• A talk with Duterte’s chief economist


    “It’s an indictment of the Aquino administration.”

    So declared professor emeritus Ernesto Pernia of the University of the Philippines School of Economics, about the landslide victory of Davao Mayor Rodrigo Duterte.

    President Benigno Aquino 3rd promised to slash poverty by eradicating corruption. In fact, the country’s economic expansion hardly dented poverty, unlike similar growth in neighboring countries. And lawlessness in the streets, the ports, and the corridors of power escalated, with crime, smuggling and pork barrel trebled under Aquino.

    Now, after drafting Duterte’s economic program last December, Prof. Pernia is to be the incoming Chief Executive’s chief economist. The University of California Berkeley-educated former Asian Development Bank lead economist will head the National Economic and Development Authority, the country’s socio-economic planning body.

    Much of Duterte’s eight-point governance program announced two weeks ago was proposed by Pernia, whose sister is married to a close cousin of the presumptive president-elect. Speaking to this writer soon after the elections, the economist, who was with the ADB in 1986-2003, at with UP afterward, highlighted key thrusts for 2016-22.

    Rebalancing the economy
    As many development economists have urged, including those in the ADB, Pernia’s blueprint for the economy aims to undertake several rebalancing shifts:

    • From Manila-centered to greater regional and rural development• From consumption-driven to investment- and export-driven growth• From services-dominated output to more agriculture and manufacturing.

    Federalism is, of course, the paramount mechanism to spread power and resources from the capital to the countryside. Pernia also envisions more agricultural development initiatives, including farm-to-market roads opening up new areas for cultivation.

    Agriculture programs, he added, would seek to boost farm productivity, in addition to the current thrust focused on agribusiness. In addition, reducing red tape and restrictions in land titling and use — part of the 8-point agenda — would further facilitate agricultural ventures and expand the flow of credit to farm enterprises.

    Pernia also said the government, working with farmers and enterprises, would target crops and other agriculture subsectors based on comparative advantage. Thus, various areas would be encouraged and assisted to undertake cultivation, animal husbandry, aquaculture or mariculture for which their land and water endowments are best suited. This kind of crop competitiveness strategy would be something few farmers and even agribusiness firms may not know how or care to do.

    A further priority Pernia wants to see is greater support for research and development. He notes that the Philippines devotes a mere 0.15 percent of GDP to R&D, compared with nearly 1 percent average in the Association of Southeast Asian Nations. This would boost industry and agriculture, not to mention information technology-based sectors, health services, and even disaster readiness and response.

    The need to build
    Accelerated infrastructure development is another priority, to achieve the long-elusive target of spending 5 percent of gross domestic product on transport, power, water, and other facilities needed for business growth and social progress.

    Despite record annual budgets running into trillions of pesos, the Aquino administration still lagged in infrastructure. In 2011, public works spending halved in the first semester, something that’s never happened, as Aquino sought to slash the budget deficit.

    Being averse to frequent Cabinet meetings, Aquino also failed to lend presidential impetus to infrastructure, leading to delays. Even his public-private partnership program, which he extolled in his first State of the Nation Address soon after assuming power, could bid out only a fraction of the many PPP projects on the wishlist.

    That lack of Palace drive would not afflict the Duterte regime. In addition, Pernia explained, restrictions on foreign ownership of Philippine enterprises would be eased to attract more capital and technology into infrastructure as well as other sectors.

    Greater stakes for international investors would lure enterprises reluctant to undertake the electricity, transport, telecoms and other infrastructure ventures without majority ownership and management control.

    The entry of more foreign capital and knowhow would increase competition, drive down prices, and expand and improve facilities. That means more power to address electricity shortages, more road, rail, shipping and aviation to carry passengers and cargo; and higher-capacity and higher-tech telecoms, including broadband.

    Spreading Davao’s business formula
    Reducing investment restrictions would be familiar to businesses attracted by Duterte’s business-friendly policies in Davao City. In his two decades running the province-sized, he has slashed red tape, kept local taxes down, and made the streets safer for both shops and shoppers.

