In the mid-nineties, I accompanied then President Fidel Ramos on a state visit to Vietnam. I recall one question he posed then that I wished I answered differently.
One morning, in Hanoi, we watched with some fascination Vietnamese peasants pedaling to town with sacks of cash strapped to their bicycles. In town, they purchased large Japanese television sets, strapped them to their bikes and pedaled home.
FVR turned to me and asked: When will Vietnam overtake us?
I was taken aback by that question. He seemed so certain that would happen – and I know he is constantly thinking into the long future.
I asked him to look down the street from where we stood and asked: What is missing?
“What?â€, he snapped back impatiently. “There are no banks, sir,†I said, “Without a financial services sector, they cannot possibly overtake us.†That was such a smug answer.
He gave me that look that says my reply was unconvincing. Indeed, in the following years, Vietnam quickly developed its financial sector, imported an army of Filipino lawyers to write out corporate contracts, liberalized the rules for investment and, in a word, drove its economy up at a searing pace.
The 2012 numbers for direct foreign investments (FDI) into Southeast Asia tells it all. The Philippines managed to scrape in $2.79 billion in FDI, just a notch ahead of Myanmar, a new entrant to the game. Vietnam took in $8.6 billion, triple ours.
Of the total $111.3 billion in FDI flows to the region, tiny Singapore took the lion’s share with $57 billion. The rising giant Indonesia accepted a hefty $19.8 billion. Malaysia accounted for $10 billion. Thailand matched Vietnam’s intake.
Myanmar, which just started opening up last year, took in an impressive $2.24 billion. That country will surely surge ahead of us this year — only its second year of reengagement with the global economic mainstream.
Juxtapose our paltry FDI share with the $1.8 billion in Filipino capital migrating to neighboring investment destinations. Not only are we getting a small share of the FDI flow, our own businessmen are exporting capital from our economy. Add to that the repatriation of profits by companies operating here, leading to the net investment outflow we saw in the first half of the year.
The net investment outflow is an important red flag our economic managers need to address urgently. The phenomenon only happens in economies in deep crisis. Ours, if we listen to the credit rating agencies to which our government pays out billions, is far from being in distress.
With capital depletion, little wonder that the Philippines now has the highest unemployment rate in the region. High unemployment inevitably translates into a higher poverty rate and a worsening hunger rate. Both are dutifully recorded in the statistics of the day.
It echoes in the dramatically declining lending volume to agriculture, the sector on which over half of our population relies on for livelihood. No wonder insurgency still lingers in the countryside and the rural poor pour into the cities to live along esteros.
The fact that the core of our economy is rotting is somehow masked by the robust inflow of remittances from millions of Filipinos abroad. Remittances keep our economy afloat, make the peso strong and bloat domestic demand. Little wonder that the services sector, including retail, comprises two-thirds of our economy.
Hot money speculating in our economy kept our stock exchange interesting. But as we saw the past few weeks, hot money could evaporate in an instant, shrinking our capital market at the dictate of global forces beyond our control.
Over the past few weeks, we saw building social tensions explode onto the streets in otherwise impressive emerging economies like Turkey and Brazil. They were tensions simmering under the surface, beyond the sight of politicians lulled by their own self-serving speeches.
Such social explosions could happen here, too. The building tensions sometimes exhibit themselves in localized rioting in the face of demolition operations against urban poor communities. As income distribution worsens at the disturbing speed we now see, the tensions can only be stoked. Like the odorless gas that accumulated at Serendra, the deep tensions might be ignited by anything.
The loose change handed out to the poorest third of our population might buy social peace in the meanwhile. That social peace, bought at P1,500 a month, will need to be cemented by hope so that our people will continue to grin and bear it. The conditional cash transfer program will buy some relief but not enough hope.
When people say our “fundamentals†are strong, I do not exactly know what they mean. There are too many red flags littering our economic landscape, depleting confidence in a secure future for our people.
In three weeks, we will be presented with yet another State of the Nation Address. The next one should be different from the three previous ones, which were exercises in political narcissism.
The next one, we hope, will not trumpet the credit ratings upgrade. We all know we paid for that. Besides, fiscal management is different from economic management.
We want a brutally frank appraisal of what ails our national economy at the core and what comprehensive strategy is at hand. The poor will better appreciate a viable plan more than a host of platitudes, so that they may organize their lives accordingly.
Will agriculture lead our growth? Will industry get support? Will the infra be laid out accordingly? Or must we all now prepare to be migrant workers?
Pray, tell us.