The economy is strong–despite the President

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“The economy is doing well, even though he’s really incompetent.”

That was how a multinational executive summed up the Philippines and its leader in a talk with a Southeast Asian business and political consultant visiting Manila recently on his regular assessment trips around the region. Despite the failings of President Benigno Aquino 3rd, growth is high, macroeconomic fundamentals are sound, and businesses are upbeat. The executive says he can’t explain the discrepancy.

Let’s give it a try.

In the decade-long Arroyo administration, the Philippines broke out of the mediocre gross domestic product growth of below four percent a year, accelerating to five to seven percent in 2007-10, excluding the global recession year of 2009. Hence, when President Aquino took over in mid-2010, the economy was already doing well.


From perennial GDP laggard in the Association of Southeast Asian Nations, the country was among the leaders since 2007, even managing to grow nearly one percent in 2009 while most major ASEAN economies shrank. And since that slowdown, the economic momentum as resumed.

Aquino inherited a healthy economy
One big reason for the GDP turnaround were the painful fiscal reforms enacted despite the Hello Garci political turmoil and global oil price spiral in 2005. The higher value-added tax rate of 12 percent and the imposition of VAT on oil and electricity, along with other revenue measures, cut the once-burgeoning budget deficit to near-zero in 2008.

That boosted investor confidence, the peso and the economy. And it would have eliminated the budget shortfall in 2009 or 2010, but for the global recession, which required deficit spending to maintain growth, as urged by development institutions.

Besides improving public finances, the Arroyo administration expanded infrastructure and instituted policies to boost agriculture as well as two major dollar-earning sectors: tourism and business process outsourcing.

In the 2004-2010 Medium Term Philippine Development Plan (MTPDP), no less than then-President Gloria Arroyo herself toiled overnight to recast the road-building program, shifting billions of pesos in outlays to the Mindanao countryside. That spurred more crop production by linking farms to markets.

Even more growth-boosting than farm-to-market roads, however, was the nationwide Nautical Highway of roll-on-roll-off ports linked by first-class tarmac. Besides laying the groundwork for unprecedented levels of domestic tourism, which continue to set records today, the RO-RO system enabled islands to trade directly with one another.

By cutting out Metro Manila middlemen, producers got higher prices for their goods while buyers in nearby islands enjoyed lower costs. The 30-40 percent drop in transport costs thanks to RO-RO also lifted agriculture, industry, and the overall economy, while curbing inflation.

Arroyo BPO spurs Aquino property
On business process outsourcing, at the start of the Arroyo administration in 2001, the entire call center industry had about 2,000 seats. By 2010, all of BPO employed some half a million Filipinos and generated foreign exchange earnings of $7 billion a year, while creating mammoth demand for office, retail and residential property.

And one big boost to the industry was Arroyo’s push for less costly international telecom connections and her Cyber Corridor plan to encourage BPO hubs in cities outside Metro Manila. Moreover, the National Competitiveness Council created in 2007 brought together public and private sectors to make the country more attractive to business.

Foreign policy was also geared to lift the economy. Among its tenets: enhancing ties with ASEAN and the rest of Asia, including China; forging agreements to protect the rights and incomes of overseas Filipino workers; and pitching the country to investors all over the world, including the World Economic Forum in Davos.

Net foreign direct investment hit a record of nearly $3 billion, a level the current administration has yet to reach. It helped that despite political unrest, the economy showed itself largely unaffected. And come 2010, media and opposition warnings of failed elections proved unfounded.

Even rice production was engineered toward self-sufficiency by 2013. That was the target of the five-year FIELDS program begun in response to the spike in international grain prices in 2008.

Indeed, rice imports would have declined year after year if the main Luzon harvest in September 2009 had not been destroyed by Ondoy and Pepeng floods, forcing the country to import over two million tons the following year.

Thus, when President Aquino succeeded Arroyo on June 30, 2010, he took over an economy that was on a robust growth path with healthy fundamentals and shielded from political winds.

While counter-cyclical spending bloated the deficit, it was bound to fall as GDP rose with the global recovery. And BPO, tourism, and overall economic expansion were spurring the stock and property markets as well as construction—a leading source of growth in the past three years.

Building on past gains
Despite his well-known disdain for the past administration, President Aquino made sure to build its economic strengths. He reappointed Bangko Sentral Governor Amado Tetangco and tapped Arroyo-era Finance Secretary Cesar Purisima.

Rather than scrapping the increased VAT much maligned by the opposition, Aquino named Kim Henares to head the Bureau of Internal Revenue, where she was a leading official in the past government, and boost VAT and other collections.

