Interesting times ahead in 2015

Ben D. Kritz

Ben D. Kritz

Second of two parts

In case you missed Part One of this year’s fearless forecasts in Saturday’s edition of The Manila Times, here’s a quick recap:

Oil prices will continue to decline until at least June, when the next regularly-scheduled meeting of OPEC will be held. It is unlikely that the oil-producing cartel will call for an emergency meeting before then. While it is looking increasingly likely OPEC will cut production at mid-year, what is uncertain is whether OPEC cuts will be enough to completely arrest the price slide.

At some point, however, oil prices will bottom out no matter what OPEC or anyone else does, and the temporary economic advantage that petroleum-importing countries like Philippines is now enjoying will come to an end.

Optimism about an economic boost from increased government spending is misplaced. Even if government spending is significantly increased, which is doubtful in view of the relatively narrow fiscal space available and the distinctly less than efficient institutional framework under the Aquino Administration, it will not have a large impact on the overall economy, as is explained in this week’s special report on government spending. Look for the economy to expand by about 6.3 percent (instead of the 7 or 8 percent the government is hoping for), still a respectable performance, but ideally about 2 percentage points slower than it needs to grow in order to significantly reduce poverty and raise per capita income.

Some detractors have already pointed out that those are rather safe predictions. Of course they are; a large part of being able to develop effective forecasts is being able to recognize and acknowledge the obvious. 2015, however, is likely to bring some news that may not be so obvious now, such as:

Don’t hold your breath for substantial Asean integration this year. Originally, the Association of Southeast Asian Nations envisioned “integration,” a regional common market, would be achieved by 2020, but in 2007 advanced the timeline to 2015. It turns out the original deadline was more realistic.

The Asean has made remarkable progress, but it remains a consultative regional cooperative, prevented by its very design from becoming the supranational body that a common market would necessarily have to be. What it will achieve this year is further development as a free market; the package of intra regional tariffs will go into effect, and some parts of three of the four legal frameworks for the eventual Asean Economic Community (AEC) will probably be realized.

But the consensus view among regional leaders and observers is that the Asean is much farther from its goals than hoped, and faces an uphill path to completing its grand vision. As one example, the military government in Thailand has identified 106 laws in that country that would need to be amended in order to comply with the proposed frameworks. At a recent forum on Asean integration, the Philippines’ own Socioeconomic Planning Secretary Arsenio Balisacan pointed out that this country needs some structural changes to solve the problems of “stubborn” unemployment of around 7 percent, lagging capital formation, and seriously lagging FDI inflows. Indonesia is being viewed with increasing skepticism as well; the novelty of Joko Widodo being elected president has worn off, and doubts about whether he has the political will or political horsepower to implement needed reforms.

The Aquino Administration is going to experience several costly policy setbacks—We may be seeing the beginning of one those now, in the growing outrage over the Department of Transportation and Communications somewhat underhanded imposition of higher fares on light rail commuters; there are potentially several others.

With respect to the fare increase, I’ll actually make one specific prediction, admittedly an easy one: The Supreme Court will issue a TRO against it, if for no other reason than it did not go through the prescribed process, including public hearings. As I have said in a previous column, the idea of raising fares is not bad —the system should be able to sustain itself as much as possible through its own revenues—but for one thing, the public is not convinced it is getting any value for that extra investment. (DOTC Secretary Abaya already admitted they’re not by explaining the extra savings to the government would be applied to concession payments.) For another, there are serious questions whether the present costs of operating and maintaining the three rail lines are realistic.

Other areas that are likely to be more trouble than Malacañang anticipated are the midnight award of the contract for additional service of the automated election machinery to Smartmatic; the recent water rate hike, and later on in the year, electricity rates; the re-bidding of the Cavite-Laguna Expressway (Calax) project, in the sense that it will raise serious and long overdue questions about the efficacy of the country’s public-private partnership framework; the government’s complete mishandling of mining policy; and the effort to pass the Bangsamoro Basic Law.

Interesting times are ahead in 2015.


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