• The veneer of a ‘robust economy’ is beginning to crack

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    Here are two interestingly contradictory headlines that appeared about a month apart on the Philippine Star’s website, philstar.com:—“Economic boom spreads wealth wider in the Philippines” (written by Associated Press stringer Teresa Cerojano on July 4).

    “Local execs face empty coffers” (written by Philstar reporter Michael Punongbayan and posted this past Monday, August 5).

    Media observers outside the country have for some time viewed the Philippine economy under the stewardship of President Benigno Aquino 3rd with a mixture of bemusement and concern. By the conventional measures used to provide a snapshot of any economy, the Philippines is indeed doing well. After an anemic start, gross domestic product (GDP) growth has exceeded most expectations during President Aquino’s term; the local stock market—which still primarily reflects the performance of local corporations, despite all the focus on foreign equity investments, or “hot money”—has been performing very well, and significantly, has apparently corrected itself from an overheated level in a reasonably controlled manner; and other indicators such as the debt-to-GDP ratio and the inflation rate have remained at levels that seem normal.

    These good indicators, however, exist side-by-side with other ones that would ordinarily paint a very different picture—a rate of poverty incidence that is growing faster than the income gap, and persistent unemployment. For outside observers and people living in this economy alike, something seems just a bit off, but an explanation of what the problem is or what its likely impact will be is elusive. My own largely middle-class neighborhood just outside Metro Manila is a perfect example of the apparent paradox. In the past two years, there has been visible economic growth: Two new shopping malls, one already open and one due to be completed in a month or so, have been built from the ground up, as well as one major supermarket and perhaps a dozen or so smaller mixed-use commercial centers. Against this backdrop, however, it is hard to find people who are not complaining that they are in some way worse off financially than they were in the recent past; at best, families (like mine, for instance) are finding they are needing to apply income that was once disposal to basic needs.

    The trend cannot be dismissed as an overly pessimistic public mood, either, because the subtle signs of a downturn are all around. Parents picking up their children from the local school now outnumber nannies and hired drivers, and according to the frustrated school administrator, the number of parents paying their children’s periodic tuition and fees due this past week in full has, for the first time he could recall, been exceeded by the number making requests for partial or delayed payment arrangements. In our village (which is considered relatively well-off by local standards), there is, for the first time in the several years we’ve lived there, no ongoing construction.

    People are feeling the pinch, but that reality has been plastered over by a shiny layer of positive macro indicators until now. But there are big cracks beginning to show. The Philstar article of August 5 revealed that several local government units—the article specifically mentions the provinces of Cebu and Misamis Oriental and the City of Manila—are in tough fiscal positions, implying that newly elected officials in those places inherited financial problems from previous administrations. Cebu is said to have debts approaching P800 million, while Misamis Oriental is in the red by nearly P600 million, and Manila a whopping P3.5 billion according to Mayor Joseph Estrada. In reality, the financial problems of local government units are widespread; some are very healthy, of course, but a surprising number are not, and not all of them have previous administrations of opposing political parties they can blame for it.

    The recent (and still ongoing) financial crisis involving the Albay Electric Cooperative (Aleco), which resulted in the entire province’s electricity being cut off for a couple days last week, has inadvertently provided some further evidence of tough financial realities underlying the Philippine economy’s shiny exterior. Apart from Aleco, whose debts are estimated to be around P4 billion, Olongapo City is under threat of disconnection for outstanding power bills of between P2 billion and P5 billion (the amount is under dispute); among the 119 electric cooperatives in the country, others with critically high outstanding debts include the Lanao del Sur Electric Cooperative (P847 million), the Basilan Electric Cooperative (P205 million) and the Aklan Electric Cooperative (P110 million). The debts are in most cases a double threat, because they include not only payments to the National Power Corp. for electricity purchases, but also payments for loans obtained from the National Electrification Administration (NEA).

    The scale of financial difficulties for institutions and families alike cannot be explained away by irresponsibility or bad management though in light of the recent scandals that have erupted (i.e., the alleged bribery solicitation from a prospective bidder for Metro Rail Transit equipment and the rapidly growing “pork barrel” scandal), it would appear an attempt to whitewash the problems with exactly those excuses might be underway—a suspicion that is only strengthened by the administration-controlled legislature’s pointed refusal to look into what may be, if true, a systematic plunder of the country rivaling the Marcos years.

    But even if the “pork barrel” scandal were actually several orders of magnitude bigger than what is alleged to be, it will still be a very small part—a note in an entire symphony, as it were—of the overall economic picture. And that picture, despite the Aquino administration’s best efforts at image management, is becoming increasingly discouraging.

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    1 Comment

    1. Hi Ben,

      very nice article! this is truly a work of a professional.
      i appreciate you laid down the ups & downs of the topic.

      i see a lot of articles that is too biased to one side or mostly siding in the end to a side they are comfortable to discuss(ehem..G*P..ehem). especially in the topic of our current president’s hard work.
      i am glad we still got people like you giving information in a concise way.