One time in 2011, Aquino tried to tinker with the economy by slashing public spending in 2011 in a bid to zero the deficit and win credit rating upgrades. It backfired. Growth halved, and PNoy learned his lesson, leaving the economy and the deficit to the technocrats. With government spending no longer presidentially constrained, Philippine growth resumed its upward trajectory since 2007.

Bequeathed a healthy economy he did not need to fix, President Aquino had a great opportunity to focus on his two campaign thrusts: fighting corruption and eradicating poverty. Sadly, smuggling and pork barrel have trebled under his watch, and anti-graft cases have focused on political rivals. Meanwhile, poverty, hunger and unemployment have improved little despite high growth.

Still, the Aquino administration continues to enjoy mostly positive media coverage which lifts their survey ratings. Now, that’s a discrepancy tough to explain.

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9 Comments

  1. The points highlighted in this article are spot on!!! PGMA sacrificed a large part of her political capital by imposing a higher 12% VAT and the VAT on oil and electricity. These, coupled with her workaholic lifestyle and hard-driving work ethic, often mistaken as being “suplada”, led her to becoming one of the country’s more unpopular presidents during her term.
    From hindsight, we should look back and admire her body of work for what it has brought our country.

    p.s. – i am not a PGMA fan, just an observer with a clear set of spectacles.

  2. Noli Sarmiento on

    Only what i can say is PGMA is better off than Aquino in terms of economic reforms, working attitudes, strong leadership, services to the people, non-bias decisions and the like.

  3. GMA FILIPINO HERO!!! – biktima lang sya nga karumaldumal, karimarimarim, kahindikhindik tsimissesssss ng mga tsimiseses oriented people..

  4. Whether we like it or not, Filipinos owe GMA a lot! As for the crimes she is being accused of, still no evidence could be shown to warrant the guilty verdict. Whatever GMA has built, sooner or later, PNOY will detroy.

  5. mauricio palao on

    Mr Saludo has put current Philippine economic developments in perspective. I think it is quite an apolitical commentary. The progress which is showcased today, not to discredit the present administration, could not have happened overnight. From out here, (abroad), it would seem that President Arroyo’s, economic development programs should be viewed apart from the ‘sins’ she is now accused of committing; and.. that the present dispensation is doing the right thing by keeping a favorable economic climate and leaving things alone. Can the surge be maintained post 2016?

  6. It’s worth noting that no matter what politicians do, their will be “lovers” and “haters”. By that I mean that no public servant whose decision can be fully acceptable. I have no doubts about the economic reforms taken by the former PGMA which have shielded the country from the economic turbulence during her administration. Point in fact, Economic Framework Agreement with China during the time when the US was entering recession in 2008. However, we also can’t deny the fact while doing this the machinery of PGMA has been ailing since the battle-cry of her administration was not about Good Governance. Perhaps PNoy is not the best president and there never will be one (not even the great Marcos). But, the admin of Aquino is keener in rooting out the main cause of poverty which is corruption. Even though PNoy’s Government is not spared from intrigue of corruption, the Filipino people will still be rallying on his back because they have unanimously accepted that by cleaning up our government, we will be able to experience the economic reform as well as address social injustices in our country.

    It is my strong belief that it’s not a matter of economic policy nor legislation that would bring about a better existence to the marginalized Filipinos but more importantly, it’s the (non-religious) MORAL REFORM our government and our country, in general, must undertake.

    • hannah gomez ypil on

      Whether you like it or not it is still PGMA who gave aquino what he enjoys today. I was at camp crame when the former President in her SONA (2009) declared that no matter how unpopular her decisions are she will push it so that whoever replaces her at malacañang will earn the fruit of her labour, and in the long run the Filipino people will benefit also….the amount of money which the aquino government declared savings from projects which were not yet started, which were unfinished, if there really are.. (billions as they say) and uses only to bribe senators and congressmen just to impeach former Chief Justice Corona are supposed to be the same amount that should have benefited the Filipinos but after the end of fiscal year…if PGMA will be proven guilty of the crimes charged against her then let her pay, but please start the trial NOW..she’s been a political prisoner for over a year now……

  7. Josemar Romano on

    We don’t need to praise every President who has done good to the economy. They are elected by the people precisely to do a good job. It’s their responsibility, not an option.

  8. come on, lets be fair with Arroyo, actually, contrary to Aquino’s statement before that he is better than his “teacher” before, GMA is an economic intellect combine with here being a workaholic attitude, the result is strong economic foundation. Why confine her with unproven cases? She’s a hero.