MY overall impression, and I think the one taken away by most of the attendees at The Manila Times’ third business forum on Tuesday, was that at least for the rest of 2016, we can look forward to an admirably healthy economy. Nevertheless, it was also clear from the vast trove of information shared by our expert speakers that anticipation comes with a significant number of caveats.
To put it another way, the overall message was that the Philippine economy is doing well, within a certain context, and will continue to do well for some time to come, but that it is falling well short of its potential. Consequently, if economic growth is to expand, or even just maintain its present path beyond the next couple of years, a number of fundamental changes will have to be made.
Chief among these is infrastructure development, which was addressed at some length by all four of the forum’s main speakers representing the BSP, IMF, World Bank and BPO giant Convergys, the several other experts reacting to their speeches, the forum attendees chatting amongst themselves, the representatives from the forum’s many sponsors, the hotel staff serving our lunch, and the guy attending to the men’s room.
What has become clear is that the critical problem of infrastructure—as we learned from the IMF, the Philippines is among the world’s bottom-dwellers in terms of both quantity and quality of infrastructure of all kinds—is that it is not just a matter of lacking infrastructure, but a lack of rational political perspective on the matter, a failure to understand infrastructure as a system, a framework underlying the entire economy. In that sense, the first component of infrastructure the country needs to develop is brains; whether there is any prospect of that happening as a result of the upcoming election is certainly debatable.
Another area that received a great deal of scrutiny was the Philippines’ tax system, and it would probably not be an exaggeration to say that most of the sharp minds in the room regard it as a crisis. The government needs to generate more revenue, that much is clear; even cleaning up the incredible amount of leakage from poor spending and even worse, collection performance, will not quite compensate for it. But of course, the necessary expansion of the tax base will not achieve anything if it imposes an economic burden on the consumer foundation of the economy, or discourages investment. Again, this is a complex issue that requires a comprehensive solution, and is likely to only be worsened by the usual piecemeal approach.
These two broad issues, along with a general discussion about the need to attract more investment from both foreign and domestic sources, dominated the discussion, but there were some additional points raised that also caught my attention:
The largely anecdotal perception of tight credit availability is accurate. There’s still quite a bit of comfortable space for credit expansion. BSP Governor Tetangco and I seem to diverge on this point to some extent, and I would certainly not suggest that the view of the World’s Best Central Banker, supported as it is by lending expansion running at about 13 percent annually, be lightly dismissed.
Nevertheless, given the healthy, almost ridiculously low non-performing loan and non-performing asset ratios of Philippine banks, and capital adequacy ratios that are several times in excess of BSP standards—which are themselves significantly more stringent than international benchmarks—it is beginning to look like the local banking system is not being so much ‘conservative’ as it is ‘sandbagging.’ Even a modest increase in risk would be a benefit to the economy, and would not threaten the system’s stability.
The standard ‘throw money at the problem’ approach of the government, which is enabled to some extent by big institutions like the World Bank, has clearly passed the point of diminishing returns. Despite some poverty gains and job growth in some areas, the overall shape of the Philippines’ socioeconomic edifice is almost exactly the same as it was six years ago, or 30, or 300. The government perspective toward what it thinks is ‘inclusiveness’ is still very much geared toward giving a man a fish instead of teaching him how to catch his own, and it’s not working. It will require a great deal more imagination than is displayed by the current or any aspiring leaders to shift the focus toward real capacity-building and empowerment.
Government control of rice importation has to end. This specific point was made by World Bank’s Rogier Van den Brink toward the end of his talk, and stood out because it is so glaringly obvious. Not only has the policy contributed to rice prices that are, on average, two or three times higher than in peer markets, it has helped to dampen progress toward the oft-expressed aspiration for rice self-sufficiency. Government’s only role in the rice business should be as a customer of a certain limited amount for relief purposes, and otherwise leave it to private enterprise.