ADDRESSING the Economic Journalists’ Association of the Philippines (EJAP) on Monday evening, Finance Secretary Carlos Dominguez 3rd stressed that an “inclusive economy” was vital, if the Philippines is to enjoy truly sustainable economic growth.
Dominguez made a couple of key points worth considering in detail. His message to the economic scribes was that they play an important role in educating the public, because inclusiveness is impossible without the public at large having the knowledge to actually participate in the economy.
Dominguez’s main point, it seems, was to stress the importance of developing infrastructure, which will make it possible for more Filipinos to carry out economic activities. The objective to build infrastructure requires funding, of course, which will come from the proceeds of the Duterte administration’s tax reform package, currently being debated by Congress.
We can hardly criticize Dominguez for steering a broad topic like “economic inclusiveness” in the direction of a current agenda; the man, after all, has a job to do. And from where we and the economic minds among us sit, the “tax reform funds infrastructure, which leads to economic growth” assertion is a sound one, though there may be particular details that need to be ironed out.
It seems to us, however, that Dominguez only addressed two parts of the solution to greater economic inclusiveness. In his speech, he cited the example of Singapore as a model of an inclusive economy. “In these advanced economies, the capital markets are as deep-rooted as the economy is inclusive. Regardless of what their day jobs are, ordinary citizens help drive up the savings and investment rates by participating in financial products. The man-on-the-street is involved in market decisions that make the economy what it is,” he said.
Having knowledge to understand how the economy works is one thing. Having an infrastructure that allows economic activity to flourish is another. But neither of those two things, admirable objectives though they are, lead to economic inclusiveness for the “man-on-the-street” without government policies and perspectives that not just permit participation in the economic system, but encourage it.
A survey released by the Bangko Sentral ng Pilipinas (BSP) in the middle of last month found that the vast majority of Filipinos—about eight out of every 10 families—are still “unbanked,” that is, they do not have any sort of formal account at a financial institution. Of those who do, only about 70 percent are able to save enough to actually earn interest on their deposits.
The biggest reason for not having a bank account given by respondents to the survey was that they simply do not have enough money to consider saving; their incomes are just enough, or perhaps not even enough, to meet daily needs, with little to nothing left over. Other reasons given include lack of access to banks or other financial institutions—about 35 percent of the country is “uncovered,” according to BSP and Rural Bankers’ Association of the Philippines data—and confusing or difficult to meet documentary requirements.
These issues take on greater importance in light of Dominguez’s comments earlier this week, as well as President Rodrigo Duterte’s recent call to wipe out the informal “5-6” lending business in the country. Unless the “man-on-the-street” is given an easy path to become part of the economic system and is encouraged to take it, the benefits of the economy will continue to be reserved for those who already have resources and access.
While nothing the current administration is doing with its economic policy can be sensibly said to be a step in the wrong direction, it is clearly not yet addressing all the issues that are preventing the vast majority of Filipinos from being included in the formal economy, and far more work needs to be done.