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By Arnold S. Tenorio, Assistant Business Editor
First of three parts
SECRETARY Ricardo Saludo, presidential deputy
spokesman, fancies the new Medium-Term Philippine Development Plan (MTPDP)
as the crowning glory of the first 100 days of President Arroyo’s
fresh six-year term.
“We consider the drafting [of the plan] the
major achievement of the first 100 days,” he told The Manila
Times.
Contrary to criticisms leveled against it, the
new MTPDP, the Palace spokesman would have us believe, is a sound
plan.
Saludo even cited the United Nations, which, he
said, “had good things to say about the plan.”
Exactly what the UN said about the plan, he
failed to elaborate.
In fact the UN’s thoughts on the matter have
become a ticklish point, especially after an incident in early
October involving the National Economic and Development Authority,
the agency tasked with drafting the MTPDP.
The incident arose from a slight
misunderstanding that could have been glossed over had it not
involved the question of how sound the plan really is.
On October 8 the UN organized a videoconference
at the Asian Institute of Management to solicit comments on the new
MTPDP.
Invited were Jeffrey Sachs, special adviser to
the UN secretary-general on the millennium development goals (MDGs),
and Hafiz Pasha, UN assistant secretary-general and director of the
UN Development Program’s regional bureau for Asia and the Pacific.
On hand to represent the government were NEDA
officials, led by its director general and socioeconomic planning
secretary, Romulo Neri.
Despite people’s interest in the topic, the
media were barred from taking part in the conference at the
government’s request.
In addition, the parties to the conference agreed not to release any
press statement detailing the discussions without clearing it with
each other.
Later that day, NEDA, however, issued a
statement that the UN “applauded” the government’s new
medium-term plan. Compelled to give a fuller accounting of what
happened at the conference, the UN followed suit, releasing a
statement that was much less upbeat about the plan.
‘It’s their information’
The UN has refused to officially acknowledge the
press-release incident, and won’t comment on what observers viewed
as an embarrassing departure from protocol.
Deborah Landey, UN resident coordinator, only
had this to say: “I think there have been a number of press
releases. There’s no explanation. We have our mechanisms for
releasing press releases, and the government has its own.”
The incident could have been avoided had the
media been allowed in the conference, but it was the government’s
call, Landey said, since “they really own the information, so
it’s their information.”
Sources in the development community said the
UN’s silence is understandable.
The Philippine government is a UN member and has
agreed to work for the UN’s millennium development goals, which
are a set of targets to reduce poverty and raise living standards.
The agency naturally won’t badmouth its
partner in public.
Despite its reticence, criticism of the
medium-term plan soon mushroomed, and NEDA and its director general
spent the succeeding weeks defending its new economic blueprint.
To be sure, Philippine governments after the
Second World War had been drafting medium-term plans as a matter of
course.
Developing countries like the Philippines have
been practicing a type of economic planning referred to as
incentive-giving, or forecasting, as against the directive, or
control-oriented, approach typical of former socialist economies.
Recognizing the limits of free markets and the
future needs of society, the government has to step in to allocate
resources and supplement the market mechanism or stand in its stead
in areas where no functioning market exists.
In the case of long-term financing, for example,
the market for it is underdeveloped in the Philippines, but demand
for it remains high, especially for purposes of buying a home.
What the government intends to do about this,
and how it aims to achieve its goal should form part of its plan.
Now, people who plan, whether in a boardroom, on
a track field, or inside a small hut, are taught that a sound plan
is a smart plan. In the planning literature, this means a plan has
to be simple, measurable, attainable, realistic and time-bound.
Targets were set too high
Little doubt has been cast on how measurable and
time-bound the new MTPDP’s targets are, since these are spelled
out in the plan (see Table 1).
The economic blueprint’s conformity to the
three other criteria, however, remains contentious.
Saludo claims the targets “are the product of
thoughtful planning based on the expected conditions of the global
economy.”
NEDA insiders admit, however, that
the macroeconomic targets were set too high.
In the past, the agency came up with forecasts
derived from in-house computer simulations that take into account
the historical performance of several variables including economic
output (as measured by the country’s gross domestic product), the
rise in prices and interest rates, export growth and other
indicators of dollar receipts and payments.
Also considered in making forecasts were
internal and external developments likely to have an impact on
economic outcomes.
These forecasts were then refined at the level
of the Development Budget and Coordinating Committee, an interagency
body composed of the country’s economic managers, including the
secretaries of budget, finance, planning and the Bangko Sentral
governor.
Much the same process was used for the new
medium-term plan, except that planners were handed down not
forecasts, but targets.
Who set the targets? The President by virtue of
her 10-point agenda and her economic planning chief, who supplied 7
“fighting targets.”
“So we had to get people to commit to targets
that were already set,” a source said, adding that NEDA had to
work backward to come up with figures that would be consistent with
the 10-point agenda and the 7 fighting targets.
Reminiscent of an earlier proposal that drew
flak from many economists, Neri’s “fighting targets” include
increasing growth to 7 percent, creating 10 million new jobs,
halving poverty to 17 percent, increasing the share of investment to
28 percent of GDP, doubling exports in two years, developing 2
million hectares of agribusiness land and two million entrepreneurs.
NEDA, however, sees nothing wrong with these
targets.
In a written response to The Manila Times,
Margarita Songco, NEDA assistant director general, said planners
also took into account the executive’s policy directions.
“The growth path under the current plan is
anchored on a ‘strong reform scenario’ and benchmarked against
the growth performance of our Asian neighbors,” she said, adding,
“The government cannot afford to be on a ‘business as usual’
mode and ‘muddle through’ over the six-year period.”
