Growth gains didn’t trickle down

Analysis

Growth gains didn’t trickle down

By Amando Doronila

Philippine economic performance during the past decade came under close scrutiny at the annual meeting of the Asian Development Bank (ADB) and was found wanting.

The shortfalls were most pronounced in the slow economic growth, weak job creation, a large infrastructure spending gap and wide income inequality.

ADB President Haruhiko Kuroda set the tone of the examination by spelling out in his opening statement the Asia-Pacific region’s economic prospects as a key focus of the meeting. He said the Asian Development Outlook (ADO) 2011 report indicated the region should be able to maintain its growth momentum despite trouble elsewhere in the world.

The report forecast a healthy gross domestic product (GDP) of 6.9 percent for developing Asia and Pacific in 2012, and 7.3 percent in 2013. The Philippines is lagging behind in this yardstick, posting a mere 3.7 percent growth in 2011, down by half of its stellar 7-plus percent GDP growth in 2010.

The ADB’s forecast marred optimistic estimates by Philippine economic officials at the annual meeting. They expressed optimism that the economy would expand by 5 to 6 percent in 2012, higher than its growth in 2011.

Socioeconomic Secretary Cayetano Paderanga said in a press briefing that the government’s infrastructure expenditures were on track and economic indications were looking “good”—but not so good, in the eyes of ADB experts. Kuroda said the region still faced “significant challenges,” high among which was the issue of rising inequality.

“Unfortunately, while the region has made remarkable progress in reducing poverty, the benefits of growth have yet to reach several millions of Asians who continue to struggle on less than $1.25 a day,” Kuroda said.

Economic disparities

The drivers of Asia’s economic success—new technology globalization and market-oriented reforms—have also served to create and increase disparities within and among Asian economies.

“While these economic trends cannot and should not be reversed, it is critical that they be counter balanced by policies that will make growth in the region more inclusive,” Kuroda said. “Such policies would include investment in education to reduce inequality in human capital, investment in infrastructure to reduce unequal access to services and opportunities, and measures to make growth more employment friendly.”

He said the Philippines and its neighbors were poised to weather the effects of the mild recession in the Euro zone this year, but he emphasized the urgent need for member-countries to address the wide income inequality in their jurisdictions.

Challenge to Asia

The ADB released a separate report on May 3, titled “How can Asia Respond to Global Crisis and Transformation.” It projected that a new crisis in the United States and Europe could bring down the regional gross domestic product growth by 0.6 to 3.7 percentage points. The Philippines, in particular, could be dragged down by half a percentage point.

“Asia’s growth in the last decade has been rapid and stunning, but the global environment has been dramatically altered,” Kuroda said. “To keep themselves resilient, Asian countries should explore other growth engines, particularly by developing their own economies.”

In a forum at the meeting, Jeffrey D. Sachs, Columbia University professor in economics, said that while Europe was inching toward recovery, its underlying structure was still “fraught with problems.”

Sachs said that “in the short term, the challenge for Asia is to combat the slow growth in the North Atlantic since it could bring down the dynamism of the region.”

He added: “Consumption led-growth is still possible in countries like China where populations and incomes are increasing … More importantly, investment-led growth is needed in other countries, particularly in infrastructure, like power, roads and information technology.”

Improving governance

Finance Secretary Cesar Purisima, ADB governor for the Philippines, estimated the Asian infrastructure gap to hit $8 billion in the next 10 years. In the past decade, the Philippines lagged in direct foreign investments inflows compared to its Southeast Asian neighbors.

The Philippines attracted $1.7 billion in 2010, compared with Singapore’s $38.6 billion, Indonesia’s $13.3 billion and Thailand’s $6.3 billion, according to International Monetary Fund (IMF) deputy managing director Naoyuki Shinohara.

The IMF official, who has visited the Philippines at least once a year, said he had noted that the government had “worked very hard” to improve governance and had “notched successes,” particularly in creating fiscal space after increasing revenue collections.

He also noted the had government succeeded in rolling out a public-private partnership (PPP) project—the P1.9 billion Daang Hari-South Luzon Expressway link awarded in December to Ayala Corp.—and had lined up more projects that will be bid this year.

Shinohara said that the Philippines’ hosting of the ADB annual meeting was a “good opportunity” to convey the message to the market economy that Manila continues to work hard in improving governance.

But he qualified what he meant by good governance. “When I talk about governance, I’m not taking about anticorruption but governance in general, which includes policy-making, the fiscal structure, supervision of state institutions, risk management of state institutions, all these things,” he said.

This contradicts the official line of the administration on governance, which boils down to anticorruption punitive action, concentrating on dismissing from office and sending to jail past administration officials for alleged corrupt practices and holding them accountable for wrongdoing while in office.