient change in the definition of unemployment last April 2005 that reduces the officially reported rate by around three percent and the number by around 1.5 million.)

The problem is clearly not just momentary. The average annual unemployment rate of 11.3 percent and underemployment rate of 18.5 percent over the last six years is the worst six-year period in the country’s history, which indicates a deep-seated problem. While the unemployment rate has remained stable around a high 11 percent, the underemployment rate on the other hand has severely deteriorated and increased by some five percentage points in the last six years to nearly 22 percent. This draws attention to the worsening quality of employment and how already having a job is increasingly not even enough.

A particular development in 2006 is the sudden drastic drop in the labor force participation rate (LFPR) which fell from 67.0 percent in 2005 to 65.4 percent in 2006. The LFPR measures how many Filipinos over 15 years old are looking for work and thus considered part of the labor force. The drop in the LFPR implies that some 890,000 Filipinos (equivalent to the difference had the LFPR remained the same since the year before) ceased to be considered part of the labor force. Considering the previous five years of record joblessness, it is possible that many or all of these 890,000 Filipinos are discouraged job-seekers. If so, their “departure” from the labor force has the effect of greatly reducing reported unemployment.

Burdens in the year gone by

The Arroyo administration’s major economic effort in 2006 has been to rein in mounting government fiscal deficits. The national government deficit of P50.4 billion ($1,024,494,359 at an exchange rate of $1=P49.195) in the first nine months of 2006 is projected to come to a full-year deficit of around P100 billion ($2,032,726,903). However the achievements on this front are less signs of a strengthening economy than indications of how economic burdens are placed on those already least able to bear them – the deficit was reduced by charging higher taxes while drastically reducing critical spending especially on social services.

Conspicuously implemented amid a climate of harsh political repression were higher taxes and reduced public spending on education, health, housing and economic services – bringing to mind images of a strong state forcing unpopular measures on the people. On one hand, some P278 billion ($5,650,980,790) are targeted to be raised in 2006 from higher taxes, fees, rates and charges for public services. The new 12 percent Value-Added Tax (VAT) since February alone has taken an additional P61.7 billion ($1,254,192,499) from consumers’ pockets in the first ten months of 2006.

On the other hand, the government opted to cut back further on already emaciated social service budgets. Real public spending on education continued to fall in 2006. The current P1, 296 ($26.34) per Filipino (in 2001 pesos) spending for education is 13 percent down from its 2001 level. Health spending has fallen by an even more drastic 27 percent over the same period amounting to a meager P120 ($2.43) per Filipino.

These fiscally repressive measures are aimed at assuring creditors that loans would be paid and foreign investors that foreign exchange would be available for their globally-integrated commercial, financial and pseudo-manufacturing operations. Around P721.7 billion ($14,570,190,059) is programmed to be repaid to creditors in 2006 which is equivalent to P6, 391 ($129.91) per Filipino (in 2001 pesos), or nearly five times the combined spending on education and health. As it is, the government borrowed P592.4 billion ($12,041,874,174) in the first 11 months or slightly less than in the same period in 2005. Over four-fifths of this borrowing went straight back to creditors for debt servicing.

The International Monetary Fund (IMF) and World Bank (WB) have visibly supported the Arroyo administration’s fiscal squeeze. Aside from the IMF-WB issuing favorable country assessments of government finances, the WB in December approved the immediate single tranche disbursement of a US$250 million policy loan – its first in almost a decade – because the associated fiscal policy conditionalities were already met.

Erosion of the domestic economy

Seeming improvements in various external indicators are also hyped as signs of an improving economy. The “resurgent” peso which hit a near 6-year high of P49.19 to the US dollar in late December is particularly hyped as a sign of strength. Yet, on the contrary, most of the factors underlying the recent appreciation of the peso in fact highlight the opposite (aside from the actual weakening of the US dollar because of the U.S.’s internal economic problems). The peso has not been appreciating because of increasing global demand for genuinely Philippine-made goods. If it were the case, it would have been a good thing insofar as that would imply increased domestic production for the international market. The gains from the increased production of local firms would supposedly accrue to the domestic economy and its producers.

