Core -- By Benjamin E. Diokno
The Philippine economic expansion is definitely losing steam. And three
international banks have just downgraded their projections of Philippine
growth forecasts for 2011 to confirm it: Citigroup to 4.8% from 5.5%,
HSBC to 4.3% from 5.2%, and Credit Suisse to 4.3% from 4.6%.
It looks like GDP growth for this year will settle, at best, at around
4.5% or lower, below the revised 5% to 6% government forecast, and much
lower than the aspirational goal of 7% to 8% GDP growth.
But nobody believed the government's aspirational growth targets in the
first place -- except for some super-optimists.
When the political crisis erupted in the Middle East and North African
(MENA) territories erupted, and with the threat on overseas remittance
es and higher oil prices, government economic managers were quick to
dismiss the threat as manageable.
When Japan was hit by its triple tragedy -- earthquake, tsunami, and
nuclear fallout -- President Aquino's economic men were quick to dismiss
the catastrophe as transitory and some, in fact, saw huge opportunities
for Filipino businessmen and contractors down the road. The effect of
the Japan is a net positive for the Philippines, some government
officials insensibly argued.
Don't they talk to each other?
When Standard & Poor's downgraded the United States credit rating,
President Aquino prematurely stated that it wouldn't have much impact on
the Philippine economy and investments. It was reasonable to assume that
the President had been briefed by his economic managers before he made
his statement.
Apparently that was not the case. Appearing before the Senate finance
committee, the Monday after the weekend the US triple A credit rating
was cut, the economic managers admitted that they had yet to study the
possible impacts of the the US credit rating downgrade on the 2012
national budget.
BSP Governor Tetangco asked for "some time to assess the potential
impact." However, BSP expressed the view that the impact of the decision
of S&P to downgrade the triple A credit rating of the US would be
short-lived. Finance Secretary Purisima rightfully asked for more time
to be able to determine what markets would react to the US downgrade,
and how it would impact on the Philippine economy.
But what a contrast. Two days after the US downgrade, Mr. Aquino had
made up his mind: it would not affect the Philippine economy. His
economic men, on the other hand, were more pensive and asked for more
time to evaluate the historic US downgrade.
Even as all these were happening, analysts were calling the attention of
policy makers to the slow-moving infrastructure program and the stalled
public-private partnership (PPP) initiative. Not to worry, we have a
catch-up plan, Budget Secretary Abad assured the general public. We're
still on track on the PPP, said Finance Secretary Purisima.
Reality check
Fast forward. The economic numbers are in: the economy grew at 3.4% in
the second quarter of 2011, the slowest since Mr. Aquino took power. For
the first semester of 2011, the economy grew by 4.0% -- much lower than
the aspirational growth of 7% to 8%. But importantly, the economy slowed
as a result of all the external and domestic factors that were not
supposed to affect the Philippine economy: weak world economy, political
crisis in the MENA area, Japan's triple tragedy, US downgrade and the
risk of global double-dip recession, and severe government underspending.
On the underspending and slow implementation of projects, how credible
is the catch-up plan? First, under the best possible condition, even if
all the projects appropriated in the 2011 budget are implemented between
now and the end of the year -- that's less than four months -- the
contribution of public infrastructure to the economy will still be negative.
The harsh reality is that the President proposed, and Congress dutifully
approved, an infrastructure budget that is much smaller than the
previous year's. The budget for DPWH for 2011 is P95.0 billion, 27.6%
lower than the P131.3 billion in 2010.
Infrastructure and other capital outlays in 2011 is P241.7 billion, 8.4%
higher than the P223.0 billion in 2010. As percent of GDP,
infrastructure and other capital outlays is 2.4%, lower than 2.5% in
2010. It is generally known that the total overstates the allocation for
infrastructure since it includes other capital outlays which may include
buildings, equipment, cars and trucks, chairs and desks, and other
non-infrastructure
spending.
The reality is that the Executive Department cannot spend more than what
Congress has authorized it to spend. That's the right path.
The extent of underspending is staggering: from January to July this
year, actual spending plunged by P91.5 billion or by 58.7% compared to
the same period last year. During the same period, actual spending was
one slightly one-fourth (26.7%) of programmed budget.
Not surprisingly, public construction contracted by 51.2% in the first
half of 2011, compared to a growth of 27% during the same period last
year, according to the National Statistics Coordination Board.
What about the much-vaunted PPP initiative? A disaster -- none of the
projects that were announced last year and were supposed to be bid this
year has taken off.
The earth-shaking news, however, is that the head of the agency tasked
to oversee the PPP initiative has resigned. It's awfully hard to put a
positive spin to the resignation. When the quarterback of a team is
taken out (injured, walked out, relieved) of the game early in the first
quarter, that's a bad sign. But if the bench is deep, say if the team
has two to three good reserves, then a recovery is possible.
But Mr. Aquino's centerpiece PPP program is already very much delayed. I
don't know enough of the PPP organizational structure to say whether the
PPP team has good enough reserves. But when the team leader resigns, it
should have the effect of hurting the performance of the team, even
temporarily.
Time -- and the potentially destructive weather for the next few weeks
-- is not on the side of the government's catch-up plan for its
infrastructure program. There are less than four months between now and
the end of the year. But public authorities have to reckon with a few
more rainy weeks up front and later a few laid-back weeks in December --
it's hard to get things done in the Philippines when the Christmas
season sets in.
All told, more than half of the government projects authorized by
Congress in the 2011 budget will not get done this year. Missed
opportunities. You bet?
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