This fixation on GDP growth rate

Just before the disappointing 3Q GDP number was officially made public, there was this terribly feel good article from Bloomberg about how the Aquino administration has performed a miracle with the Philippine economy. I thought the article with the byline of Karl Lester M. Yap was an advertorial supplement but there is no editorial notice that it is.

The lead paragraph: “Philippine President Benigno Aquino is lifting millions out of poverty and boosting the middle class even as he struggles to increase government spending. Ayala Corp. (AC) is reaping the gains.” Or maybe it is indeed meant to be an advertorial courtesy of Ayala Corporation.

The Bloomberg article essentially interviewed an Ayala executive who talked about how high consumer spending has done wonders for the Ayala businesses. Nothing wrong with what the executive said because his observations are true. Increased consumption has done Ayala good.

“There are shifts in consumption patterns as the middle class expands, which provide a lot of opportunities for the group,” Ayala Chief Financial Officer Delfin Gonzalez said in an interview in Manila this week, pointing to growing demand for homes, cars and loans. “We’re going full steam ahead.” Hooray for Ayala!

But the article already reported the sharp decline in the GDP for the 3Q, so one would expect the usually more analytic Bloomberg piece to explain what’s going on. This decline should moderate expectations moving forward as NEDA Sec Arsi Balisacan was careful to do in a TV interview I monitored.

In truth, P-Noy had little to do with the bullish GDP before and the downturn this time is also mostly the effect of international developments. But the decline could have been moderated if P-Noy had been more aggressive in doing structural reforms on the economy.

As for P-Noy “lifting millions out of poverty”, I wonder if Bloomberg editors fact checked that claim. It sounds like sheer hyperbole. A recent SWS survey points out some problems with hunger rate which indicates the poverty war is far from over or even that effective.

From SWS: “The Third Quarter 2014 Social Weather Survey, fielded over September 26-29, 2014, found 22.0 percent or an estimated 4.8 million families experiencing involuntary hunger at least once in the past three months. This is 5.7 points above the 16.3 percent (est. 3.6 million families) in June 2014, and 2.5 points above the 19.5 percent annual average of 2013.

“The measure of Hunger refers to involuntary suffering because the respondents answer a survey question that specifies hunger due to lack of food to eat. The 22.0 percent total Hunger in September 2014 is the sum of 17.6 percent (est. 3.8 million families) who experienced Moderate Hunger and 4.4 percent (est. 970,000 families) who experienced Severe Hunger.”

I think you have to multiply family number by 5.5 to get an approximate number of hungry people… a fourth of our population of 100 million. That’s a lot of people who experienced hunger.

Hunger rose in all areas except Mindanao, SWS also reports. “The national Hunger rate of 22.0 percent consisted of Hunger in Metro Manila at 22.0 percent (est. 654,000 families), Balance Luzon at 24.3 percent (est. 2.4 million families), Visayas at 18.7 percent (est. 786,000 families), and Mindanao at 20.3 percent (est. 1.0 million families). Compared to their four-quarter averages for 2013, the latest Hunger rates were higher in Balance Luzon and the Visayas, and lower in Mindanao and Metro Manila.”

I have no problem reporting the bright spots in our economy that happened in the past years under P-Noy. Indeed, it helps us balance the bad news about corruption and the bureaucracy’s failure to deliver things like basic infrastructure. Our morale can use some positive boosting now and then so we don’t lose hope.

I just thought given Bloomberg’s international readers and professional reputation, it should have presented a more balanced view of our economy today.

Even DTI Sec Greg Domingo had a caveat when he reported the good news to the Bulong Pulungan Forum last week: “The Philippines is in a sweet spot, and it’s going to be in this spot for several decades to come. Our future looks very bright indeed,” he said, adding, “huwag lang nating barilin ang ating sarili sa paa (Let’s just not shoot ourselves on the foot).”

And that’s the thing. We have all learned from experience we have this uncanny ability to abort economic take off somehow… bad politics, misguided nationalism, unabated corruption, crippling bureaucratic red tape, inadequate infrastructure, nagging poverty, disgruntled military, bad peace and order… all have significant negative influence on development that can overpower OFW-led consumption growth.

I also believe that before P-Noy can rightfully claim having done our economy a lot of good and lifting millions out of poverty, he has to address some long needed structural reforms that are now in his back burner.

Economist Toti Chikiamco rightly points out “P-Noy hasn’t done a single structural reform.  What he has done – limited open skies, sin tax, reproductive health, expanded CCT – have all been marginal.  He has not addressed the structural problems of the economy – low agricultural productivity, high unemployment, low investments both domestic and foreign, oligopolies in the structural industries. He also hasn’t done a single political reform. He’s even dragging his feet on FOI.”

Joblessness is one big issue that demands a brave review of labor laws or at least, a creative use of programs already in effect. It shouldn’t be too much to launch even an experimental program of putting up industrial zones in one or two of the poorest provinces. Minimum wage can be lower for industries with high labor cost that would be willing to relocate out of the major cities provided they get cost benefits for doing so.

Then there are agricultural policies crying for reforms. Having a National Food Authority with a monopoly on rice importation and all the inherent corruption ought to be reconsidered. Indeed, failure to address problems in the farm sector, including a failed CARP, is a principal contributor to our stubborn high poverty incidence.

We also have to do more and quickly to ride on the resurgence in the manufacturing sector, good news that could be made even better. In the 3Q, the biggest contributor to growth was Net Exports which grew by 125.7 percent. Supported by the strengthening of the global manufacturing industry, the country recorded a trade surplus in the third quarter of 2014 amounting to P6.9 bn, a recovery from the P26.9 bn deficit a year ago.

At least DTI and specially PEZA seem to be on the ball in meeting expectations of investors and prospective investors in our manufacturing sector. With Japanese manufacturers looking for alternative manufacturing bases to China and Thailand, we are competing with Indonesia and even Myanmar to host these factories.

And while FDI has improved significantly in the past year, the impressive per cent growth is also because of a low base. Newly emerging Myanmar is right out there overtaking us in this area.

There is still time to do economic charter change as proposed by Speaker Sonny Belmonte. At the very least, the restrictive provisions provide an excuse for prospective investors to consider other countries.

Last week, Vietnam announced they are allowing foreigners to own land. Here, the legal remedies that circumvent our economic restrictions, including foreign land ownership, are starting to get some law offices into very real trouble, as in the case of that Japanese investor in Pagcor City.

Irrational exuberance about little gains in the economy is expected of Malacanang’s propaganda machine whoever is the President. That’s their job although I hope their boss does not half believe all that.

No thoughtful President should be satisfied with small gains. In our case, unless poverty is drastically reduced and hunger eliminated, GDP numbers should be seen as meaningless for a leader like P-Noy.

This fixation on the a GDP growth rate, still largely powered by OFW consumption, as a way of measuring economic growth has to be seen for what it is. What happens to the Palace propaganda line now that GDP has declined despite robust OFW remittances?

As for good governance, administration apologists must have some nerve to cite this as a reason for economic growth… not in the midst of the DAP, PDAP and the fast growing list of cases pending at the Ombudsman.

For media, specially for Bloomberg, one would expect a more nuanced, more balanced reporting… unless the article is for a paid supplement and that’s understandable.

Boo Chanco’s e-mail address is [email protected]. Follow him on Twitter @boochanco.