However the appreciation of the peso has instead been driven by factors with little relationship to building domestic productive capacity. The country’s biggest source of foreign exchange is remittances from some nine million overseas Filipino workers (OFWs) driven to seek work abroad. OFWs sent back US$10.3 billion in the first ten months of 2006, or a 16.6 percent increase from the same period the year before. OFW remittances benefit the economy in two ways. The accumulation of foreign exchange brought about by the remittances eases local demand for dollars causing its value to go down. Second, it supports the consumption and survival of tens of millions of OFW family members left behind. But in a deeper economic sense the cheaply bought labor of OFWs actually contributes more to building the economies of their host countries than of the Philippines. Moreover, the increasing deployment of OFWs is actually an indication that the local economy – eroded by decades of retrogressive “free market” policies – is bereft of opportunities for productive employment, which is the reason OFWs went abroad in the first place.

The country’s other sources of foreign exchange are not only much less but also basically hollow in their own specific ways. Exports in the first ten months of 2006 grew 16.4 percent from a year ago to US$39.3 billion. But over four-fifths of these exports are heavily import-intensive electronics (some 75 percent), clothing and a few other manufactures, mainly by foreign TNCs. Because the country’s export products are heavy on imported components, not to mention the imported machines and oil needed to produce these, net foreign exchange earned from exports is much less and even smaller than that coming from OFW remittances. There were also net portfolio investments in the first eleven months of the year of US$2.1 billion, marginally higher than in the same period last year. Portfolio investments are highly mobile and do not actually contribute to the economy except as temporary sources of foreign exchange.

Surrendering economic sovereignty

The country’s economic problems are essentially the result of decades of anti-people and elite-oriented economic policies. The so-called neoliberal “globalization” policies that surrender economies to the profit-oriented dynamic of foreign monopoly capital and domestic big business are trade and investment liberalization, privatization and deregulation.

Pres. Gloria Macapagal-Arroyo has been a dogmatic advocate of “free market” policies since her technocratic days in the 1980s, her senatorial stint in the 1990s and up to her presidency in the 2000s. In 2006 she took these policies as far as possible within the current Constitution and, deeming this the last remaining legal fetter, also pushed to change the charter itself.

There was the renewed drive to open up the country’s rich mineral resources to foreign plunder. Building on various mining-related plans and programs and a favorable Supreme Court decision in 2004 and 2005, the government held international mining conferences and went on an international road show in 2006. Within the Association of Southeast Asian Nations (ASEAN) the Philippines pushed for so-called “regional integration” – deceitful spin for economic policies geared at attracting American, European and Japanese investors away from China and India by offering cheaper labor, greater freedom to exploit natural resources, lower environmental standards, lower taxes, and as unrestricted operations as possible.

Especially significant in 2006 is how the Arroyo administration entered into the country’s first full-fledged free trade agreement (FTA) with Japan: the Japan-Philippines Economic Partnership Agreement (JPEPA). The JPEPA is a patently unequal deal that one-sidedly demands much greater trade and investment liberalization from the backward pre-industrial Philippines than advanced capitalist Japan makes. The unprecedented deal also gravely undermines the country’s negotiating position in all subsequent trade and investment agreements. The end result of the JPEPA and other such agreements will be to decisively prevent any real domestic industrial growth and economic progress.

The closing weeks of 2006 finally also saw the Arroyo administration’s attempts to overhaul the 1987 Constitution including, aside from changes in the political set-up, removing various economic sovereignty provisions for developing the domestic economy. Among others these provisions include controls on foreign equity investments, exploitation of natural resources and land ownership and provisions promoting Filipino economic activity.

Challenges in 2007

The deteriorating social conditions of joblessness, hunger and poverty – IBON’s last October 2006 survey had over 70 percent of respondents rating themselves as poor – are the sharpest rebuttal of any government economic hype. Administration propaganda one-sidedly presents growth, peso appreciation, lower public deficits and foreign investments as if these were development ends in themselves. Similarly, the usual government argument that the fiscal sacrifices are short-term pain for long-term gain is specious considering that the fiscal squeeze is precisely aimed at furthering the administration’s bankrupt neoliberal agenda. As it is, the New Year will already open with further privatization-driven water and power rate hikes.

In her speech at the 28th Catholic Mass Media Awards (CMMA) ceremonies in November, Pres. Arroyo dreamily said, “So much is going well in the Philippines… I hope to leave office in 2010 with the nation well on its way to First World status.” Yet, clearly, little is going well for the majority of Filipinos. It is entirely understandable that many will probably think that the three years until 2010 is too long and, equally understandably, do their utmost to ensure that she leaves office as early as possible before then. IBONFoundation/posted by Bulatlat

Two Versions Of The Philippine Political Economy

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