Songco said the economic growth target was set
higher than the 4-percent historical average “so that at the end
of the six-year period, poverty would have been reduced
significantly and greater prosperity will have been achieved for the
Filipinos.”
Plan’s viability is the most serious concern
Fighting target or not, the plan’s viability
has aroused serious concern.
The last time economic growth targets were set
at similar levels in a medium-term plan, the economy dove into a
tailspin and the unemployment rate shot up to double-digit territory
during the plan’s concluding year (see Chart 1). The first to
raise qualms about the new MTPDP’s viability were UN consultants
Sachs and Pasha.
In the only statement the UN issued before
clamming up as a result of the October 8 incident, the two experts
expressed concern about the plan’s goals of sustaining a 7-percent
economic growth path and halving poverty.
No amount of growth could alleviate the
country’s poverty if the government doesn’t take a more
proactive stance in managing population growth, Sachs said.
“I continue to urge, as I always do, a more
aggressive approach of government [to deal with this concern].”
Citing UN estimates, Sachs said the number of
Filipinos would rise to 100 million by 2015 at the present fertility
rate.
He blamed the Philippines’ rising population
on unmet contraception need, which, according to him, is “very,
very large.”
He said the country’s fertility rate isn’t
falling fast enough, with poor areas suffering from fertility rates
of as high as 5 percent.
Dealing with the country’s population growth,
Sachs said, would not only minimize urban migration and
environmental degradation but alleviate poverty, because each
Filipino would have a greater share of the dividends of economic
growth.
The new MTPDP, however, lacks an explicit
intervention in population growth.
It “assumes” that population growth would
slow from 2.34 percent at present to 1.93 percent by 2010.
Malacañang, meanwhile, has remained steadfast
in its position, leaving each household to resolve the question of
how many children it should have.
Worse, the executive has shifted the burden of
financing population programs to local government units, even as it
mulls the possibility of slashing their internal revenue allocations
owing to an “unmanageable public- sector deficit.”
7-percent growth unclear
But the biggest worry raised about the new MTPDP
is its funding requirements.
“It is not clear how a 7-percent growth rate
can be arrived at without income in public expenditure,” said
Pasha. “Increase in capital expenditure is 2 percent of GDP and
I’m not sure if it will be adequate to finance the public
investments proposed.”
Under the MTPDP’s fiscal program, the
government would need some P1.511 trillion for capital outlays,
including P1.171 trillion for infrastructure and other capital
outlays.
Excluding the proceeds of eight new tax bills
that Malacañang has endorsed to Congress, the plan provides for an
average 11.6-percent rise in revenues over its six-year time frame,
with tax receipts alone rising 13.2 percent.
This scenario, however, assumes a 10-percent
average annual increase in fees and charges, a 3-percent to
5-percent hike in petroleum import duties, improved tax enforcement,
and the successful carrying out of “innovative sources of wealth
creation.”
Creating wealth includes privatizing the
National Power Corporation’s assets, fully operating Mount
Diwalwal, developing more gas and oil wells, carrying out massive
reclamation projects and nationwide reforestation and establishing
Hong Kong-type enclaves for foreign investors.
If the proceeds of the eight new tax bills were
included, the government stands to gain an additional P168 billion.
Pasha scored some of the plan’s tax measures,
saying they cannot fulfill the government’s funding requirements,
much less hasten economic growth.
He doubts whether the bills providing for a
general tax amnesty and an increase in the value-added tax could
generate the promised P25 billion and P30 billion, respectively.
The plan’s credibility would be vastly
improved, Pasha said, if the government ensures it would have the
resources to finance its programs and capital outlay.
In defending his plan, Neri said the MTPDP
didn’t envision the government to foot the entire spending bill.
The money would have to come from the private
sector and official development assistance, he said, which is why
the plan targets a 28-percent share of investments to GDP by 2006.
New money won’t come without stable economy
The question this raises, of course, is whether
investments would come in droves in the next two years.
Sethaput Suthiwart-Narueput, senior economist at
the World Bank, agrees that the government has to draw in more
investments if it wants to achieve higher economic growth.
But new money won’t come without a stable
investment climate, he said. Citing a bank-commissioned survey of
leading multinational companies, Suthiwart-Narueput said
macroeconomic instability figured as the bank’s most important
concern about the Philippines. “Constraints on investments are not
sector-specific, but concern issues of governance.”
Although poor infrastructure, the high cost of
doing business, and corruption remain issues when investing in the
Philippines, he said other Asian countries also suffer in one way or
another from these problems.
What sticks out in the Philippine case, however,
is the stability of the investment climate.
In the short term, a crucial test for the
government is to deal with its fiscal problems, Suthiwart-Narueput
said.
This is because the government’s huge
financing requirements pose a destabilizing threat to key
macroeconomic variables, including the peso-dollar exchange rate if
the government sources its funding needs abroad, and interest rates
if the funds are sourced in the domestic market.
Foreign investors are unlikely to place their
bets on the Philippines if they are not sure at what rate they can
repatriate their dollars, nor would they bother if the cost of money
in the country were higher than in other investment sites.
The same goes for official development
assistance, Suthiwart-Narueput said, as the bank, for one, would be
hard up increasing its financial support to the government if
reforms on the fiscal side aren’t forthcoming. “Resolving the
fiscal imbalance, although not sufficient, is a necessary
condition.”
(To be continued)
Part 2
|Part 3
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