From creeping malaise to crisis?

Ben D. Kritz

Ben D. Kritz

If I were to follow convention, this column would be a deconstruction of President B.S. Aquino 3rd’s cringe-inducing defense of the Disbursement Acceleration Program (DAP) last night, a speech that, if it achieved anything, erased all doubt that the President is a man who is legitimately unaware that concepts such as “the divine right of kings” and “l’état, c’est moi” became obsolete sometime before the beginning of the last century, and is honestly baffled as to why anyone would disagree with his assuming they apply to him.

There are writers more eloquent and experienced than I am who, I am certain, will subject the President’s speech to the content analysis it deserves.

Besides, his first address on the controversial DAP—delivered last October, in the same awkward manner as last night’s speech (On a side note, I have always thought it ironic that someone who is so obviously uncomfortable speaking in public should have been gifted with such a nice voice)—had no material effect, and there is no reason to believe this latest episode in the drama will, either.

What the DAP issue might do, however, is hasten a growing economic fatigue in the country into an actual crisis. Two stories that came to my attention last week—one which The Manila Times covered and one for which we simply ran out of time to report on in an appropriately thorough way—suggested that the high-flying economy (from the perspective of certain measures) that the Philippines has enjoyed in the past couple of years may be easing into a more ordinary level of growth and if that is the case, then the DAP issue is coming to a head at a very bad time, indeed.

The first story, the one we were able to cover, was the dour-sounding assessment of banking giant HSBC, which, unlike every other analyst of note in this town, has forecast sub-6 percent growth for the Philippines for the rest of this year (“GDP showing signs of fatigue—HSBC,” June 12). HSBC cited sluggish government and household spending, low agriculture production, and a deceleration in the growth rates of both remittances and exports as fundamental indicators that the slower-than-anticipated 5.7 percent GDP growth in the first quarter was the beginning of a trend. For the second quarter, HSBC sees GDP growth retreating slightly more to 5.6 percent, leading to a 5.9 percent growth rate—more than half a percent lower than the bottom end of the government’s target range—for the full year.

HSBC’s assessment might not be entirely correct—forecasts are subject to some variability, after all—but it did come closer than anyone else’s in predicting Q1’s disappointing GDP figure with a forecast of 6 percent, whereas most analysts were expecting a figure in the 6.5 percent to 6.7 percent range. And while the bank might be incorrect about exports (export growth clocked in at 6.9 percent in May), their other observations are largely spot-on. Government spending, for example, only grew 2 percent year-on-year in Q1, which was a retraction in real terms, as it did not keep up with the rate of inflation (which was 4.4 percent in Q1).

The second story, the one that slipped through the cracks due to unfortunate timing, was the announcement by the Treasury of a P50-billion debt swap to be conducted before the end of this year. In a debt swap, the government exchanges longer-term (10 years or longer), higher-yielding bonds for short-term bonds that will be maturing sooner. Doing this potentially costs the government more money in the long run, but it is generally considered a sound liability management move if it is done at a time when the government’s debt and overall financial positions are reasonably sound, as they are now. The government can even realize some short-term savings with the move, if, as was the case at the end of last week, news of the swap encourages buying of short-term bonds and drives those yields down.

None of that would be anything out of the ordinary, if it were not for an odd comment offered by Treasurer Rosalia de Leon to Bloomberg News (the only wire to pick up on the story): “What’s crucial would be the policy-rate meeting on July 31,” de Leon said, referring to the upcoming Monetary Board meeting, where most expect the central bank will decide to raise benchmark interest rates. “We have to see where the market really expects the rates to settle,” she added, implying that the formal go-ahead signal for the debt-swap is somehow dependent on the monetary policy decision, which under ordinary circumstances it should not be.

Should not be, that is, unless the nation’s economic managers have suddenly developed a real concern about perceptions of the Philippines’ financial health.

HSBC has already boldly, and perhaps presciently, described a kind of creeping malaise in this economy, what may be signs of frustration that despite growth, no real progress is being made. The government seems locked into a careful sort of caretaker approach, handling risk in precisely the wrong way—by attempting to avoid it, rather than building capacity to absorb or compensate for it—a state of affairs which is almost always destructive, because it leaves the economy susceptible to shock. The sort of shock that might come from, say, a serious political crisis hijacking the time and attention of the entire government just at the time the process to finalize a budget for the new year is supposed to be getting underway.

The uncertainty that has recently been expressed about the economy—by implication through slowing consumption, the first hints of market volatility, and declining export prices, and overtly through analysts’ questioning whether monetary authorities can keep inflation in check—is not actually attributable to the DAP or any of the other high-profile scandals to emerge in recent times. But as I explained a couple columns ago, the Administration’s handling of the DAP issue—an approach last night’s speech confirmed the President is stubbornly clinging to—leaves the Aquino government with two, and only two, ways in which it can be judged: either as having acted with bad intentions, or having acted incompetently. And the worst possible time for the public and other observers to have that realization is now, when so many questions are being raised about how the government will reverse the slow but obvious decline.


Please follow our commenting guidelines.


  1. The signs of growth fatigue are evident — choked roads and other infrastructure, brownouts, fast-rising food prices. But so are road projects and private construction. Will we keep building at this pace, and if not, will there be alternative jobs for all of those workers?

    Besides the national treasury, can the private sector handle a return to a normal cost of money in a few years’ tine?

    Whether or not you would agree with it, it is useful to read “The Flaw in Aquinomics” (Oct. 19, 2013 Manila Times) by this same writer.

    As for the DAP standoff, we cannot afford a political crisis at this time, but neither can we afford to damage our institutions.

  2. calling mr. coloma con Lacierda if you can please if you can
    rebut this factual col. of ben kritz…