    When he goes from local executive to Chief Executive, Duterte will also bring his town and country business success formula nationwide.

    Sure to be a hit with enterprises are Davao City’s fast processing times. It ranks second among the country’s metropolitan areas in business registration, as rated by the World Bank’s Ease of Doing Business report (first: General Santos). And fastest in issuing construction permits.

    Pernia talks of tax reforms lowering the Philippines’ top income and corporate tax rates from 30 percent closer to the 25 percent prevalent in major ASEAN economies. That should help in competing for more investment, especially as trade integration intensifies rivalry in the region.

    The next government, Pernia adds, also aims to increase credit resources for business, and expand access to loans for micro, small and medium enterprises.

    As for fighting crime access graft, Pernia rightly stresses that peace and order will attract enterprises and jobs to places now shunned due to lawlessness, corruption and insurgency.

    To counter crime and drugs, Duterte also plans to impose nationwide his local government’s curfew for minors and midnight bam on alcohol.

    Addressing the Davao City business chamber in 2014, the mayor admitted that the nighttime restrictions have made night life boring. But he said the overall business climate has gained from law and order.

    Now our next leader hopes to take his Davao policies and style to three ready of the archipelago. And the end result, Prof. Pernia sums up, is “harnessing capital for self-sustaining inclusive development.”

    The nation wants nothing less.


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    1. Roger Purdue on

      No mention of mining, an area that has massive potential in the Philippines if properly regulated, but has been vilified in the popular culture.

      Duterte’s comments on increased competition are very welcome (but not evident in the 8-point program described here).

      Economic policy in the Philippines in the past has seemed to protect the vested interests of the obscenely wealthy privileged few; there is a need to re-focus on benefits to the masses through lower prices, employment generation, and decent affordable housing.

    2. I am on my late fifties and by now is praying very hard that my soon to be grandchildren (it will be six from my two sons: DU30 formula) will not experience so much hardship in life; that they (neutral gender: LGBT formula) will enjoy life as it should be. I am working abroad (promised before to return home 100%: FVR formula) and will be given chance to be assimilated with RP strong economy (GMA/BSA formula). All of these aspirations were anchored in formulas postulated by men and women (need to coined an LGBT pronoun for this) in very high positions. 23 years after what I learned those are only VICKS Formula (galing sa ilong ang pangako). Another ECO Formula by DU30…my fingers are crossed. One suggestion to DU30 continue the Bataan Nuclear Power Plant, its potential for economic growth is so much..no big earthquake has visited that area, Damn fool those who stopped this project…Mr. Pernia must have seen its potential otherwise he may be suffering from Hernia so big that it blocks his sight.

    3. Hector David on

      Support SME’S WHICH EMPLOY over 90 % of the labor force … how?
      No minnimum wage for companies with less than 20 people.
      No taxes or license fees for sales below 5 M annually
      Guaranteed credit provided collateral is offered /given upto 5M for SME’S from government banks .

    4. The very restrictive economic provisions enshrined in the constitution purposely for the business elites/oligarchs to have a stranglehold on the economy must be removed. Let us encourage foreign investment with the concomitant transfer of knowledge and technology. Thirty years with this provisions did not bring us progress but it only enriched the yellow business elites/oligarchs. THE BUSINESS/ECONOMIC SYSTEM CHANGE.

    5. Amnata Pundit on

      Anything based on the IMF/World Bank model of development will fail if the objective is to alleviate poverty. However, if growth is the objective, then borrowing endlessly from the international lending mafia for whom IMF and WB act serve as fronts can produce growth. The question is whether burying ourselves in debt really creates prosperity. As in accounting, simply deduct the liabilities from assets and you will get the answer.

    6. When Pnoy was elected 6 years go, I have heard this plan mentioned targeting agriculture. In one of SONA report, we will not be importing rice but as of this date , we are importing millions of tons of rice. Another SONA achievement lower unemployment , now what is the report, we are one of the highest inASEAN. Report on SONA, that crime went down , but new reports, crime tripled. There is a big big disconnect. Somebody is not telling the truth. From what I can see, poverty is unabated, drugs are all over, prostitution in rampant , a sign of moral decay, airports clogged and no arrest in tanim bala, traffic reaching 2to 3 hours. Nothing good happens, worst happened. Now we have Duterte with all sorts of plan. Can I believe now that I have been fooled numerous number of times?

    7. For policy makers, they should understand that the Philippine development formula is a sui generis case – it does not need foreign investors for entry of capital nor does it need a revision of the Constitution to attract “foreign investments”. For example, a Filipino can register a BVI company which shall put in, say, USD10M and that is already a foreign direct investment. I say sui generis because the Philippines has all the assets in the world that no nation can match but it only needs a tweaking of the minds of our finance people to generate the cash for development. In their formative years, Singapore and Malaysia have no cash literally to build their country nor a manufacturing or export sector to generate the foreign reserves. So where did they get the money? Not being a member of the WB nor ICC prior to Marcos recognition of tsai-nha in the early 70s, that country has literally no cash so where did they get the assets to fund all those development? Economic plans are only good to get a higher grade from your Economics professor but they are all useless if you do not have the money and the creative intellect to implement them. We do not need a Mr. Ernesto to tell us those points as any Eco 11 student can already know them at heart by the end of the semester.

      The country has all the gas, oil and deuterium deposits in Mindanao as well as the biggest gas deposit in the world at Benham Rise – not even to include all the gold bars hidden in various bunkers in Mindanao. It only needs an imaginative finance guy to raise the money for development like what Brunei did with its forward sales of all its gas. Changing a government to federalism will just allow the country to part away with these assets since it would be much easier to bribe local chieftains into partnerships towards the exploitation of these assets. When a US Ambassador can not hide her glee in the signing of the MAD, she thought that those natural resources in Mindanao are already in the bag. From a strategic point, we may have to defer this federalism and exploit these natural resources ourselves first instead of some chieftains who have no iota of patriotism in their hearts. Instead of throwing money for Conditional Cash Transfer, the funds can form part of a pool together with PAGCOR earnings and all the pork barrel funds to form a sizable “seed capital” that a Sovereign Fund can use for a Private Placement Program (euphemistically called “roll programs”) to generate the weekly trading profits that can fund all our development needs.

      • I think conditional cash transfer will not help the poor, first , because the amount is too small second , it creates dependency by the poor, third, instead of the money to create jobs, the funds are thrown to a bottomless pit. Fourth, it makes Fipinos lazy. In the U.S. , the government are now limiting the welfare recipients monthly stipends. They said it creates welfare slavery, where parents to daughters to grand daughters are not striving to go to school because of welfare. Even unemployment monies are limited to 6 months. How many years was the conditional cash transfers ? I believe it started with President Arroyo. So , this is more than 6 years. Did it help ? Did the poor benefited from it ? My suggestion, use the money , billions and billions , to create low level jobs and force the poorest of the poor to work on the created jobs. Even if the invested money do not earn , or worst lose the investment, at least the poor learn to work fit the money and not spoon fed them.

      • Very well said. Don’t channel tax money to the Conditional Cash Transfer program as it runs counter to the chinese adage “don’t give fish, teach him how to fish”. The pork barrel should be scrapped – as it only lines up the pockets of the lawmakers’ families. Yes, PAGCOR could be a great equalizer as it drains money from the rich for use by enterprising and honest Pinoy businessmen.

    8. I suggest that Best Practice Manual based from Davao Improvements be formulated,socialized, distributed to all local LGU’s.

    9. If there are more foreign investors in the Philippines, technological innovations from the West will be more timely in being introduced in the country. Let’s admit it too that the rich in the Philippines who control the business sector haven’t really benefitted the employees and “trickle-down economics” in the Philippines didn’t happen. That is why many people still prefer to be OFWs.